<SUBMISSION>
<ACCESSION-NUMBER>0000950123-06-000446
<TYPE>20-F
<PUBLIC-DOCUMENT-COUNT>28
<PERIOD>20050630
<FILING-DATE>20060118
<DATE-OF-FILING-DATE-CHANGE>20060118
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>pSivida LTD
<CIK>0001314102
<ASSIGNED-SIC>3826
<IRS-NUMBER>000000000
<STATE-OF-INCORPORATION>C3
<FISCAL-YEAR-END>0630
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>20-F
<ACT>34
<FILE-NUMBER>000-51122
<FILM-NUMBER>06535776
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>LEVEL 12 BGC CENTRE
<STREET2>28 THE ESPLANADE
<CITY>PERTH
<STATE>C3
<ZIP>6000
<PHONE>61 8 9226 5099
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>LEVEL 12 BGC CENTRE
<STREET2>28 THE ESPLANADE
<CITY>PERTH
<STATE>C3
<ZIP>6000
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>20-F
<SEQUENCE>1
<FILENAME>y16393e20vf.htm
<DESCRIPTION>FORM 20-F
<TEXT>
<HTML>
<HEAD>
<TITLE>FORM 20-F</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 1pt solid black; font-size: 1pt">&nbsp;</DIV>




<DIV align="center" style="font-size: 12pt"><B>UNITED STATES SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt"><B>WASHINGTON, D.C. 20549</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><DIV align="center"><DIV style="font-size: 3pt; margin-top: 16pt; width: 26%; border-top: 1px solid #000000">&nbsp;</DIV></DIV>

</DIV>
<DIV align="center" style="font-size: 18pt"><B>FORM 20-F</B></DIV>


<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)&nbsp;OF THE SECURITIES EXCHANGE ACT
OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt"><B>OR</B></DIV>


<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#120;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for
the fiscal year ended June&nbsp;30, 2005</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt"><B>OR</B></DIV>


<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; to</B></TD>
</TR>
</TABLE>
</DIV>

<!-- nbsp -->
<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>OR</B>
</DIV>
<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B><B>Date of event requiring this shell company report </B><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>
</B>
</DIV>



<DIV align="Center" style="font-size: 14pt; margin-top: 6pt"><B>COMMISSION FILE NUMBER 000-51122</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><DIV align="center"><DIV style="font-size: 3pt; margin-top: 16pt; width: 26%; border-top: 1px solid #000000">&nbsp;</DIV></DIV>

</DIV>

<DIV align="Center" style="font-size: 24pt; margin-top: 6pt"><B>pSivida Limited</B>

</DIV>
<DIV align="center" style="font-size: 8pt">(Exact name of Registrant as specified in its charter)</DIV>



<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>N/A</B>

</DIV>
<DIV align="center" style="font-size: 8pt">(Translation of Registrant&#146;s name into English)</DIV>



<DIV align="Center" style="font-size: 12pt; margin-top: 6pt"><B>Western Australia, Commonwealth of Australia</B>

</DIV>
<DIV align="center" style="font-size: 8pt">(Jurisdiction of incorporation or organization)</DIV>



<DIV align="Center" style="font-size: 12pt; margin-top: 6pt"><B>Level 12 BGC Centre<BR>
28 The Esplanade<BR>
Perth WA 6000<BR>
Australia</B>

</DIV>
<DIV align="center" style="font-size: 8pt">(Address of principal executive offices)</DIV>



<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><DIV align="center"><DIV style="font-size: 3pt; margin-top: 16pt; width: 26%; border-top: 1px solid #000000">&nbsp;</DIV></DIV>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">Securities registered or to be registered pursuant to Section 12(b) of the Act:

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>None</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">Securities registered or to be registered pursuant to Section 12(g) of the Act:

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>None</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Ordinary Shares<BR>
American Depositary Shares each representing<BR>
10 Ordinary Shares and evidenced by American Depositary Receipts</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The number of outstanding shares of each of the issuers&#146; classes of capital or common stock as
of December&nbsp;31, 2005 was: <B>387,009,956 Ordinary Shares</B>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule&nbsp;405 of the Securities Act.&nbsp;&nbsp;Yes&nbsp;<FONT face="Wingdings">&#111;</FONT>&nbsp;No&nbsp;<FONT face="Wingdings">&#120;</FONT></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934.&nbsp;Yes&nbsp;<FONT face="Wingdings">&#111;</FONT>&nbsp;No&nbsp;<FONT face="Wingdings">&#120;</FONT></DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the registrant (1)&nbsp;has filed all reports required to be filed
by Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12&nbsp;months (or
for such shorter period that the registrant was required to file such reports), and (2)&nbsp;has been
subject to such filing requirements for the past 90&nbsp;days. Yes <FONT style="font-family: Wingdings">&#120;</FONT><FONT style="font-family: Wingdings">&#032;</FONT>No <FONT style="font-family: Wingdings">&#168;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark which financial statement item the registrant has elected to follow.<BR>
<B>Item&nbsp;17 </B><FONT style="font-family: Wingdings"><B>&#168;</B></FONT><B> Item&nbsp;18 </B><FONT style="font-family: Wingdings"><B>&#120;</B></FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule&nbsp;12b-2 of the Exchange Act). Yes <FONT face="Wingdings">&#111;</FONT> No <FONT face="Wingdings">&#120;</FONT></DIV>


<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>





<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TABLE OF CONTENTS</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="79%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Page</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD colspan="9" align="center"><A href="#101">PART I<BR></A></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="center"><A href="#102">ITEM 1.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#102">IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="center"><A href="#103">ITEM 2.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#103">OFFER STATISTICS AND EXPECTED TIMETABLE</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="center"><A href="#104">ITEM 3.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#104">KEY INFORMATION</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="center"><A href="#105">ITEM 4.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#105">INFORMATION ON THE COMPANY</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="center"><A href="#106">ITEM 5.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#106">OPERATING AND FINANCIAL REVIEW AND PROSPECTS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="center"><A href="#107">ITEM 6.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#107">DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="center"><A href="#108">ITEM 7.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#108">MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="center"><A href="#109">ITEM 8.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#109">FINANCIAL INFORMATION</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="center"><A href="#110">ITEM 9.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#110">THE OFFER AND LISTING</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="center"><A href="#111">ITEM 10.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#111">ADDITIONAL INFORMATION</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="center"><A href="#112">ITEM 11.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#112">QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="center"><A href="#113">ITEM 12.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#113">DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="9" align="center"><A href="#114">PART II<BR></A></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="center"><A href="#115">ITEM 13.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#115">DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="center"><A href="#116">ITEM 14.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#116">MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="center"><A href="#117">ITEM 15.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#117">CONTROLS AND PROCEDURES</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="center"><A href="#118">ITEM 16A.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#118">AUDIT COMMITTEE FINANCIAL EXPERT</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="center"><A href="#119">ITEM 16B.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#119">CODE OF ETHICS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="center"><A href="#120">ITEM 16C.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#120">PRINCIPAL ACCOUNTANT FEES AND SERVICES</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="center"><A href="#121">ITEM 16D.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#121">EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">93</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="center"><A href="#122">ITEM 16E.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#122">PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">93</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="9" align="center"><A href="#123">PART III<BR></A></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="center"><A href="#124">ITEM 17.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#124">FINANCIAL STATEMENTS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="center"><A href="#125">ITEM 18.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#125">FINANCIAL STATEMENTS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="center"><A href="#126">ITEM 19.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#126">EXHIBITS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y16393exv4w6.txt">EX-4.6: FORM OF REGISTRATION RIGHTS AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y16393exv4w12.txt">EX-4.12: AMENDED AND RESTATED LICENSE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y16393exv4w13.txt">EX-4.13: COLLABORATION AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y16393exv4w19.txt">EX-4.19: COMMERCIAL SUBLEASE</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y16393exv4w20.txt">EX-4.20: AMENDED AND RESTATED CONTROL DELIVERY SYSTEMS, INC. CHANGE OF CONTROL AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y16393exv4w21.txt">EX-4.21: AMENDED AND RESTATED CONTROL DELIVERY SYSTEMS, INC. CHANGE OF CONTROL AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y16393exv4w22.txt">EX-4.22: AMENDED AND RESTATED CONTROL DELIVERY SYSTEMS, INC. CHANGE OF CONTROL AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y16393exv4w23.txt">EX-4.23: SEVERANCE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y16393exv4w24.txt">EX-4.24: SEVERANCE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y16393exv4w25.txt">EX-4.25: SEVERANCE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y16393exv4w26.txt">EX-4.26: FIRST AMENDMENT TO CONTROL DELIVERY SYSTEMS, INC. SEVERANCE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y16393exv4w27.txt">EX-4.27: FIRST AMENDMENT TO CONTROL DELIVERY SYSTEMS, INC. SEVERANCE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y16393exv4w28.txt">EX-4.28: FIRST AMENDMENT TO CONTROL DELIVERY SYSTEMS, INC. SEVERANCE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y16393exv4w29.txt">EX-4.29: CONTROL DELIVERY SYSTEMS, INC. RESTRICTED STOCK AWARD AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y16393exv4w30.txt">EX-4.30: CONTROL DELIVERY SYSTEMS, INC. RESTRICTED STOCK AWARD AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y16393exv4w31.txt">EX-4.31: CONTROL DELIVERY SYSTEMS, INC. RESTRICTED STOCK AWARD AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y16393exv4w32.txt">EX-4.32: RETENTION AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y16393exv4w33.txt">EX-4.33: RETENTION AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y16393exv4w34.txt">EX-4.34: RETENTION AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y16393exv4w35.txt">EX-4.35: NON-COMPETITION AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y16393exv4w36.txt">EX-4.36: OPTION AGREEMENTS</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y16393exv8w1.txt">EX-8.1: LIST OF SUBSIDIARIES</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y16393exv12w1.txt">EX-12.1: CERTIFICATION OF CHIEF EXECUTIVE OFFICER</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y16393exv12w2.txt">EX-12.2: CERTIFICATION OF CHIEF FINANCIAL OFFICER</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y16393exv13w1.txt">EX-13.1: CERTIFICATION OF CHIEF EXECUTIVE OFFICER</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y16393exv13w2.txt">EX-13.2: CERTIFICATION OF CHIEF FINANCIAL OFFICER</A></FONT></TD></TR>
</TABLE>
</DIV>

<DIV align="left">
<!-- /TOC -->
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>INTRODUCTION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
this annual report, except where otherwise indicated, the &#147;company,&#148; &#147;pSivida,&#148; &#147;we,&#148; &#147;us&#148; and &#147;our&#148; refer to pSivida Limited
and its consolidated subsidiaries. References to the &#147;ADSs&#148; are to our American Depositary Shares,
and references to &#147;Ordinary Shares&#148; and &#147;ordinary shares&#148; are to our ordinary shares. We also make
reference to our subsidiaries as follows: references to &#147;pSiMedica&#148; refer to pSiMedica Limited;
references to &#147;pSiOncology&#148; refer to pSiOncology Pte Limited; and references to &#147;AION Diagnostics&#148;
refer to &#147;AION Diagnostics Limited&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;30, 2005 we completed the acquisition of Control Delivery Systems, Inc., which was
renamed pSivida Inc. We make reference to Control Delivery Systems as &#147;CDS&#148; or as &#147;pSivida Inc.&#148;
generally depending on whether such reference relates to that company before or after the acquisition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We prepare consolidated financial statements in Australian dollars in accordance with
accounting principles generally accepted in Australia, and they are
sometimes referred to herein as the
&#147;financial statements.&#148; In this annual report, references to &#147;A$&#148; are to Australian dollars and
references to &#147;US$&#148; and &#147;US dollars&#148; are to United States dollars, except for in the financial
statements, where references to &#147;$&#148; are to Australian dollars and references to &#147;US$&#148; are to United
States dollars. On June&nbsp;30, 2004, the Federal Reserve Bank of
New York Noon Buying Rate&nbsp;was US$0.6952&nbsp;=&nbsp;A$1.00 and on
June&nbsp;30, 2005 such exchange rate was US$0.7618 = A$1.00.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our fiscal year ends on June&nbsp;30, and references in this annual report to any specific fiscal
year are to the twelve month period ended June&nbsp;30 of such year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;BioSilicon&#153;, BrachySil&#153; and SIMPL&#153; are our trademarks. Vitrasert<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP> and Retisert&#153; are Bausch &#038;
Lomb Incorporated&#146;s trademarks. AEON&#153;, CODRUG&#153; and Medidur&#153; are trademarks of pSivida Inc.,
formerly CDS. This annual report also contains trademarks, trade names and service marks of other
companies, which are the property of their respective owners.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>FORWARD-LOOKING STATEMENTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This annual report contains forward-looking statements that involve risks and uncertainties.
We use words such as &#147;anticipates,&#148; &#147;believes,&#148; &#147;plans,&#148; &#147;expects,&#148; &#147;future,&#148; &#147;intends&#148; and similar
expressions to identify such forward-looking statements. Although we believe that the expectations
reflected in such forward-looking statements are reasonable at this time, we can give no assurance
that such expectations will prove to be correct. Given these uncertainties, readers are cautioned
not to place undue reliance on such forward-looking statements. Our actual results could differ
materially from those anticipated in these forward-looking statements due to many important factors
some of which are contained in cautionary statements in this annual report, including, without
limitation, with the forward-looking statements included in this annual report and specifically
under Item&nbsp;3.D, <I>Risk Factors</I>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All subsequent written and oral forward-looking statements attributable to pSivida are
expressly qualified in their entirety by reference to these cautionary statements.
</DIV>

<P align="center" style="font-size: 10pt">1
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="101"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART I</B>
</DIV>

<DIV align="left">
<A name="102"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="103"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="104"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 3. KEY INFORMATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>A. SELECTED CONSOLIDATED FINANCIAL DATA</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table presents our selected historical consolidated financial data as of the
dates and for each of the periods indicated. The information set forth below is not necessarily
indicative of future results and should be read in conjunction with Item&nbsp;5, &#147;Operating and
Financial Review and Prospects&#148;, as well as our audited consolidated financial statements and the
notes thereto appearing elsewhere in this annual report.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The selected consolidated financial data as of June&nbsp;30, 2005 and 2004 and for each of the
three years in the period ended June&nbsp;30, 2005 have been derived from our audited consolidated
financial statements and the notes thereto included elsewhere in this annual report. The selected
consolidated financial data as of June&nbsp;30, 2003, 2002 and 2001, for the year ended June&nbsp;30, 2002
and for the period from December&nbsp;1, 2000 (inception date) to June&nbsp;30, 2001 have been derived from
our audited consolidated financial statements and notes thereto which are not included in this
annual report.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We prepare our consolidated 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, or U.S. GAAP. Please refer to Note
27 to the consolidated financial statements for a description of the differences between A-GAAP and
U.S. GAAP as they relate to us, and a reconciliation of net loss and total equity to U.S. GAAP for
the periods and as of the dates indicated.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Period from</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Inception of</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Development Stage</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000"><B>Years ended June 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(Dec 1, 2000) to</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>June 30, 2001 (1)</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="18"><B>(In Australian Dollars except number of shares)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>STATEMENT OF FINANCIAL PERFORMANCE
DATA:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>A-GAAP</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues from ordinary activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">828,976</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">381,679</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">110,675</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">916,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">113,145</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation and amortization
expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,029,382</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(39,360</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(37,835</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(38,502</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11,681</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Research and development expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(8,287,930</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,011,666</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,586,182</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,186,863</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(226,132</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,635</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Employee benefits expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,040,007</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,238,381</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(522,977</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(22,999</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(25,486</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign
currency (loss) / gain, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,623,484</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,461,368</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,203</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(995</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Corporate office expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,973,892</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,066,981</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(318,806</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,664,265</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(701,576</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss from ordinary activities
before income tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(15,125,719</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,518,976</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,356,328</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,997,024</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(851,730</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax expense relating to
ordinary activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss before outside equity
interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(15,125,719</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,518,976</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,356,328</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,497,024</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(851,730</TD>
    <TD nowrap>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">2
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Period from</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Inception of</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Development Stage</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000"><B>Years ended June 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(Dec 1, 2000) to</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>June 30, 2001 (1)</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="18"><B>(In Australian Dollars except number of shares)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss attributable to outside
equity interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">399,196</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,835,771</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,591,175</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,806,604</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">113,229</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14,726,523</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,683,205</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,765,153</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,190,419</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(738,501</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss per share &#151; basic and diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.07</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.03</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.03</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.02</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.01</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average number of
ordinary shares outstanding &#151;
basic and diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">207,802,540</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">126,990,066</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">101,281,292</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">89,834,844</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,053,359</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>US GAAP (as restated for the years ended June
30, 2004 and 2003 (2))</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenue from ordinary activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">161,666</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(16,561,512</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,019,974</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,268,603</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss per share &#151; basic and diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.08</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.04</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.02</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average number of
ordinary shares outstanding &#151;
basic and diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">207,802,540</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">126,990,066</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">101,281,292</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="18" style="border-bottom: 1px solid #000000"><B>As of June 30,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2001 (1)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>STATEMENT OF FINANCIAL POSITION DATA:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>A-GAAP</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,892,061</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,350,656</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,180,134</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,051,509</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,270,093</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Working capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,876,713</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,791,981</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">433,609</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,643,187</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,107,966</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82,035,313</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,367,058</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,175,342</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,273,860</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,247,729</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Contributed equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">107,883,835</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,957,982</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,602,184</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,649,616</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,107,849</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deficit accumulated prior to
development stage</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,813,181</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,813,181</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,813,181</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,813,181</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,813,181</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deficit accumulated during
development stage</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(24,103,801</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(9,377,278</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,694,073</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,928,920</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(738,501</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total parent entity interest in equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79,987,614</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,845,743</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,095,165</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,939,515</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,585,467</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total outside equity interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,583,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">204,354</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,773,306</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,376,663</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79,987,614</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,428,943</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,299,519</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,712,821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,962,180</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>U.S. GAAP
(as restated for the years ended June&nbsp;30,
2004 and 2003 (2))</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,063,276</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,295,099</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,220,492</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">87,650,337</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,794,706</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,140,316</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Contributed equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117,798,149</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,030,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,428,635</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>The legal entity that became pSivida was incorporated as the Sumich Group Ltd in April
1987. The Sumich Group operated an agriculture business which was placed into administration
or receivership on September&nbsp;30, 1998. pSivida was subsequently formed on December&nbsp;1, 2000
following upon entering into a court-approved arrangement with Sumich Group&#146;s creditors which
fully extinguished all prior liabilities as of that time. We then appointed new directors and
officers and re-listed on the Australian Stock Exchange under its new name.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>The U.S. GAAP financial information as of and for the years
ended June&nbsp;30, 2004 and 2003 has
been restated. Refer to Note 27 to our audited consolidated financial statements included
herein for a description and summary of the significant effects of the restatement.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">3
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Exchange Rates</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following
tables set forth for the periods and dates indicated certain information
concerning the rates of exchange of A$1.00 into US dollars 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, which we refer to as the noon buying rate.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Month</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->

<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">December&nbsp;2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7567</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7261</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">November&nbsp;2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7451</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7267</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">October&nbsp;2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7644</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7436</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">September&nbsp;2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7731</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7537</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">August&nbsp;2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7739</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7469</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">July&nbsp;2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7661</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7403</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt; background: #cceeff">The noon buying rate on
January&nbsp;13, 2006 was US$0.7535 = A$1.00.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Year Ended June 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>At Period End</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Average Rate</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7618</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7568</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7974</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.6880</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.6952</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7155</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7979</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.6390</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.6713</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.5884</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.6729</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.5280</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.5628</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.5682</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.5748</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.4841</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.5100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.5320</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.5996</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.4828</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>B. CAPITALIZATION AND INDEBTEDNESS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>C. REASONS FOR THE OFFER AND USE OF PROCEEDS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>D. RISK FACTORS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>The following risk factors, in addition to the other information and financial data contained
in this annual report, should be considered carefully in evaluating our company and its business.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Risks related to our company and our business</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Most of our products and planned products are based upon new and unproven technologies</I></B>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are currently developing products based upon BioSilicon&#153;, a biocompatible and biodegradable
form of the element silicon, for multiple applications across many sectors of healthcare, including
controlled slow release drug delivery, diagnostics, orthopedics and tissue engineering.
BioSilicon is a new and unproven technology. The successful development and market acceptance of
BioSilicon is subject to many risks. These risks include the potential for ineffectiveness, lack
of safety, unreliability, failure to receive necessary regulatory clearances or approvals and the
emergence of superior or equivalent products, as well as the effect of changes in future general
economic conditions. Our failure to develop products based on BioSilicon that overcome these risks
would have a material adverse effect on our business, financial condition and results of
operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have recently acquired CDS, (now renamed pSivida Inc.) which develops drug delivery
products based upon its proprietary AEON and CODRUG drug delivery systems. To date pSivida Inc.
has developed two such products, Vitrasert and Retisert, which have been approved by the FDA for
treatment of two sight-threatening eye diseases. However, these technologies may prove useful in other products which would
be subject to many of the same risks as described above for BioSilicon.
</DIV>

<P align="center" style="font-size: 10pt">4
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We have a history of losses; we expect to continue to incur losses; and we may never become
profitable.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;pSivida was formed in 2000. As primarily a research and development company, we
have incurred operating losses in every year of existence. Under A-GAAP we have incurred a net loss of A$14.7&nbsp;million, A$3.7&nbsp;million and
A$2.8&nbsp;million for the years ended June&nbsp;30, 2005, 2004 and 2003, respectively. As of June&nbsp;30, 2005,
we had an accumulated deficit under A-GAAP of A$27.9&nbsp;million. We have not achieved profitability
and expect to continue to incur net losses through at least 2007, and we may incur losses beyond
that time, particularly if we are not successful in having BrachySil approved and widely marketed
by that time. Even if BrachySil is approved and is being marketed at some point in 2007 or beyond,
we may not achieve sufficient sales of BrachySil or any other product to become profitable at that
time or at any other time. The extent of future losses and whether or how long it may take for us
to achieve profitability are uncertain.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
recently acquired CDS which has incurred net losses in each of its
last five fiscal years. As a result of the acquisition, we expect to
receive royalties from sales of Vitrasert, CDS&#146; first commercial
product. However, such sales have declined in each of the past four
years, and we do not expect that they will comprise a significant
portion of our future revenue. We also expect to earn royalties from
future sales of Retisert, but we are unable to predict the amount of
such future royalties. CDS earned royalties from Retisert sales by
Bausch&nbsp;&#38; Lomb in the six months ended December&nbsp;31, 2005
in an amount expected to be less than $750,000.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We rely heavily upon patents, trade secrets and other proprietary technologies and any future
claims that our rights to such intellectual property are invalid or
limited could seriously harm our business.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Protection of intellectual property rights is crucial to our business, since that is how we
keep others from copying the innovations which are central to our existing and future products.
Our success is dependent on whether we can obtain patents, defend our existing patents and operate
without infringing on the proprietary rights of third parties. We currently have 36 patents and
over 90 pending patent applications, including patents and pending applications covering BioSilicon
and various uses thereof. This does not include the patents and patent applications we acquired in
the acquisition of CDS. We expect to aggressively patent and
protect our proprietary technologies. However, we cannot be sure that any additional patents will
be issued to us as a result of our pending or future patent applications or that any of our patents
will withstand challenges by others. If we were determined to be infringing any third party
patent, we could be required to pay damages, alter our products or processes, obtain licenses or
cease certain operations. We may not be able to obtain any required licenses on commercially
favorable terms, if at all. Our failure to obtain a license for any technology that we may require
to commercialize BioSilicon or our ophthalmic drug delivery products could have a material adverse
effect on our business, financial condition and results of operations. In addition, many of the
laws of foreign countries in which we intend to operate may treat the protection of proprietary
rights differently from, and may not protect our proprietary rights to the same extent as, laws in
Australia, the United States and Patent Co-operation Treaty countries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior art may reduce the scope or protection of, or invalidate, patents. Previously conducted
research or published discoveries may prevent patents from being granted, invalidate issued patents
or narrow the scope of any protection obtained. Reduction in scope of protection or invalidation of
our licensed or owned patents, or our inability to obtain patents, may enable other companies to
develop products that compete with our products and product candidates on the basis of the same or
similar technology. As a result, our patents and those of our licensors may not provide any or
sufficient protection against competitors.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While we have not been and we are not currently involved in any litigation over intellectual
property, such litigation may be necessary to enforce any patents issued or licensed to us or to
determine the scope and validity of third party proprietary rights. We may also be sued by a third
party alleging that we infringe its intellectual property rights. Any intellectual property
litigation would be likely to result in substantial costs to us and diversion of our efforts. If
our competitors claim technology also claimed by us and if they prepare and file patent
applications in the U.S., we may have to participate in interference proceedings declared by the
U.S. Patent and Trademark office to determine priority of invention, which could result in
substantial cost to us and diversion of our efforts. Any such litigation or interference
proceedings, regardless of the outcome, could be expensive and time consuming. Litigation could
subject us to significant liabilities to third parties, requiring disputed rights to be licensed
from third parties or require us to cease using certain technologies and, consequently, could have
a material adverse effect on our business, financial condition and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We also rely on trade secrets, know-how and technology that are not protected by patents to
maintain our competitive position. We try to protect this information by entering into
confidentiality agreements with parties that have access to it, such as our corporate partners,
collaborators, employees, and consultants. Any of these parties could breach these agreements and
disclose our confidential information, or our competitors might learn of the information in some
other way. If any material trade secret, know-how or other technology not protected by a patent
were to be disclosed to or independently developed by a competitor, our competitive position could
be materially harmed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We rely, in part, on confidentiality agreements with employees, advisors, vendors and
consultants to protect our proprietary expertise. These agreements may be breached and we may not
have adequate remedies in the event of a breach. In addition, our un-patented proprietary
technological expertise may otherwise become known or independently discovered by competitors.
</DIV>

<P align="center" style="font-size: 10pt">5
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our ability to commercialize our products depends on our ability to achieve regulatory
approvals.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our current and future activities are and will be subject to regulation by governmental
authorities in the U.S., Europe, Singapore and other countries. Before
we can manufacture, market and sell any of our products, we must
first obtain approval from the FDA and/or foreign regulatory
authorities. In order to obtain these approvals, pre-clinical studies and clinical trials must demonstrate that each
of our products is safe for human use and effective for its targeted disease. Our proposed
products are in various stages of pre-clinical and clinical testing. If clinical trials for any of
these products are not successful, that product cannot be manufactured and sold and will not
generate revenue from sales. Clinical trials for our product candidates may fail or be delayed by
many factors, including the following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>inability to attract clinical investigators for trials;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>inability to recruit patients in sufficient numbers or at the expected rate;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>adverse side effects;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>failure of the trials to demonstrate a product&#146;s safety or efficacy;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>failure to meet FDA requirements for clinical trial design or for demonstrating
efficacy for a particular product;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>inability to follow patients adequately after treatment;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>changes in the design or manufacture of a product;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>inability to manufacture sufficient quantities of materials for use in clinical trials; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>governmental or regulatory delays.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Results from pre-clinical testing and early clinical trials often do not accurately predict
results of later clinical trials. Data obtained from pre-clinical and clinical activities are
susceptible to varying interpretations which may delay, limit or prevent regulatory approval. Data
from pre-clinical studies, early clinical trials and interim periods in multi-year trials are
preliminary and may change, and final data from pivotal trials for such products may differ
significantly. Adverse side effects may develop that delay, limit or prevent the regulatory
approval of products, or cause their regulatory approvals to be limited or even rescinded.
Additional trials necessary for approval may not be undertaken or may ultimately fail to establish
the safety and efficacy of proposed products. The FDA may not approve proposed products for
manufacture and sale.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to testing, the FDA imposes various requirements on manufacturers and sellers of
products under its jurisdiction, such as labeling, manufacturing practices, record keeping and
reporting requirements. The FDA also may require post-marketing testing and surveillance programs
to monitor a product&#146;s effects. Furthermore, changes in existing regulations or the adoption of
new regulations could prevent us from obtaining, or affect the timing of, future regulatory
approvals.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
present Vitrasert and Retisert are our only
products that have been approved for sale in the U.S. for specific
purposes. BrachySil and other product candidates
utilizing BioSilicon have not been approved and their approval in the
future remains uncertain. In addition, the FDA may determine to regulate it as a drug, in which case we would incur
significant additional cost and time in order to achieve the required regulatory approvals. Any
product approvals we achieve could also be withdrawn for failure to comply with regulatory
standards or due to unforeseen problems after the product&#146;s marketing approval.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We have a limited ability to market our products ourselves, and if we are unable to find
marketing partners, or our marketing partners do not successfully market our products then our
business will suffer.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
presently have no marketing or sales staff. Achieving market acceptance for the use of BioSilicon
and other products (including drug delivery products originated by CDS) will require extensive and
substantial efforts by experienced personnel as well as expenditure of significant funds. We may
not be able to establish sufficient capabilities necessary to achieve market penetration.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We intend to license and/or sell BioSilicon and our other products to companies who will be
responsible in large part for sales, marketing and distribution of products utilizing BioSilicon
and our other products. The amount and timing of resources which may be devoted to the performance
of their contractual responsibilities by these licensees are not expected to be within our control.
These partners may not perform their obligations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Moreover, our licensees may have rights of termination under our agreements with them.
Exercise of termination rights by those parties may leave us temporarily or permanently without any
marketing or sales resources which may have an adverse effect on our business, financial condition
and results of operations. Additionally, our interests may not continue to coincide with those of
our partners, and our partners may develop independently or with third parties products or
technologies which could compete with our products. Further, disagreements over rights or
technologies or other proprietary interests may occur.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;pSivida
Inc., formerly CDS, has exclusively licensed its technology with
respect to Vitrasert, Retisert and certain other ophthalmic uses to
Bausch &#038; Lomb, and with respect
to Medidur for diabetic macular edema or DME&nbsp;and certain other ophthalmic uses to Alimera Sciences.
Bausch &#038; Lomb is responsible for funding and managing the development and commercialization of all
products under its agreement with pSivida Inc. and can terminate the agreement at any time upon 90
days&#146; written notice. Alimera Sciences and pSivida Inc. are jointly funding the development of
products licensed under that agreement, and Alimera Sciences may terminate its agreement with
pSivida Inc. if pSivida Inc. fails to make a development payment or may terminate the agreement
with respect to a particular product if pSivida Inc. notifies Alimera
that it has abandoned the product or upon 30&nbsp;days&#146;
notice following pSivida Inc.&#146; failure to make development payments exceeding $2&nbsp;million for that
product. Either Bausch &#038; Lomb or Alimera Sciences may decide not to continue with or commercialize
any or all of the licensed products, change strategic focus, pursue alternative technologies,
develop competing products or terminate their agreements with pSivida Inc. While Bausch &#038; Lomb has
significant experience in the ophthalmic field and substantial resources, there is no assurance as
to whether and the extent to which that experience and those resources will be devoted to pSivida
Inc.&#146;s technologies. Alimera Sciences was only incorporated in June&nbsp;2003 and has limited
resources. Because we do not currently have sufficient funding or internal capabilities to develop
and commercialize these products and proposed products, decisions, actions, breach or termination
of these agreements by Bausch &#038; Lomb or Alimera Sciences could delay or stop the development or
commercialization of Retisert, Medidur for DME or other of our products licensed to such entities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
business strategy includes entering into collaborative agreements for
the development and commercialization of our product candidates. The
curtailment or termination of any of these agreements could adversely
affect our business and our ability to develop and commercialize our
products and proposed products and find our operations.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
success of these and future collaboration agreements will depend
heavily on the experience, resources efforts and activities of our
collaborators. Our collaborators have and are expected to have
significant discretion in making these decisions. Risks that we face
in connection with its collaboration strategy include:</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>collaboration agreements are, and are intended to be, subject
to termination under various circumstances, including, in some cases,
on short notice and without cause;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>we are required, and expect to be required, under our
collaboration agreements not to conduct specified types of research
and development in the field that is the subject of the
collaboration. These agreements may have the effect of limiting the
areas of research and development that we can pursue;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our collaborators may develop and commercialize, either alone
or with others, products that are similar to or competitive with our
products;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our collaborators may change the focus of their development
and commercialization efforts. Pharmaceutical and biotechnology
companies have historically re-evaluated and changed their priorities
for many reasons. The ability of our products to reach their
potential could be limited if our collaborators decrease or fail to
increase spending related to such products; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our collaborators may lack the funding or experience to
develop and commercialize our products successfully or may otherwise
fail to do so.</TD>
</TR>

</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To the extent that we choose not to or we are unable to enter into future license agreements
with marketing and sales partners, we may experience increased capital requirements to develop the
ability to market and sell future products. We may not be able to market or sell our technology or
future products independently in the absence of such agreements.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our markets are competitive and our competitors could develop more effective products, making
our products less competitive, uneconomical or obsolete, thereby impacting our future operations.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are or plan to be engaged in the rapidly evolving and competitive fields of drug delivery,
tissue engineering, diagnostics and orthopedics technologies. Our competitors include many major
pharmaceutical companies and other biotechnology, drug delivery, diagnostics and medical products
companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Many of our potential competitors have substantially greater financial, technological,
research and development, marketing and personnel resources. Our competitors may succeed in
developing alternate technologies and products that are more effective, easier to use, more
economical than those which we have developed or that would render our technologies and products
obsolete and non-competitive in these fields. These
</DIV>

<P align="center" style="font-size: 10pt">6
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">competitors may also have greater experience in developing products, conducting clinical
trials, obtaining regulatory approvals or clearances and manufacturing and marketing such products
or technologies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that pharmaceutical, drug delivery and biotechnology companies, research
organizations, governmental entities, universities, hospitals, other nonprofit organizations and
individual scientists are seeking to develop the drugs, therapies, products, approaches or methods
to treat our targeted diseases or their underlying causes. For many of our targeted diseases,
competitors have alternate therapies that are already commercialized or are in various stages of
development ranging from discovery to advanced clinical trials. Any of these drugs, therapies,
products, approaches or methods may receive government approval or gain market acceptance more
rapidly than our products and proposed products, may offer therapeutic or cost advantages or may
cure our targeted diseases or their underlying causes completely, which could reduce demand for our
products and proposed products and could render them noncompetitive or obsolete. For example, sales
of pSivida Inc.&#146;s Vitrasert product for the treatment of CMV retinitis, a disease which affects
people with late-stage AIDS, have declined significantly, because of new treatments that delay the
onset of late-stage AIDS.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our competitive position is based upon our ability to:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>create and maintain scientifically-advanced technology and proprietary products and processes;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>attract and retain qualified personnel;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>develop safe and efficacious products, alone or in collaboration with others;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>obtain patent or other protection for our products and processes;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>obtain required government approvals on a timely basis;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>manufacture products on a cost-effective basis; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>successfully market products.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">If we are not successful in meeting these goals, our business could be adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We face risks in expanding our efforts beyond our core area of experience and expertise.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
plan to expand our focus outside of our initial areas of experience and expertise to seek to
broaden our product pipeline and will require additional internal expertise or external
collaborations in areas in which we currently do not have internal resources and expertise. Such
expertise and collaborations may be difficult to obtain. We are currently focused on targeted controlled drug delivery with a specialty, through pSivida Inc.,
on ophthalmic drug delivery and, through pSiMedica and pSiOncology, on brachytherapy and other
controlled delivery mechanisms utilizing BioSilicon. We have begun to expand our focus into
diagnostics (through AION Diagnostics) and the food industry (through pSiNutria) and plan to expand
into other areas at a later time. In connection with the foregoing, we may have to enter into collaboration
arrangements with others that may require us to relinquish rights to certain of our technologies or
products that we would otherwise pursue independently. We may be unable to acquire the necessary
expertise or enter into collaboration agreements on acceptable terms.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Problems associated with international business operations could affect our ability to
manufacture and sell our products.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
currently maintain offices in Australia, the UK, Singapore and (following our acquisition of CDS) the
U.S.; BioSilicon is produced for us in Germany and the UK; we are
conducting product trials in Singapore; we have research and
development facilities in the U.K. and the U.S; and we intend to license
and/or sell products in most major world healthcare markets. A number of risks
are inherent in our international strategy. In order for us to
license and manufacture our products, we must obtain country-specific regulatory approvals or clearances or comply
with regulations regarding safety and quality in a variety of jurisdictions. We may not be able to
obtain or maintain regulatory approvals or clearances in such countries and we may be required to
incur significant costs in obtaining or maintaining foreign regulatory approvals or clearances. In
addition, our operations and revenues are subject to a number of risks associated with foreign
commerce, including the following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>managing foreign distributors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>staffing and managing foreign operations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>political and economic instability;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>foreign currency exchange fluctuations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>foreign tax laws, tariffs and freight rates and charges;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>timing and availability of export licenses;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>inadequate protection of intellectual property rights in some countries; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>obtaining required governmental approvals.</TD>
</TR>

</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">7
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>There are risks relating to product manufacturing which could cause delays in product
development and commercialization and impact our future profitability.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our ability to conduct timely preclinical and clinical research and development programs,
obtain regulatory approvals, commercialize our product candidates and fulfill our contract
manufacturing obligations to others will depend, in part, upon our ability to manufacture our
products, either directly or through third parties, in accordance with U.S. Food and Drug
Administration, or FDA, and other regulatory requirements. We currently have BioSilicon production
capability at our facilities in the UK, which may be augmented where required by QinetiQ&#146;s UK
production facilities for use in internal and collaborative research.
BrachySil is currently manufactured under contract in accordance with applicable FDA regulations by Hosokawa
Micron Group, Atomising Systems Ltd, HighForce Ltd and AEA Technology QSA GmbH.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If we are unable to manufacture BioSilicon or BrachySil or other product candidates by
ourselves or acquire BioSilicon from QinetiQ or acquire BioSilicon or BrachySil or other product
candidates from third parties, we would be unable to proceed with or could experience delays in
development and commercialization of our proposed products. We may not be able to manufacture our
proposed products successfully or in a cost-effective manner at our own or third party facilities.
If we are unable to develop our own manufacturing facilities or to obtain or retain third-party
manufacturing on acceptable terms, we may not be able to conduct certain future preclinical and
clinical testing or to supply commercial quantities of our products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
recently acquired subsidiary pSivida Inc. also has limited manufacturing
experience and has exclusively licensed Bausch &#038; Lomb the rights to manufacture Vitrasert, Retisert
and other products covered by its license agreement with pSivida Inc., and Alimera Sciences, the
rights to manufacture Medidur for DME, if approved for marketing, and other products covered by its
license agreement with pSivida Inc. Our current reliance on
third party manufacturers for some of our products entails risks, including:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the possibility that third parties may not comply with the FDA&#146;s current good
manufacturing practices, regulations, other regulatory requirements, and those of
similar foreign regulatory bodies, and employ adequate quality assurance practices;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>supply disruption, deterioration in product quality or breach of a manufacturing or
license agreement by the third party because of factors beyond CDS&#146; control;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the possible termination or non-renewal of a manufacturing or licensing agreement
with a third party at a time that is costly or inconvenient to CDS; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>inability to identify or qualify an alternative manufacturer in a timely manner,
even if contractually permitted to do so.</TD>
</TR>

</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">8
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Fast track status for Medidur may not actually lead to faster development, regulatory review or
approval.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The FDA has granted fast track designation to Medidur for the treatment of DME. Although this
designation makes this product eligible for expedited approval procedures, it does not ensure
faster development, review or approval compared to the conventional FDA procedures. Further, the
FDA may withdraw the fast track designation if it determines that the designation is no longer
supported by emerging data from clinical trials or if it determines that the criteria for the
designation is no longer satisfied.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our proposed products will be subject to the uncertainty of third-party reimbursement and
health care reform measures which may limit market acceptance.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In both domestic and foreign markets, our ability to commercialize our products will depend,
in part, upon the availability of reimbursement from third-party payors, such as government health
administration authorities, private health insurers and other organizations. Third-party payors are
increasingly challenging the price and cost-effectiveness of medical products. If our products are
not considered cost-effective, third-party payors may limit
</DIV>

<P align="center" style="font-size: 10pt">9
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">reimbursement. Government and other third-party payors are increasingly attempting to contain
healthcare costs by limiting both coverage and the level of reimbursement for new therapeutic
products approved for marketing by the FDA and by refusing, in some cases, to provide any coverage
for uses of approved products for disease indications for which the FDA has not granted marketing
approval. If government and third-party payors do not provide adequate coverage and reimbursement
levels for uses of our products, the market acceptance of our products would be limited.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There have been a number of U.S. federal and state proposals during the last few years to
subject the pricing of pharmaceuticals to government control and to make other changes to the
health care system of the U.S. It is uncertain what legislative proposals will be adopted or what
actions federal, state or private payors for health care goods and services may take in response to
any health care reform proposals or legislation. We cannot predict the effect health care reforms
may have on our business.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The loss of some or all of our key personnel could harm our business.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are dependent upon the principal members of our management and scientific staff. In
addition, we believe that our future success in developing BioSilicon
and other products and achieving a competitive
position will depend to a large extent on whether we can attract and retain additional qualified
management and scientific personnel. There is strong competition for such personnel within the
industry in which we operate and we may not be able to continue to
attract such personnel either to
Malvern in the United Kingdom or to Massachusetts, where our research and
development is conducted. As we do not have
large numbers of employees and our products are unique and highly specialized, the loss of
the services of one or more of the senior management or scientific staff, or the inability to
attract and retain additional personnel and develop expertise as needed, could have a material
adverse effect on our results of operations and financial condition.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We may be subject to product liability suits, and we may not have sufficient insurance to
cover damages.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The testing, manufacturing, and future marketing and sale of the products utilizing BioSilicon
and our other products involves risks that product liability claims may be asserted against us or
our licensees. Our current clinical trial insurance may not be adequate or continue to be
available, and we may be unable to obtain adequate product liability insurance on reasonable
commercial terms, if at all. In the event clinical trial insurance is not adequate, our ability to
continue with planned research and development in the relevant area could be negatively impacted.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We will need additional capital to conduct our operations and develop our products, and our
ability to obtain the necessary funding is uncertain.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We expect to require substantial additional capital resources in order to conduct our
operations and develop our products. The timing and degree of any future capital requirements will
depend on many factors, including:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the accuracy of the assumptions underlying our estimates for our capital needs in
the near and long term;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>continued scientific progress in our research and development programs;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the magnitude and scope of our research and development programs;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our ability to maintain and establish strategic arrangements for research,
development, clinical testing, manufacturing and marketing;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our progress with preclinical and clinical trials;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the time and costs involved in obtaining regulatory approvals; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the costs involved in preparing, filing, prosecuting, maintaining, defending and
enforcing patent claims.</TD>
</TR>

</TABLE>
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If and when it is required, we will attempt to acquire additional funding through strategic
collaborations, public or private equity financings, capital lease transactions or other financing
sources that may be available. Additional financing may not be available on acceptable terms, or at
all. Additional equity financings could result in significant dilution to stockholders. Further, in
the event that additional funds are obtained through arrangements with collaborative partners,
these arrangements may require us to relinquish rights to some of our technologies, product
candidates or products that we would otherwise seek to develop and commercialize ourselves. If
sufficient capital is not available, we may be required to delay, reduce the scope of or eliminate
one or more of our research or development programs, each of which could have a material adverse
effect on our business. See &#147;&#151;&nbsp;Risks related to our recent acquisition of CDS and other recent transactions &#151; If the price
of our ADSs does nor rise above the conversion price by the time payment on the convertible note
becomes due, we may have to repay all or part of the funds received in the convertible note
financing.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We have experienced rapid growth and changes in our business, and our failure to manage this
and any future growth and changes could harm our business.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As evidenced by our purchase of the remaining shares of pSiMedica on August&nbsp;4, 2004, the
incorporation and planned spin-off of AION Diagnostics, the incorporation of pSiNutria Limited and
our acquisition of CDS on December&nbsp;30, 2005, our business is
rapidly changing. See &#147;&#151;&nbsp;Risks
related to our recent acquisition of CDS and other recent transactions.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We expect to continue increasing the number of our employees, and we may suffer if we do not
manage and train our new employees effectively. Further, our efforts span various geographies.
Continued rapid growth and operation in multiple locations may place significant strains on our
managerial, financial and other resources. The rate of any future expansion, in combination with
our complex technologies and products, may demand a level of managerial effectiveness in anticipating,
planning, coordinating and meeting our operational needs which we may
not be able to successfully provide.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, if we make additional acquisitions or divestitures, we could encounter
difficulties that harm our business. We may acquire companies, products or technologies that we
believe to be complementary to our business. If we do so, we may have difficulty integrating the
acquired personnel, operations, products or technologies. In addition, acquisitions may distract
our management and employees and increase our expenses, which could harm our business. We may also
sell businesses or assets as part of our strategy or if we receive offers from third parties. If we
do so, we may sell an asset or business for less than its full value or may lose valuable
opportunities attendant to such asset or business.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>If we fail to comply with environmental laws and regulations, our ability to manufacture and
commercialize products may be adversely affected.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Medical and biopharmaceutical research and development involves the controlled use of
hazardous materials, such as radioactive compounds and chemical solvents. We are subject to
federal, state and local laws and regulations in the U.S. and abroad governing the use,
manufacture, storage, handling and disposal of such materials and waste products. We could be
subject to both criminal liability and civil damages in the event of an improper or unauthorized
release of, or exposure of individuals to, hazardous materials. In addition, claimants may sue us
for injury or contamination that results from our use or the use by third parties of these
materials, and our liability may exceed our total assets. Compliance with environmental laws and
regulations is expensive, and current or future environmental regulations may impair our research,
development or production efforts or harm our operating results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Risks
related to our being headquartered and incorporated outside of the United States</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>You may have difficulty in effecting service of legal process and enforcement of judgments
against us or our management.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a public company limited by shares, registered and operating under the Australian
Corporations Act 2001. Several of our directors and most of our officers reside outside the
U.S. Substantially all or a substantial portion of the assets of those persons are located outside
the U.S. As a result, it may not be possible to effect service on such persons in the U.S. or to
enforce, in foreign courts, judgments against such persons obtained in U.S. courts and predicated
on the civil liability provisions of the federal securities laws of the U.S. Furthermore,
a large percentage of our directly owned assets are located outside the U.S., and, as such, any judgment
obtained in the U.S. against pSivida may not be collectible within the U.S. There is doubt as to
the enforceability in the Commonwealth of Australia, in original actions or in actions for
enforcement of judgments of U.S. courts, of civil liabilities predicated solely upon
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">federal or state securities laws of the U.S., especially in the case of enforcement of
judgments of U.S. courts where the defendant has not been properly served in Australia.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>As a foreign private issuer we do not have to provide you with the same information as an
issuer of securities based in the U.S.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because we are a foreign private issuer within the meaning of the rules under the Exchange
Act, we are exempt from certain provisions of that law that are applicable to U.S. public
companies, including (i)&nbsp;the rules under the Exchange Act requiring the filing with the SEC of
quarterly reports on Form 10-Q or current reports on Form 8-K; (ii)&nbsp;the sections of the Exchange
Act regulating the solicitation of proxies, consents or authorizations in respect of a registered
security; and (iii)&nbsp;the sections of the Exchange Act requiring insiders to file public reports of
their stock ownership and trading activities and liability for insiders who profit from trades made
in a short period of time. Thus, you are not afforded the same protections or information which
would be made available to you were you investing in a U.S. public corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In accordance with the requirements of the Australian Stock Exchange, we disclose annual and
semi-annual results. Our results are presented in accordance with
A-GAAP. Our annual results, including a reconciliation to
U.S.&nbsp;GAAP, are audited, and our semi-annual results undergo a limited review by our
independent auditors. Subject to certain exceptions, we are also required to immediately disclose
to the Australian Stock Exchange any information concerning us that a reasonable person would
expect to have a material effect on the price or value of our shares. This would include matters
such as (i)&nbsp;any major new developments relating to our business which are not public knowledge and
may lead to a substantial movement in our share price; (ii)&nbsp;any changes in our board of directors;
(iii)&nbsp;any purchase or redemption by pSivida of its own equity securities; (iv)&nbsp;interests of
directors in our shares or debentures; and (v)&nbsp;changes in our capital structure. We are required to
provide our semi-annual results and other material information that we disclose in Australia in the
U.S. under the cover of Form&nbsp;6-K. Nevertheless, this information
is not the same and may not be as
much information as would be made available to you were you investing in a U.S. public corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Risks related to our stock and our ADSs</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>If we are a passive foreign investment company, holders of our shares and ADSs may suffer
adverse tax consequences.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;U.S. holders of our ADSs can experience unfavorable tax consequences if we are treated as a
passive foreign investment company, or PFIC, under the U.S. Internal Revenue Code of 1986, as
amended, for any year during which the U.S. holder owns our ADSs. For example, if a U.S. holder
disposes of an ADS at a gain, and during any year of its holding period we were a PFIC, then such
gain would be taxable as ordinary income and not as capital gain and would be subject to additional
taxation based on the length of time the U.S. holder held such stock. Most of the tax
consequences of our being a PFIC can be mitigated if the U.S. holder makes certain elections as
described in this annual report in Item&nbsp;10.E under &#147;U.S. Federal Income Tax Considerations.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In general, we will be a PFIC for any taxable year if either (1)&nbsp;75% or more of our gross
income in the taxable year is passive income, or (2)&nbsp;50% or more of the average value of our assets
in the taxable year produces, or is held for the production of, passive income. We do not yet know
whether we will be classified as a PFIC in the year ending June&nbsp;30, 2006 or thereafter. Most of
the tax consequences of pSivida being a PFIC can be mitigated if the U.S. holder makes certain
mitigating elections as described in Item&nbsp;10.E of this annual report. In the event we are
classified as a PFIC, we intend to provide U.S. holders with sufficient information to enable them
to make a mitigating election if so desired. However, we may fail to provide such information, and
if we do, you may not be aware of our status as a PFIC and may be subject to additional taxes and
penalties.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Holders of ADSs may have limited rights relative to holders of our Ordinary Shares in certain
circumstances.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The rights of holders of ADSs with respect to voting of ordinary shares and the right to
receive certain distributions may be limited in certain respects by the deposit agreement entered
into by us and Citibank, N.A. For example, although ADS holders are entitled under the deposit
agreement, subject to any applicable provisions of Australian law and of our constitution, to
instruct the depositary as to the exercise of the voting rights pertaining to
</DIV>

<P align="center" style="font-size: 10pt">12
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">the ordinary shares represented by the American Depositary Shares, and the depositary has
agreed that it will try, as far as practical, to vote the ordinary shares so represented in
accordance with such instructions, ADS holders may not receive notices sent by depositary in time
to ensure that the depositary will be able to vote the ordinary shares. This means that holders of ADSs may
not be able to exercise their right to vote. In addition, under the deposit agreement, the
depositary has the right to restrict distributions to holders of the ADSs in the event that it is
unlawful or impractical to make such distributions. We have no obligation to take any action to
permit distributions to holders of our American Depositary Receipts, or ADRs. As a result, holders
of ADRs may not receive distributions made by us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Our stock price is volatile and can fluctuate significantly based on events both within and outside
our control; our trading volume may affect the liquidity of our ADSs.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since December&nbsp;2000, the price of our ordinary shares has ranged from A$0.09 to A$1.44 per
share, and since January&nbsp;27, 2005, the price of our ADSs has ranged from US$4.15 to US$12.14. The
price of our common shares and ADSs may be affected by developments directly affecting our business
and by developments out of our control or unrelated to pSivida. The biotechnology sector in
particular and the stock market generally are vulnerable to abrupt changes in investor sentiment.
Prices of securities and trading volume of companies in the biotechnology industry, including ours,
can swing dramatically in ways unrelated or that bear a disproportionate relationship to operating
performance. Our share and ADS prices and their trading volume may fluctuate based a number of
factors including, but not limited to:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>clinical trial results and other product and technological developments and
innovations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>FDA and other governmental regulatory actions, receipt and timing of approvals
of our proposed products, and any denials and withdrawals of approvals;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>competitive factors including new product ideas and technologies, clinical trial
results and approvals of competitive products in our markets;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>advancements with respect to treatment of the diseases targeted by our proposed
products;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>developments relating to collaborative partners including execution and
termination of agreements, achievement of milestones and receipt of payments;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>availability and cost of capital and our financial and operating results;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>changes in reimbursement policies or other practices related to our proposed
products or the pharmaceutical industry generally;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>meeting, exceeding or failing to meet analysts&#146; or investors&#146; expectations, and
changes in evaluations and recommendations by securities analysts;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>economic, industry and market conditions, changes or trends; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>other factors unrelated to us and the biotechnology industry.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, low trading volume may increase the volatility of the price of our ADSs. Trading
volume in our ordinary shares on other markets has not been historically high, and trading volume
of our ADSs on the NASDAQ National Market has also been low. Further, because each of our ADSs
represents ten of our ordinary shares, trading volume in our ADSs may be lower than that for our
ordinary shares. A thin trading market could cause the price of our ADSs to fluctuate
significantly more than the stock market as a whole. For example, trades involving a relatively
small number of our ADSs may have a greater impact on the trading price for our ADSs than would be
the case if their trading volume were higher. Accordingly, holders of
our ADSs may not be able to liquidate a position in our ADSs in the
desired time or at the desired price.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The fact that we do not expect to pay cash dividends may lead to decreased prices for our
stock.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have never paid a cash dividend on our Ordinary Shares and we do not anticipate paying any
cash dividend. We intend to retain future cash earnings,
if any, for reinvestment in the development and expansion of our business. Our convertible note
agreement limits our ability to pay dividends.
</DIV>

<P align="center" style="font-size: 10pt">13
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Future issuances and sales of our stock could dilute your ownership and cause our stock price
to decline.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, we have outstanding options to purchase 31,169,162 of our ordinary
shares, representing 8.1% of the total outstanding ordinary shares. In 2005, we raised capital
through the issuance of 665,000 ADSs and warrants to acquire 133,000 ADSs and issued a convertible
note currently convertible into 2,112,676 ADSs together with warrants to acquire an additional
633,803 ADSs. In addition, under certain circumstances, the convertible note will become
convertible into a larger number of ADSs and the accrued interest on the principal amount of the
note may be converted, in either case, potentially resulting in the issuance of a substantially
larger number of ADSs. We issued a further 15,983,661 ADSs to common and preferred stockholders of
Control Delivery Systems, Inc. in our acquisition of that company. Exercise and conversion of
these options, warrants and convertible securities would dilute existing shareholders. Further, we
intend to continue to finance our operations through the issuance of equity securities, if
feasible.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Certain of our shareholders own a significant percentage of our ordinary shares and therefore
may be able to influence our business in ways that are less beneficial to you.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
executive officers, directors (including the officers and directors
of our subsidiaries) and their affiliates beneficially own or control
approximately 15.20% of our outstanding ordinary shares (based on the number of our ordinary
shares outstanding on December&nbsp;31, 2005 and assuming the issuance of shares upon the exercise of
options vested or vesting within 60&nbsp;days of December&nbsp;31, 2005). As a result, if our executive
officers and directors and their affiliates were all to vote in the same way, they would have the ability to exert
significant influence over our board of directors and how we operate our business. The
concentration of ownership may also have the effect of delaying, deferring or preventing a change
in control of our company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>If we fail to comply with internal controls evaluations and attestation requirements our stock
price could be adversely affected.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to United States securities laws, including the Sarbanes-Oxley Act of 2002 and
the rules and regulations adopted by the U.S. Securities and Exchange Commission pursuant to such
Act. Under Section&nbsp;404 of the Sarbanes-Oxley Act and the related regulations, we are required to
perform an evaluation of our internal controls over financial reporting and have our independent
auditor publicly attest to this evaluation beginning in the year ending June&nbsp;30, 2007. We will
shortly commence the evaluation and expect to complete it in the first quarter of 2007. We expect
internal control evaluations and attestation requirements to be time-consuming and expensive. If
we fail to complete the evaluation of our internal controls over financial reporting in time, if we
identify material weaknesses in these internal controls or if our independent accountant does not
timely attest to our evaluation, we could be subject to regulatory scrutiny and decreased public
confidence in our internal controls, which may adversely affect the market price of our stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Risks
related to our recent acquisition of CDS and other recent
transactions</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>The
following risk factors relate to our December&nbsp;30, 2005
acquisition of CDS, as well as two recently completed transactions: (1)&nbsp;our
US$4.3&nbsp;million private placement structured as a private investment in public equity, referred to
herein as the PIPE, and (2)&nbsp;our US$15&nbsp;million convertible note financing, referred to herein as the
convertible note financing. For a description of the CDS acquisition, the PIPE and the convertible
note financing, see Item&nbsp;8B, &#147;Significant Changes.&#148;</I>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We may fail to integrate our operations successfully with the operations of CDS. As a result,
pSivida and CDS may not achieve the anticipated benefits of the merger, which could adversely
affect the price of ADSs</I></B><I>.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We entered into the merger agreement and consummated the merger with the expectation that the
merger will result in benefits to the combined companies, including the opportunities to combine
the two companies&#146; technologies, products and product candidates and the opportunity for pSivida to
establish a substantial presence in the U.S. which would facilitate access to U.S. markets. However, these
expected benefits may not be fully realized. Failure of the combined company to meet the challenges
involved with successfully integrating the personnel, products, technology and research and
development operations of the two companies following the merger or to realize any of the other
anticipated benefits of the merger, could have a material adverse effect on our business, financial
condition and results of operations as well as on that of our subsidiaries, including CDS (now
pSivida Inc.). These integration efforts may be difficult and time consuming, especially
considering the highly technical and complex nature of each company&#146;s products. The challenges
involved in this integration include the following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>coordinating research and development operations in a rapid and efficient manner;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>combining platform technologies of disparate sources;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>demonstrating to collaboration partners that the merger will not result in adverse
changes in technology focus or development standards;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>retaining key alliances with collaboration partners;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>absorbing costs and delays in implementing overlapping systems and procedures,
including financial accounting systems and accounting principles;</TD>
</TR>

</TABLE>
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>persuading employees that our business culture and that of CDS are compatible,
maintaining employee morale and retaining key employees; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>overcoming potential distraction of management attention and resources from the
business of the combined company.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may not successfully integrate our operations and technology with those of CDS in a timely
manner, or at all; we may not realize the anticipated benefits of the merger to the extent, or in
the timeframe, anticipated, which could significantly harm our business.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our operating results could be adversely affected as a result of purchase accounting treatment, and
the corresponding impact of amortization or impairment of other intangibles relating to the merger,
if the results of the combined company do not offset these additional expenses.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
Australian Equivalents to International Financial Reporting
Standards, or A-IFRS (effective from July&nbsp;1, 2005&nbsp;&#151;
See Item&nbsp;5A, "Recently Issued Accounting Pronouncements
Applicable to pSivida"), we will account for the merger using the purchase method of accounting. Under purchase
accounting, we will record the market value of our ADSs, cash, and other consideration issued in
connection with the merger and the amount of direct transaction costs as the cost of acquiring the
business of CDS. We will allocate that cost to the individual assets acquired and liabilities
assumed, including identifiable intangible assets, based on their respective fair values.
Intangible assets generally will be amortized over a 12&nbsp;year
period on a straight line basis. Based on our preliminary allocation
of the purchase price, which is subject to change based on the actual
outcome of an independent valuation, the amount allocated to goodwill is expected to
be approximately A$30.6&nbsp;million, the amount allocated to
identifiable intangible assets is expected to be
approximately A$120.0&nbsp;million, giving rise to a gross deferred
tax liability of approximately A$48.0
million (approximately A$29.1&nbsp;million net of deferred tax assets), and approximately A$2.7&nbsp;million
is expected to be allocated to in-process research and development. Goodwill is not subject to amortization
but is subject to at least an annual impairment analysis, which may result in an impairment charge
if the carrying value of the cash-generating unit to which goodwill has
been allocated exceeds its recoverable value. If identifiable intangible assets were
amortized in equal quarterly amounts over a 12&nbsp;year period following completion of the merger,
the amortization attributable to these items would be approximately A$2.5&nbsp;million per quarter and
A$10.0&nbsp;million per fiscal year. As a result, purchase accounting treatment of the merger could
increase our net loss or decrease our net income in the foreseeable future, which could have a
material and adverse effect on the future market value of our ADSs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>pSivida has incurred significant costs in connection with the merger.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
estimate that we have incurred direct transaction costs of approximately US$2.6&nbsp;million
(approximately A$3.6&nbsp;million) associated with the merger, which will be included as a part of the total purchase consideration
for accounting purposes. In addition, prior to completing the merger, CDS incurred direct
transaction costs for accounting, investment banking and legal
services of approximately US$2.4
million (approximately A$3.3&nbsp;million), which are to be expensed
in the period in which they are incurred. We believe the
combined entity may incur charges to operations, which currently are not reasonably estimable, in
the quarter in which the merger was completed or the following quarters, to reflect costs
associated with integrating the two companies and that such charges may be material.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Regulatory agencies, private parties, state attorneys general and other antitrust authorities may
raise challenges to the merger on antitrust grounds.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that the merger could be completed without making any filings with the Federal
Trade Commission, or FTC, the Antitrust Division of the U.S. Department of Justice, or the
Antitrust Division, or any other governmental authority whether under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, or the HSR Act, or
otherwise and without waiting for the expiration of
any waiting period requirements. However, the FTC and the Antitrust Division
frequently scrutinize the legality under the antitrust laws of transactions like the merger, and at
any time after the completion of the merger, the FTC or the Antitrust Division could take any
action under the antitrust laws as it deems necessary or desirable in the public interest,
including seeking the divestiture of our substantial assets or those of CDS. In addition, certain
private parties, as well as state attorneys general and other antitrust authorities, may challenge
the transaction under antitrust laws under certain circumstances.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, the merger may be subject to the antitrust laws of Australia or other foreign
jurisdictions. Anti-competitive mergers or acquisitions in Australia are regulated under sections
50 and 50A of the Commonwealth Trade Practices Act, or TPA, which generally prohibits any
acquisition of shares or assets which is likely to have the
</DIV>

<P align="center" style="font-size: 10pt">15
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">effect of substantially lessening competition in a market in Australia. The Australian
antitrust regulator, the Australian Competition and Consumer Commission, or ACCC, may on its own
initiative apply to an Australian Court under that law in order to block a merger, or to obtain
orders for the divestiture of assets, or for other remedies. A private party may also apply to an
Australian Court under that law for a more limited range of remedies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There can be no assurance that a challenge to the merger on antitrust grounds will not be
made, or, if such a challenge is made, what the result will be.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>If CDS&#146;s former stockholders sell substantial amounts of ADSs after the merger, the market price of
ADSs may decline.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The resale by former CDS stockholders of pSivida ADSs after the merger could cause the market
price of our ADSs to decline. In connection with the merger, we have issued approximately
16,000,000 ADSs. While our ADSs will not initially be freely tradable, we have agreed to register
their resale within six months (subject to certain extensions) for stockholders entering into the registration rights agreement.
Therefore, approximately 16,000,000 pSivida ADSs issued in the merger are expected to become freely
tradable under U.S. securities laws six months from the closing date
of the merger, which was December&nbsp;30, 2005. However, certain
shareholders are subject to lock-ups for as long as 9&nbsp;months
after the closing date of the merger.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>If the price of our ADSs does not rise above the conversion price by the time payment on the
convertible note becomes due, we may have to repay all or part of the funds received in the
convertible note financing.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;16, 2005, we issued a subordinated convertible promissory note in the principal
amount of US$15&nbsp;million (A$19.7&nbsp;million) to an institutional investor. The convertible note must
be repaid in three payments of US$5&nbsp;million each which are due
on or about November&nbsp;16, 2006, May&nbsp;16, 2007 and
November&nbsp;16, 2007 respectively, unless the convertible note is sooner converted into ADSs. The note is convertible
into our ADSs at a conversion price of US$7.10 per ADS, subject to adjustment based on certain
events or circumstances, including the market price of ADSs for the ten trading days ending on May
5, 2006. The average trading price of our ADSs during the ten trading
days ending on the day that is four trading days prior to the closing of the
CDS acquisition was US$5.087. If the price of our
ADSs does not rise above the conversion price by the time any payment on the convertible note becomes
due or if certain other requirements are not met, the right of
pSivida to force conversion may not be exercisable and we may have to repay up to US$5&nbsp;million of
principal, plus accrued interest at any one or all of these three dates. Given the cash needs of our business and the lack of current
revenue, we cannot predict whether or not we will be able to meet this obligation if called upon to
do so, or what impact this could have on our business and operations.
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>If we fail to register the resale of ADSs by the applicable deadlines, we may be subject to
substantial penalties.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the acquisition of CDS, the PIPE and the convertible note financing, we
have entered into agreements to register with the SEC the resale of ADSs issued to investors and
CDS stockholders. Our obligation to register ADSs in each of these transactions is subject to a
deadline, which may be extended in certain situations, and our failure to meet this deadline results in monetary penalties against pSivida.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With respect to the PIPE, we are required to complete the registration no later than one
hundred and eighty days from the date of the definitive agreements related to the PIPE, which
places the deadline on or about February&nbsp;23, 2006. If we fail to cause the registration statement
registering the resale of ADSs to become effective beginning one month after this deadline, we may
be subject to monthly cash penalties equal to one percent of the PIPE
purchase price, or US$43,225 (A$59,200),
until such registration statement becomes effective. With respect to the convertible note
financing, we are required to complete the initial registration no later than one hundred and
eighty days from the date of the applicable agreement, which places the deadline on or about May
16, 2006. Failure to comply with this deadline may result in pSivida having to pay monthly cash
penalties equal to one and one-half percent of the convertible note
purchase price, or US$225,000 (A$308,200),
until the registration statement becomes effective. With respect to the acquisition of CDS, we are
required to complete the registration no later than one hundred and eighty days from the closing of
the merger, which would be on or about June&nbsp;30, 2006. Failure to comply with this deadline may
result in pSivida having to pay monthly cash penalties equal to one percent of the average closing
price of the ADSs during the ten trading days ending on the day that is four trading days prior to
the closing of the merger, multiplied by the number of outstanding unregistered ADSs, until the
registration statement becomes effective. The average trading price
of ADSs during the 10-day period just described was US$5.087, which
indicates that such penalties could amount to US$813,089
(A$1,113,700) per month. Each of these registration deadlines is
subject to extensions in certain circumstances. Once the
registrations are completed, we are obligated to keep them effective
for specified periods, and failure to do so may subject us to
additional penalties.
</DIV>


<P align="center" style="font-size: 10pt">16
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="105"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 4. INFORMATION ON THE COMPANY</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>A. HISTORY AND DEVELOPMENT OF PSIVIDA</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;pSivida Limited is an Australian public company listed on the Australian Stock Exchange, the
NASDAQ National Market, Frankfurt Stock Exchange and London&#146;s OFEX International Market Service and
existing pursuant to the Australian Corporations Act 2001. Our corporate headquarters are located at Level 12 BGC Centre, 28 The Esplanade, Perth WA
6000, Australia and our phone number is (&#043;61 8) 9226 5099. Our registered agent in the U.S. is the
Corporation Service Company located at 1133 Avenue of the Americas, Suite&nbsp;3100, New York, New York
10036. We also operate subsidiaries in the United Kingdom, Singapore, Australia and the United
States.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The legal entity that became pSivida was incorporated as the Sumich Group Ltd in April&nbsp;1987.
The Sumich Group operated an agriculture business which was placed into administration or
receivership on September&nbsp;30, 1998. pSivida was subsequently formed on December&nbsp;1, 2000 upon
entering into a court-approved arrangement with Sumich Group&#146;s creditors which fully extinguished
all prior liabilities as of that time. We then appointed new directors and officers and re-listed
on the Australian Stock Exchange under our new name. pSivida was then recapitalized through a
placement to investors of 9,300,000 ordinary shares at A$0.30 per share, raising A$2,790,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our principal capital expenditures (including acquisitions) in the past three years are
described below. We have made no substantial divestitures in the past three years. Our
acquisition of CDS is described under its own heading below.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On October&nbsp;13, 2003, we subscribed for additional convertible preference share
capital in pSiMedica Ltd., increasing our direct ownership interest in pSiMedica by
3.4% to 46.25% with indirect effective control over 53.05%. The consideration paid
by us in relation to this additional investment amounted to &#163;2&nbsp;million
(approximately A$4.84&nbsp;million). This investment was required to fund continued
research and development by pSiMedica.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In May&nbsp;2004, the minority shareholders in pSiOncology, Singapore General
Hospital Technology Ventures Pte Ltd and Biotech Research Ventures Pte Ltd,
exchanged their pSiOncology shares for newly issued shares in pSiMedica. Since that
time, pSiMedica has been the holder of 100% of the issued share capital of
pSiOncology.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On August&nbsp;4, 2004, we acquired the remaining shares in pSiMedica Ltd. that we
did not already own. The consideration paid was A$4,323,622 together with a total
of 49,804,381 ordinary shares of pSivida issued at a value of A$1.09. This
amounted to total consideration equal to A$58.6&nbsp;million. In addition, 638,537
pSivida options with an estimated fair value of A$292,828 were issued to employees
of pSiMedica in exchange for their rights being waived in relation to options
previously issued by pSiMedica. This amounted to total consideration equal to
A$59.2&nbsp;million. As a result of this transaction QinetiQ Group plc, one of Europe&#146;s
largest science and technology companies and the principal shareholder (besides
pSivida) of pSiMedica, became our largest shareholder holding 17.5% of our issued
capital at that time.</TD>
</TR>

</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">17
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On August&nbsp;24, 2004, we incorporated AION Diagnostics Limited in Australia to
develop and commercialize diagnostic applications of BioSilicon. We intend to
license diagnostic and sensor applications of the BioSilicon platform technology
developed by AION Diagnostics. We capitalized AION Diagnostics with A$1.2&nbsp;million.
In addition, zero exercise price options have been created over 20% of the issued
capital to be awarded to directors, staff and consultants of AION Diagnostics,
subject to the achievement of milestones.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Acquisition of CDS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;3, 2005, we entered into a merger agreement with CDS, a Boston-based company engaged in the design and development of drug
delivery products. The merger agreement provided that a newly-formed
subsidiary of pSivida would merge into CDS, with CDS surviving the merger as a wholly-owned subsidiary of pSivida with the
name of pSivida Inc. After approval by the required majorities of both companies&#146; shareholders and
the fulfillment of other closing conditions, the merger was completed on December&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
exchange for their CDS shares, the former stockholders of CDS
received 15,983,661 of our ADSs. Based on a price of A$0.71 per share, the price prevailing upon the closing
of the merger, the transaction represents a purchase price of
approximately A$118.8&nbsp;million
(US$86.7&nbsp;million). As at December&nbsp;30, 2005, the ADSs received by the former CDS
stockholders represented approximately 41.3% of the capital stock of the combined company. The
former CDS stockholders will be subject to lock-up periods of no less than six months.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain former shareholders of CDS received cash rather than ADSs for their CDS shares. The
total amount of such cash, which depended on the market value, on or about the date of the merger,
of the ADSs that such shareholders would have received in the merger, was US$83,116. This amount
was paid out of our own funds, along with other costs of the acquisition. For a more detailed
description of the acquisition and its effects, see Item&nbsp;8B, &#147;Significant Changes&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>B. BUSINESS OVERVIEW</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>On
December&nbsp;30, 2005 we completed the acquisition of CDS, which was
then renamed pSivida Inc. Due to the short amount of time since the
completion of the acquisition, we have not yet integrated the
business and operations of pSivida Inc. with the other business and operations of pSivida.
Accordingly, information regarding the business of pSivida Inc. is provided separately from the
information regarding the rest of pSivida&#146;s business. See
&#147;&#151;&nbsp;Business of pSivida Inc.&#148; for information relating specifically to the
business of pSivida Inc.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Our Business</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a global nanotechnology company focused on the development of BioSilicon, a novel
porous form of nano-sized silicon, for therapeutic and diagnostic use in healthcare. BioSilicon is
composed of elemental silicon, engineered to create a &#147;honeycomb&#148; structure of pores. These pores
can be formed into a diverse array of shapes and sizes and can be filled with various drugs, genes
and proteins. We are working toward developing applications for controlled slow release drug
delivery and diagnostics. Initially, we are using BioSilicon to target primary liver cancer, but
we intend to investigate BioSilicon&#146;s use as a treatment for other inoperable tumors such as
pancreatic, secondary liver and tumors within the peritoneum, brain and lung. We are currently
conducting a Phase IIb dose optimization BioSilicon trial in inoperable primary liver cancer
patients in seven centers in South-East Asia, including Singapore General Hospital. Other potential applications for BioSilicon may include
tissue engineering, orthopedics and food science.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Our Commercialization Strategy</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our commercialization strategy is to concentrate on internal product development; the
licensing of the BioSilicon technology platform; and the potential sale of non-core intellectual
property.
</DIV>

<P align="center" style="font-size: 10pt">18
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Internal Product Development</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The focus of our internal product development is BioSilicon drug delivery, with an initial
emphasis on brachytherapy products. Other potential BioSilicon drug delivery products are
localized chemotherapy, slow release drugs and the delivery of generic drugs (commonly referred to
as re-delivered generics). We have established detailed commercialization plans for BrachySil, our
lead product, bearing in mind market sizes, benefits offered to patients and alternative
competitive therapies. The first step in our commercialization strategy for BrachySil was a
validation of human safety and efficacy through human clinical trials, which was completed in early
2005. Currently underway is our Phase IIb dose optimization trial with the first patients now
having been treated in Singapore. It is expected that these trials will be followed directly by
registration trials. We also intend to open up dialogue with the FDA, the EU regulatory
authorities and government regulators in various other jurisdictions in order to establish that
BrachySil may appropriately be regulated as a device rather than as a drug. If BrachySil becomes
registered as anticipated in 2007, we intend to investigate BrachySil&#146;s use as a treatment for
other inoperable tumors such as pancreatic, metastatic ovarian and tumors within the peritoneum,
brain and lung.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Licensing of Core and Non-Core Intellectual Property</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that the potential range of applications for BioSilicon will permit early stage
licensing for non-core applications such as biomaterial in orthopedics, tissue engineering and
regenerative medicine. Furthermore, the platform has now been developed to a stage where licensing
BioSilicon to large pharmaceutical and biotech companies for delivery of their patented drugs is
being explored. We also intend to license diagnostic and sensor applications
of the BioSilicon platform technology developed by our subsidiary, AION Diagnostics. In addition
to licensing, we may also consider opportunities for collaborations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;27, 2005 we signed a license with Beijing Med-Pharm Corporation for the clinical
development, marketing and distribution of BrachySil in China. Under the terms of the license, we will manufacture BrachySil and Beijing Med-Pharm will be
responsible for clinical development, securing regulatory approval, marketing and distribution in
China. We will retain manufacturing rights for BrachySil under the license. It is a condition of
the license that a manufacturing and supply agreement for us to supply BrachySil to Beijing
Med-Pharm is concluded within 90&nbsp;days. The
license includes upfront and milestone payments in excess of
US$2&nbsp;million (A$2.7&nbsp;million) and royalties
ranging from 10% up to 30%, depending upon level of sales, payable to us by Beijing Med-Pharm.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Beijing Med-Pharm is a US-based company with Chinese subsidiaries that offers an end-to-end
solution to primarily Western pharmaceutical companies who wish to sell their products into the
Chinese marketplace. In December&nbsp;2004, Beijing Med-Pharm initiated the first ever purchase of a
Chinese pharmaceutical distribution company by a foreign entity after it signed an agreement to
purchase Beijing Wanwei Pharmaceutical Ltd., a pharmaceutical distributor covering the bulk of
Beijing&#146;s hospitals.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;BrachySil (32-P BioSilicon) will enter a Phase IIb dose-profiling study shortly as a potential
new treatment for primary liver cancer (also called hepatocellular carcinoma or HCC). China has
the highest incidence of HCC in the world, with over 345,000 estimated new cases per annum
(Globocan), representing 55% of total worldwide cases. Focused programs are being prepared to seek
to exploit its potentially broader utility in other significant cancer indications, including
inoperable pancreatic and secondary liver disease.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Sale of Non-Core Applications</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are also exploring sales of early stage non-core applications. Such applications include
biomaterial in orthopedics, tissue engineering and regenerative medicine producing.
</DIV>

<P align="center" style="font-size: 10pt">19
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>BioSilicon&#153;</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;BioSilicon is composed of elemental silicon, one of the most abundant elements on the earth&#146;s
crust, which is engineered to create a &#147;honeycomb&#148; structure of pores. These pores can be formed
into a diverse array of shapes and sizes and can be filled with various drugs, genes and proteins.
We believe that BioSilicon&#146;s features include:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Biocompatibility &#151; BioSilicon is biocompatible, meaning that it is not
injurious and does not cause immunological rejection within the body. We have
assessed the biocompatibility of BioSilicon as follows:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>BioSilicon wafers implanted in animals for a period of up to 6&nbsp;months
performed similarly to medical grade titanium, a well-known biocompatible
material, in terms of biocompatibility.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Toxicology studies performed for us by Quintiles Transnational and
Huntingdon Life Sciences Group in the UK have shown that the maximum tolerated
dose of BioSilicon is ten to one hundred times the dose expected to be used in
our clinical trials in Singapore.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>To date, our human trials have produced no apparent product-related adverse
events.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Non-toxicity &#151; our studies have shown that BioSilicon degrades in the body into
silicic acid, the non-toxic, dietary form of silicon which is found in beer, cereal
grains and wine. We have undertaken both pre-clinical studies and clinical trials
testing the toxicology of BioSilicon. our pre-clinical toxicology studies have
demonstrated a minimum tolerated dose which is substantially in excess of the doses
expected to be used in initial clinical applications. Also, comparative toxicology
studies in animals comparing BioSilicon and titanium have shown no significant
differences in toxicology.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Biodegradability &#151; We believe that BioSilicon can be made biodegradable in vivo
and in vitro (in animals and humans and in solution). The rate of biodegradation
depends on the degree of nanostructuring that is imparted on the material. We
believe that, as a result, BioSilicon can be made to dissolve in suitable
environments in days, weeks or months, depending upon the size and nature of the
BioSilicon implanted. This has been demonstrated in various models:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>BioSilicon has been shown to dissolve in synthetic body fluids such as
serum, plasma and gastric juices.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>While a similar test has not been performed in humans, BioSilicon has been
shown to dissolve when placed subcutaneously in guinea pigs.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>We have tested BioSilicon in a variety of buffered solutions (salty waters).</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because of these qualities, BioSilicon has the potential to serve as a biomedical device in or
on the body. We believe that BioSilicon may have multiple potential applications in healthcare. We
are currently working toward developing applications for controlled slow release drug delivery and
diagnostics. We believe that other potential applications may include tissue engineering,
orthopedics and food science (food sensors and nutraceutical products).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Core Markets</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Brachytherapy</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Brachytherapy is a relatively new form of treatment for cancer involving the localized
delivery of radioactive agents directly into a tumor. The market is currently dominated by the use
of radioactive &#145;seeds&#146; for the treatment of hormone non-responsive prostate cancer. These are
mainly used for the treatment of prostate cancer and can cause trauma on application. Current
mainline brachytherapy implants are relatively large, causing trauma and hemorrhaging in tumors.
Such seeds also carry comparatively long-range radio emitters that cause normal tissue damage and
other quality of life problems to the patient. Other products in this area such as Yttrium 90
(Y90) ceramic spheres are not generally administered directly into tumors but into the vasculature
feeding tumor-bearing
</DIV>

<P align="center" style="font-size: 10pt">20
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">organs such as the liver. The latter approach causes a significant degree of healthy tissue
damage. These current therapeutic regimens have limited value for inoperable liver cancer. Liver
cancer is currently one of the world&#146;s major causes of cancer-based mortality.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Drug Delivery</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The market for
new drug delivery formulations is rapidly growing. Drug delivery has proved to be a critical element in the drug development
process, resulting in enhanced safety and efficacy of many medicines. Improvement of drug delivery
is important for better patient safety and drug bioavailability. Furthermore, the use of novel drug
delivery systems is an increasingly important strategy for major pharmaceutical and biotechnology
companies as they recognize the benefits of forging relationships with drug delivery companies to
enable the delivery of new drugs and extend the commercial life of their current drugs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Core BioSilicon Applications</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Brachytherapy</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Brachytherapy is a relatively new form of treatment for cancer and involves the delivery of
radioisotopes directly into the tumor. With improved tumor location and mapping, this approach to
cancer therapy has grown substantially in recent years allowing the physician/surgeon/radiologist
to specifically expose tumor tissue to radioisotopes in a targeted manner.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For brachytherapy treatment, we believe BioSilicon has many significant advantages:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Short range &#151; 32-P isotope has a short active range resulting in less damage to healthy tissue</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Range of tumors &#151; fine gauge needle delivery allows potential application to
all solid tumors, unlike current brachytherapy products</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Direct delivery &#151; injection via fine gauge needle minimizes side effects and tissue trauma</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Inexpensive device &#151; low cost, abundant availability of silicon, with scale up proven</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Distribution &#151; 32-P half-life of 14&nbsp;days allows more convenient distribution to
hospitals and application in the patient</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Immobilization &#151; 32-P device is immobilized in the tumor, significantly
reducing risk of leakage or systemic side effects</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>BrachySil&#153;</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;BrachySil, our lead product candidate, is a brachytherapy product that we believe has the
potential to significantly expand the current brachytherapy market size. BrachySil consists of an
injectable BioSilicon structure that carries 32-phosphorus, or 32P, a radioactive isotope which has
been shown to shrink tumors. The isotope 32P emits beta or electron radiation which has been shown
to be effective at shrinking tumors. However, this radiation is harmful to healthy tissue.
Therefore, the 32P and its radiation must be confined to the area of the tumor and not allowed to
travel within the body. Existing 32P-based products do not fully immobilize 32P, allowing the
isotope to dissolve, enter the bloodstream and harm healthy tissue in other parts of the body. We
have engineered BrachySil to ensure that the 32P is unable to escape the BioSilicon particle.
Therefore, the 32P is in effect &#147;locked&#148; into BrachySil by producing an amalgam of phosphorus and
silicon. The BrachySil treatment is delivered, without surgery, via injection through the abdomen
using a fine gauge needle, allowing the clinician to administer a single dose of BrachySil directly
into the tumor site. BrachySil offers interventional radiologists a short-range longer life
isotope that can be delivered through a fine bore needle making it a more user friendly and precise
product for both patient and physician. We have tested BioSilicon in a variety of buffered
solutions (salty waters).
</DIV>

<P align="center" style="font-size: 10pt">21
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are developing products in this growing area through our wholly-owned, Singapore-based
subsidiary pSiOncology in conjunction with Singapore General Hospital. pSiOncology is also
developing localized chemotherapy products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Phase IIb clinical trials commenced with BrachySil (32-P BioSilicon) as a potential new
brachytherapy treatment for inoperable primary liver cancer (hepatocellular carcinoma, HCC). The
first patient has successfully received treatment at Singapore General Hospital using a new
fine-gauge needle multi-injection device which will enable for the first time, larger and also
multiple tumors to be treated. A total of 50 patients will be entered into this multi-centre trial
which will be conducted in Singapore, Malaysia and Vietnam. BrachySil trials for pancreatic cancer
are expected to commence in the first quarter of 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The study, which was designed in collaboration with Singapore General Hospital and approved by
the Singaporean regulatory authority (Health Sciences Authority) will determine the optimal dose of
BrachySil in treating inoperable HCC. Patients will be evaluated up to 12&nbsp;months after treatment,
and the endpoints are based on evaluations of patient safety and target tumor responses, as well as
overall survival.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The study is intended to provide pivotal efficacy and safety data to support future product
registration and approval of BrachySil as an effective treatment for primary liver cancer. These
results are expected to build on the findings of a Phase IIa study concluded earlier this year on
patients with advanced liver cancer. In this trial, which was also conducted at Singapore General
Hospital, BrachySil was found to be both safe and well tolerated. It was also found to reduce
significantly the size of some tumors treated even on a lower dose than that used in the earlier
trials.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, the Phase IIb trial will include a clinical evaluation of our proprietary SIMPL&#153;
implantation system. SIMPL&#153; is a fine-gauge needle, multi-injection device, through which BrachySil
is injected as a liquid suspension directly into tumors under local anesthetic. The device has been
designed to distribute the implanted dose from a single entry point and to enable physicians to
treat larger tumors. This device is expected to be a further significant advantage of BrachySil
over existing brachytherapies as well as assist in expanding the application of BrachySil to other
solid tumor cancers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assuming that trials are successful and an optimal dose is established, we intend to undertake
larger multi-center clinical trials involving patients in both Asia and Europe to produce data
sufficient to register BrachySil for use as an approved treatment for primary liver cancer. We
expect completion of its optimization dose study during early 2006, followed by initiation of
regulatory studies, thus registration could potentially be completed in mid 2007. Following
BrachySil&#146;s registration, we anticipate rapid adoption of the treatment because it is delivered by
means of a fine gauge direct needle without surgery under local anesthetic and patients are able to
be discharged the following day. If BrachySil becomes registered as anticipated in 2007, we intend
to investigate BrachySil&#146;s use as a treatment for other inoperable tumors such as pancreatic,
metastatic ovarian and tumors within the peritoneum, brain and lung. we believe that such approvals
may expand the market for brachytherapy.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
early 2006, we also intend to open up dialogue with the FDA in order to establish that
BrachySil may appropriately be regulated as a device rather than as a
drug. We are pursuing a
similar strategy with respect to EU regulatory authorities to qualify for device registration in
Europe under the auspices of a CE mark application. Generally speaking, obtaining regulatory
approval to market a medical device is much less expensive and time consuming than the process
required for a drug. We also intend to consult with government regulators in various other
jurisdictions to promote this strategy.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Drug Delivery</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are also strongly focused on the application of BioSilicon technology to a controlled, slow
release drug delivery product. We intend to achieve this through the development of our own
products such as BrachySil; the delivery of generic or &#147;off patent&#148; drugs utilizing new delivery
methods comprised of BioSilicon; and licensing the use of BioSilicon to pharmaceutical companies
for delivery of their patented drugs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following properties make BioSilicon a potentially effective drug delivery platform:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>high drug loading rates (up to 95.0%);</TD>
</TR>

</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">22
</DIV>

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<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>ability to control release timing (hours/days/weeks/months);</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>ability to vary pore size to accommodate different drug sizes;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>ability to serve as a conductor of electrical charge which can be altered to
regulate drug delivery rate; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>potential incorporation of diagnostics and delivery intelligence.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;BioSilicon functions as a &#147;honeycomb&#148; structure to retain drugs within the &#145;cells&#146; within the
nanometer scale structure. In contrast, many polymers cause toxicity and inflammation and can
actually chemically react with the pharmaceutical being delivered. BioSilicon&#146;s biodegradability
and solubility can be finely tuned without changing the chemical nature of the material itself.
Thus, unlike polymer-based systems, BioSilicon&#146;s composition is identical for all potential
products whether they are implants for drug delivery or biodegradable orthopedic devices (pins,
screws, braces, etc.). The only characteristic that is varied is the level of engineering and
shape of the silicon device. Computer model systems have shown that the rate at which the
BioSilicon structure degrades in the body can be precisely regulated in order to release a drug
over a period of time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We also plan to develop &#147;smart&#148; drug delivery devices making use of the semi-conductor
properties of silicon. BioSilicon can potentially perform in the same manner as a silicon chip,
thus providing the opportunity to marry the electronic potential of the material with healthcare
applications. Utilizing these properties may enable processors, sensors and telemetry to be
incorporated into a biodegradable drug delivery structure. This combination may provide for a more
powerful delivery system than conventional polymer-based systems which must rely on their natural
rate of biodegradation. With a biodegradable BioSilicon chip, the drug release might be made
&#145;intelligent&#146; through microprocessor control.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have an agreement with an undisclosed top 5 global pharmaceutical company for the staged
evaluation of BioSilicon for drug delivery. The agreement covers the evaluation of BioSilicon for
the controlled release of a number of selected compounds. The pharmaceutical company will fund the
direct costs of the program.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Non-Core Applications</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Diagnostics</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August of 2004 we incorporated AION Diagnostics in Australia to develop diagnostic
applications for BioSilicon.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through AION Diagnostics, pSivida seeks to develop diagnostic applications using the
biodegradable, optical, semiconductor and micro machining properties of BioSilicon. AION
Diagnostics will look to develop products through strategic collaborations with universities,
research institutions and industry partners. AION Diagnostics will also seek grant funding in
Australia and the United States. Research currently being undertaken is at a preliminary stage
only and there is no guarantee that BioSilicon will ultimately be used in the commercialization of
a product in this area.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have assigned to AION Diagnostics a licensing agreement with Forschungszentrum J&#252;lich for
the use of our porous silicon optical mirror technology. Forschungszentrum J&#252;lich is a science and
engineering research institution funded jointly by the Federal Republic of Germany and the State of
Nordrhein Westfalen.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Orthopedics</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that BioSilicon also has potential to be used as a biodegradable scaffold for
orthopedic tissue engineering. A porous silicon structure could be deliberately sculpted to
provide bone-building cells with a scaffold that the cells can penetrate and to which cells can
anchor. As the bone tissue deposits itself onto the scaffold, the silicon would slowly dissolve
away, eventually leaving just the new bone. Silicon&#146;s ability to carry an electrical current
charge bias may also give BioSilicon an advantage in the treatment of bone conditions, promote bone
growth and may have other orthopedic applications. Data gathered to date in preclinical studies
indicate that cells will grow and divide in BioSilicon substrates and that BioSilicon can be
osteo-conductive, promoting bone growth and
</DIV>


<P align="center" style="font-size: 10pt">23
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">deposition. In July&nbsp;2003, pSiMedica entered into a shared revenue agreement with Texas
Christian University, for which Texas Christian University will receive 10.0% of patent royalties
for any joint intellectual property developed in the areas of tissue engineering and orthopedic
applications. Research being undertaken in the orthopedics field is still at a preliminary stage,
and there is no guarantee that BioSilicon will ultimately lead to a commercializable product in
this area.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Tissue Engineering</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that BioSilicon also has potential uses in tissue engineering as a biodegradable
scaffold or framework. U.S. based Cytomatrix is evaluating BioSilicon for the expansion of stem
cells for the treatment of a variety of diseases. Singapore General Hospital is assessing the use
of BioSilicon as a scaffold to assist the growth of tissue cells for applications in areas such as
craniofacial and reconstructive surgery. The McComb Foundation, an Australian company, together
with its commercialization partner, Clinical Cell Culture, Ltd., is evaluating the use of
BioSilicon as a scaffold to assist in the growth of various cells for application in future tissue
engineering products including in the wound healing and burns area. Depending on results and
compatibility with Clinical Cell Culture&#146;s products, Clinical Cell Culture will have the right to
commercialize products combining its proprietary technology with BioSilicon. We are also examining
the use of growth and disease inhibiting factors within the BioSilicon scaffold to assist with
tissue regeneration. We are also active in the area of wound management products, including
research into the development of potentially novel biodegradable sutures. All of these research
initiatives involving the use of BioSilicon in the area of tissue engineering are at a preliminary
stage only and there is no guarantee that BioSilicon will ultimately be used in the
commercialization of any products in this area.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Food Technology</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2005 we incorporated pSiNutria Limited in Australia to develop applications of our
silicon technology in the food industry. pSivida Limited plans to
license the use of BioSilicon&#153; as an ingestible ingredient in food applications. pSiNutria is
also developing patentable intellectual property using silicon in the food packaging area.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have entered into an agreement with ITOCHU Corporation to explore the development and
commercialization of new ingestible BioSilicon products in the area of food
technology. ITOCHU is a large multinational corporation headquartered in Japan with considerable
experience in the food industry and interests ranging from technology development and production
through to distribution and retail. Further international collaborations and licensing
opportunities are anticipated in the food industry. Our research in the area of food technology is
at a preliminary stage only and there is no guarantee that BioSilicon will ultimately be used in
the commercialization of a product in this area.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Subsidiary Companies</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>pSivida Inc.</I></B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;3, 2005, we entered into a merger agreement with CDS, a Boston-based company engaged in the design and development of drug
delivery products. The merger agreement provided that a newly-formed
subsidiary of pSivida would merge into CDS, with CDS surviving the merger as a wholly-owned subsidiary of pSivida with the
name of pSivida Inc. After approval by the required majorities of both companies&#146; shareholders and
the fulfillment of other closing conditions, the merger was completed on December&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>pSiMedica</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2000, we co-founded pSiMedica Ltd, a company incorporated in the United Kingdom.
pSiMedica was formed with QinetiQ Group plc and several individuals and privately held investment
companies. We invested A$1.0&nbsp;million to acquire an 11.1% interest in pSiMedica. QinetiQ, which was
formerly part of the Defence Evaluation and Research Agency, or DERA, an agency of the government
of the UK, is currently one of Europe&#146;s largest science and technology solutions companies.
QinetiQ remains 56.0% owned by the UK Ministry
of Defence on behalf of the Government of the United Kingdom, but has sold interests of 30.5%
to the Carlyle Group, one of the world&#146;s leading private equity firms, and 13.0% to QinetiQ&#146;s
employees.
</DIV>

<P align="center" style="font-size: 10pt">24
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Further significant events in pSiMedica&#146;s history are as follows:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In May&nbsp;2001, we increased our ownership in pSiMedica from 11.1% to 40.1% by
acquiring 28.9% of pSiMedica&#146;s outstanding ordinary shares from other minority
shareholders. This acquisition of shares in pSiMedica was made in consideration
for A$1.8&nbsp;million in cash and the issuance of 10,918,535 of our ordinary shares at
a value of A$0.30 per share, or a total consideration value of A$5.1&nbsp;million. At
the same time, we also received powers of attorney over the pSiMedica shareholdings
of Viaticus Capital Pty Ltd, representing 1.5%; Mr.&nbsp;Sam Giacomo, representing 1.4%;
Mr.&nbsp;David McAuliffe, representing 1.4%; and Dr.&nbsp;Aston, representing 7.0%. These
transactions resulted in our holding an indirect 51.4% controlling interest in
pSiMedica, and thereafter, we began to consolidate pSiMedica in our consolidated
financial statements.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On March&nbsp;7, 2002, we subscribed for additional shares issued by pSiMedica. This
had the effect of increasing our direct percentage ownership by 2.8% to 42.9% and
indirect effective control to 50.8%. The consideration paid by us in relation to
this additional investment amounted to &#163;1&nbsp;million (approximately A$2.7&nbsp;million).
This investment was required to fund continued research and development by
pSiMedica.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On October&nbsp;13, 2003, we again subscribed for additional convertible preference
share capital in pSiMedica, increasing our direct ownership by 3.4% to 46.3% with
indirect effective control over 53.1%. The consideration paid by us in relation to
this additional investment amounted to &#163;2.0&nbsp;million (approximately A$4.8&nbsp;million).
This investment was required to fund continued research and development by
pSiMedica.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On August&nbsp;4, 2004, we acquired the remaining shares in pSiMedica that we did not
already own. The consideration paid was $59,224,568 which comprised of $4,323,622
in cash, a total of 49,804,381 ordinary shares of pSivida issued at a value of
$1.09 for A-GAAP purposes, 638,537 pSivida options with an estimated fair value of
$292,828 (issued to employees of pSiMedica in exchange for their rights being
waived in relation to options previously issued by pSiMedica) and direct
acquisition costs totaling $321,342. As a result of this transaction QinetiQ became
our largest shareholder, holding 17.5% of its issued capital at that time.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>pSiOncology</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;24, 2002, pSiOncology Pte Ltd. was formed in Singapore by pSiMedica, Singapore General
Hospital and Biotech Research Ventures Pte Ltd to develop BioSilicon brachytherapy products for the
treatment of operable and inoperable cancer tumors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2004, the minority shareholders in pSiOncology, Singapore General Hospital Technology
Ventures Pte Ltd and Biotech Research Ventures Pte Ltd, exchanged their pSiOncology shares for
newly issued shares in pSiMedica. Since that time, pSiMedica has been the holder of 100.0% of the
issued share capital of pSiOncology.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>AION Diagnostics</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;24, 2004, we incorporated AION Diagnostics Limited in Australia to develop and
commercialize diagnostic applications of BioSilicon. We have licensed diagnostic and sensor
applications of the BioSilicon platform technology to AION Diagnostics. We capitalized AION
Diagnostics with A$1.2&nbsp;million. In addition, zero exercise price options have been created over
20.0% of the fully diluted issued capital to be awarded to directors, staff and consultants of AION
Diagnostics, subject to the achievement of milestones. By exploiting both the biocompatible and
biodegradable properties of BioSilicon, AION Diagnostics will be seeking to commercialize
diagnostic products that will provide real time continuous measurement of important diagnostic
markers. The move to spin out AION Diagnostics will enable a separate team to focus on leveraging
the technological opportunities in BioSilicon to develop and commercialize a diagnostics product
portfolio, while we and our staff remain focused on the core areas of slow release drug delivery
and brachytherapy.
</DIV>

<P align="center" style="font-size: 10pt">25
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Both QinetiQ and pSivida act as strategic partners of AION Diagnostics as AION Diagnostics
is seeking to develop products through strategic collaborations with universities, research institutions
and industry partners and to obtain grant funding in Australia and the US.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>pSiNutria Limited</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;5, 2005, we incorporated pSiNutria Limited in Australia to develop applications of
our silicon technology in the food industry. pSivida Limited
capitalized pSiNutria with A$1.5
million and will grant pSiNutria a royalty bearing exclusive license for the use of BioSilicon&#153; as
an ingestible ingredient in food applications. pSiNutria is also developing patentable
intellectual property using silicon in the food packaging area.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Collaborations</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>QinetiQ</I></B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the organization of pSivida and pSiMedica, in December&nbsp;2000, pSiMedica
entered into a technology license agreement with the Defence Evaluation and Research Agency, or
DERA, an instrumentality of the UK government. The technology license gave pSiMedica the right to
use intellectual property associated with BioSilicon to develop, manufacture and sell products for
uses on or in the human and animal body. The intellectual property included patents, patent
applications, various research reports, trademarks, know-how and other materials. The license was
granted on a worldwide, royalty free basis in exchange for shares in pSiMedica. DERA retained the
right to use the intellectual property in connection with defense-related, noncommercial purposes.
The license provided that DERA would later assign the intellectual property outright upon the
fulfillment of certain conditions, including pSiMedica successfully raising additional funds.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March&nbsp;2002, subsequent to our making an additional investment in pSiMedica funded by our
November&nbsp;2001 placement of ordinary shares, pSiMedica entered into an assignment agreement with
QinetiQ. Pursuant to the assignment agreement, QinetiQ, the successor to DERA&#146;s rights to the
intellectual property, assigned the outright ownership of the intellectual property to pSiMedica
with QinetiQ retaining only the right to sublicense the intellectual property to DERA for
noncommercial, defense-related uses and, subject to reasonable terms, in connection with purposes
outside of pSiMedica&#146;s original field of use. pSiMedica gave only nominal consideration for
assignment, as the obligation to assign the intellectual property was pursuant to the earlier
license agreement. Pursuant to the assignment agreement, pSiMedica became the owner of all the
relevant patents, patent applications, research reports, trademarks, know-how and other materials
associated with BioSilicon.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Singapore General Hospital</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During July&nbsp;2002, pSiMedica entered into an agreement with Singapore General Hospital related
to the incorporation of pSiOncology Pte Ltd., now an indirect wholly-owned subsidiary of pSivida
and a direct wholly-owned subsidiary of pSiMedica. The agreement involves the licensing of
intellectual property pertaining to BioSilicon from pSiMedica to explore its potential as a
platform for brachytherapy. During May&nbsp;2004 pSiMedica issued shares to Singapore General Hospital
in exchange for the outside equity interest in pSiOncology Pte Ltd and subsequently as a result of
the transaction whereby we acquired the outside equity interest in pSiMedica, Singapore General
Hospital exchanged its pSiMedica shares for pSivida ordinary shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>AEA Technology QSA GmbH</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During March&nbsp;2004 pSiMedica entered into a three year agreement with AEA Technology QSA GmbH
for the construction of a facility for the production and manufacture of radioactive 32P-BioSilicon
nano-structured micro particles to meet pSiMedica&#146;s commercial supply requirements. This facility
was completed in September&nbsp;2005.
</DIV>

<P align="center" style="font-size: 10pt">26
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>License Agreement with Beijing Med-Pharm</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;27, 2005 we signed a license with Beijing Med-Pharm Corporation for the clinical
development, marketing and distribution of BrachySil in China. Under the terms of the license, we
will manufacture BrachySil and Beijing Med-Pharm will be responsible for clinical development,
securing regulatory approval, marketing and distribution in China. We will retain manufacturing rights for BrachySil
under the license. It is a condition of the license that a manufacturing and supply agreement for
us to supply BrachySil to Beijing Med-Pharm is concluded within
90&nbsp;days of October&nbsp;27, 2005. The license includes
upfront payments to pSivida of US$375,000 (approximately A$514,000) upon entering into the license and US$375,000 (approximately A$514,000) upon
entering into the manufacturing and supply agreement, and additional payments of up to US$1,750,000
(approximately A$2,400,000) if certain milestones are achieved. In addition, we will receive royalties ranging from 10% up to
30%, depending upon level of sales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Top Five Global Pharma</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
October&nbsp;22, 2004, we entered into an agreement with an undisclosed top five global
pharmaceutical company for the staged evaluation of BioSilicon as a
delivery vehicle for selected compounds. The initial stage of the planned 12&nbsp;month program has concluded, meeting the agreed
technical success criteria, and triggering a payment to us under the terms of the
agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>ITOCHU Corporation &#151; Japan, Asia and Food Technology</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A non-exclusive agreement was signed with ITOCHU Corporation for the development and
commercialization of BioSilicon in Japan and Asia and food applications. ITOCHU, one of the world&#146;s
largest corporations is engaged in development of commercial opportunities and products for
BioSilicon in Japan and other significant markets in Asia. ITOCHU also has significant experience
and expertise in the food industry and is engaged in the development and commercialization of new
products utilizing BioSilicon technology in the rapidly growing area of food technology and
nutraceuticals.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Cirrus Pharmaceuticals</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We recently entered into a contract with U.S.-based Cirrus Pharmaceuticals, Inc., an
independent research and development organization based in Research Triangle Park, North
Carolina, to accelerate and expand development of a number of specific drug candidates formulated
in BioSilicon to expand a BioSilicon product pipeline of reformulated drugs. The development
contract has an initial extendable term of one year and provides a dedicated team of scientists
from Cirrus Pharmaceuticals. The relationship has been established to seek to generate new products
based on reformulating existing specific generic and proprietary drugs and their delivery utilizing
BioSilicon. To the extent that such new reformulations or delivery demonstrate improved efficacy,
safety and/or compliance as compared to the original product, then we will be able to claim patent
protection on its new products. All intellectual property developed through this collaboration
relating to BioSilicon will be wholly-owned by us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>EPITAN &#151; Completion of Proof of Concept Study</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have entered into an agreement with the Institute of Medical and Veterinary Science in
Adelaide, South Australia, pursuant to which an in vivo study was conducted that indicated that a
single injection of our porous BioSilicon technology successfully released MELANOTAN&#153; over a
sustained period. The outcome of this collaboration may lead to a second-generation liquid-based
injectable MELANOTAN&#153; product.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Forschungszentrum &#151; Porous Silicon Mirror Technology</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
subsidiary, AION Diagnostics, is a party to a licensing agreement with Forschungszentrum
Julich GmbH, part of Germany&#146;s largest research institute, to acquire rights in the use of
Forschungszentrum&#146;s porous silicon mirror technology. Combining this technology with its recently
acquired BioSilicon diagnostics platform, AION Diagnostics intends to examine the development of
BioSilicon optical mirrors as an in vivo diagnostic device, with the ability to provide early
diagnosis and continual monitoring of patients.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Flinders University / ARC Grant</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Together with the Flinders University of South Australia, we were awarded an ARC Industry
Linkage Grant. Flinders University plans to develop a novel ophthalmic bioimplant from BioSilicon.
The project is intended to result in biomaterials for the treatment of blinding diseases of the
eye. Implanted into the limbus, bioimplants may ameliorate some common corneal diseases.
</DIV>

<P align="center" style="font-size: 10pt">27
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>University of South Australia &#151; Evaluation of Protein &#038; Peptide Delivery</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We entered into a research and development collaboration with the University of South
Australia to evaluate the potential of the BioSilicon platform for the delivery of protein and
peptide-based therapeutics (or biopharmaceuticals) including antibodies, hormones and growth
factors that account for a substantial and increasing segment of the pharmaceutical market.
Preliminary investigations using BioSilicon have indicated its utility for the delivery of
biopharmaceuticals, including its potential for the development of new controlled release
formulations of existing marketed therapeutics.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>University of Pittsburgh (U.S.) &#151; DNA vaccine delivery</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our collaboration with the University of Pittsburgh is exploring the use of BioSilicon in
binding and protecting DNA during vaccine therapy in model systems. pSiMedica has developed the
technology to load and release DNA from BioSilicon matrices resulting in effective production of
immunogen (the antigen for which the DNA codes). The ability to load and protect DNA during
vaccine regimens is vital to the production of DNA vaccine products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>McComb Foundation/Clinical Cell Culture Ltd (Australia) &#151; tissue engineering products</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The McComb Foundation is a research organization established in 1999 to conduct research into
tissue engineering. Clinical Cell Culture, an ASX listed biomedical company, is the McComb
Foundation&#146;s commercialization partner which develops and distributes tissue-engineered cellular
products for autologous skin replacement. Clinical Cell Culture&#146;s products are based in part on
technologies licensed from the McComb Foundation. The McComb Foundation and Clinical Cell Culture
are evaluating the use of BioSilicon as a scaffold device to assist in the growth of various cells
for application in future tissue engineering products including in the wound healing and burns
area. Depending on results and compatibility with Clinical Cell Culture&#146;s products, Clinical Cell
Culture will have the right to commercialize products combining its proprietary technology with
BioSilicon. The collaboration agreement was entered into in August&nbsp;2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Singapore General Hospital (Singapore) &#151; tissue engineering</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to Singapore General Hospital&#146;s work with BrachySil, other research programs being
conducted at SGH&#146;s Department of Plastic Surgery are assessing the use of BioSilicon as a scaffold
to assist in the growth of tissue cells for applications in areas such as craniofacial and
reconstructive surgery.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Manufacturing</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently produce BioSilicon&#153; at our facilities at Malvern in the UK, and also have an
option to acquire additional BioSilicon from QinetiQ in the UK for use in internal and
collaborative research. Our lead product, BrachySil, is currently manufactured in accordance with
FDA guidelines by Hosokawa Micron Group, Atomising Systems Ltd, HighForce Ltd and AEA Technology
QSA GmbH. We require that BrachySil be manufactured in accordance with FDA guidelines because, in
the U.S., the FDA regulates the manufacturing processes used to produce products such as ours, and
the U.S. is the largest market into which we hope to be able to market BrachySil in the future. We
intend to apply to the FDA to market BrachySil in the U.S., which will require FDA certification of
our compliance with its regulations. We believe that our experience in manufacturing in compliance
with FDA guidelines should facilitate the application process. To date, we have not sought nor
have we received approval from the FDA of its manufacturing processes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;BioSilicon is manufactured through the controlled nano-structuring of elemental silicon. This
process consists of the acid etching of elemental silicon which results in the creation of
interconnected nanowire structures that resemble a honeycomb. This structure allows elemental
silicon to become biodegradable while also allowing the retention of therapeutic substances within
the honeycomb matrix. In order to produce suitable drug delivery devices, we have sought to
engineer products that fulfill particular clinical requirements. For example, in order to
administer therapies using fine bore needles of 18 gauge or smaller, the delivery device must be no
larger than 1.2 millimeters in diameter. The manufacture of BrachySil requires several steps.
These steps include:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The production of a fine powder of silicon;</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">28
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Measurement and separation of suitably-sized silicon particles for clinical application;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Acid etching to produce biodegradable silicon particles; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Phosphorus coating and neutron transmutation to produce particles coated with 32P.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to achieve the four steps above, we have sought to contract with four separate
companies, each an expert in one of the above manufacturing processes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have developed BioSilicon production capability at our own facilities in the UK.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During March&nbsp;2004 pSiMedica entered into a three year agreement with AEA Technology QSA for
the construction of a facility for the production and manufacture of radioactive 32P-BioSilicon
nano-structured microparticles to meet pSiMedica&#146;s commercial supply requirements. This facility
was completed in September&nbsp;2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Intellectual Property</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that we enjoy a strong intellectual property position, with core biomaterial
patents granted in the valuable United States and European markets. We own all intellectual
property rights in relation to BioSilicon for which there are as at December&nbsp;31, 2005, 36 granted
patents, 31 patent families and over 90 patent applications. The core patent, which recognizes
BioSilicon as a biomaterial, was granted in the United Kingdom in 2000 and the United States in
2001.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Product candidates and component materials protected by patents and patent applications owned
by pSiMedica include materials comprising bioactive, resorbable and biocompatible silicon that are
of value in the fabrication of new generations of intelligent drug delivery devices, orthopedic
implants and intelligent diagnostic tools.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2000, QinetiQ granted pSiMedica an exclusive, worldwide, royalty free license to
the BioSilicon technology in the field of human and animal healthcare and diagnostic applications
on or in the body. This license includes rights of first refusal over technologies developed by
QinetiQ related to this field. QinetiQ was granted 41.7% of the issued share capital on the
founding of pSiMedica in exchange for this license. In March&nbsp;2002, after we achieved certain
milestones, including the successful completion of its second round funding and the investment of
an additional one million pounds in pSiMedica, the license from QinetiQ was converted into an
assignment of such rights, including ownership of patents and other intellectual property. On
August&nbsp;4, 2004 we acquired the remaining shares QinetiQ held in pSiMedica. The consideration paid
was A$4.3&nbsp;million together with a total of 49,804,381 ordinary shares issued at a value of A$1.09
per share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our patent portfolio comprises patents and patent applications relating to the use of
BioSilicon on or in the body. All intellectual property rights for BioSilicon are owned royalty
free. pSiMedica holds granted patents that cover the broad use of BioSilicon in healthcare
applications and patents that relate more specifically to our core focus of specialized drug
delivery, targeted internal cancer therapy, diagnostics and the use of silicon in food and
pharmaceuticals.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Potential products protected by patents and patent applications owned by pSiMedica include
materials comprising bioactive, resorbable and biocompatible silicon that are of value in the
fabrication of new generations of intelligent drug delivery devices, orthopedic implants and
intelligent diagnostic tools.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table provides general details relating to our patents and patent applications;
it is based on information available on December&nbsp;31, 2005. The table does not include patents and
patent applications held by CDS (now pSivida Inc.) and acquired by us in the acquisition of CDS on
December&nbsp;30, 2005.
</DIV>

<P align="center" style="font-size: 10pt">29
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Priority Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Status</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Subject Matter</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="5" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">9515956.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">National applications (EP, JP, CA)<BR>
<B>Granted (GB1, GB2, US1, US2, KR1, KR2)</B><BR>
Divisional (US3)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to resorbable, bioactive, and
biocompatible forms of silicon. Further claims relate to
electronic devices and composites comprising bioactive
silicon.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">9808052.6
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">National applications (CA, JP, KR, US)<BR>
<B>Granted (AU, NZ, EP1, CN1)</B><BR>
Divisional (EP2, CN2)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to resorbable and biocompatible
silicon implants for the delivery of beneficial
substances to animals or humans.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">9815819.9
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">National applications (CA, CN, HK, JP, KR)<BR>
<B>Granted (US1, AU1, AU2, EP1, NZ)</B><BR>
Divisionals (US2, EP3)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to the transfer of material (such as,
but not limited to, genetic material) into cells using
porous or polycrystalline silicon. The claims also
specifically relate to biolistic (also known as
microprojectile) delivery.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">9909996.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">National applications (CA, CN, JP, KR, US)<BR>
<B>Granted (AU, EP, NZ)</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to the use of derivatised porous
silicon as a biomaterial and to devices, including
electronic devices, comprising derivatised porous
silicon.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">9924334.7
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">National applications (CA, JP, US)<BR>
<B>Granted (SG, AU, EP)</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to orally administrable pharmaceutical
products, including products comprising electronic
circuitry, comprising porous or polycrystalline silicon.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">9928511.6
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">National applications (CA, JP, US)<BR>
<B>Granted (EP, NZ, AU, SG)</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to an invention which is of value in
the treatment of patients that have taken an overdose.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">9929521.4
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">National applications (CA, EP, JP)<BR>
<B>Granted (NZ, AU, US1, SG)</B><BR>
<b>Accepted (US2)</b>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to a method of fabricating
hermetically sealed silicon capsules suitable for drug
delivery, and for the packaging of electronic implants.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">0008494.7
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">National applications (EU, JP)<BR>
<B>Granted (US)</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to substantially monodispersed (having
the same size or shape) porous silicon particles.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">0014079.8
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">National applications (US, JP, SG)<BR>
<B>Granted (AU1, EP1)</b><BR>
Divisional (AU2, EP2)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to a silicon composite material,
suitable for use in bone repair and bone replacement,
comprising silicon and a carrier material.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">0020276.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">National applications (US, CA, JP)<BR>
<B>Granted (EP, NZ, AU)</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to dermatological compositions
comprising porous and/or polycrystalline silicon.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">0104383.5
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">National applications (US, AU, CA, JP, EP)<BR>
<B>Granted (NZ, SG)</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to products comprising silicon for the
treatment of cancer.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">0118689.9
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">National applications (US, AU, CA, JP, EP, SG)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to the use of silicon for the
pulmonary delivery of drugs to human or animal patients.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">0120202.7
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">National applications (JP, EP, SG)<BR>
<B>Accepted (AU, US1)</B><BR>
Divisional (US2)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to sweat patches, including patches
comprising electronic circuitry, for the collection and
detection of sweat components.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">0130608.3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">National applications (US, EP, JP, AU, SG, CN, KR)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to silicon fibers or fabrics for
medical use.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">0212667.0
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">National applications (US, CA, JP, EP, AU, NZ)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">A novel orthopaedic scaffold, and a self-assembly
process for fabrication of such a scaffold.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">0302283.7
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">National applications (US, EP, JP, CN)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to the use of silicon for boron
neutron capture therapy.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">30
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Priority Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Status</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Subject Matter</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">0324483.7
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">International application (All PCT states)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to porous silicon compositions having
high levels of loading, and to methods of loading.</TD>
</TR>
<TR style="font-size: 6px">
<TD colspan="5" valign="top" align="left" style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">0324482.9
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">International application (All PCT states)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to chlorambucil/porous silicon and
taxol/porous silicon compositions for brachytherapy.</TD>
</TR>
<TR style="font-size: 6px">
<TD colspan="5" valign="top" align="left" style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">0400149.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">International application (All PCT states)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate a method of fabricating a phosphorous
containing silicon material.</TD>
</TR>
<TR style="font-size: 6px">
<TD colspan="5" valign="top" align="left" style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">0411358.5
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">International application (All PCT states)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to the fabrication of a consolidated
silicon particulate product. The method is of particular
value in the fabrication of inexpensive anodised porous
silicon.</TD>
</TR>
<TR style="font-size: 6px">
<TD colspan="5" valign="top" align="left" style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">0419653.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">International application (All PCT states)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to a syringe having a curved flexible
needle for introducing BrachySil into a tumor.</TD>
</TR>
<TR style="font-size: 6px">
<TD colspan="5" valign="top" align="left" style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">0420676.9
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">International application (all PCT states)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to a chronotherapeutic device.</TD>
</TR>
<TR style="font-size: 6px">
<TD colspan="5" valign="top" align="left" style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">0423383.9
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">International application (all PCT states) &#043;<BR>
Taiwanese application
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to ductile silicon structures, and
medical use of such structures.</TD>
</TR>
<TR style="font-size: 6px">
<TD colspan="5" valign="top" align="left" style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">0504657.8
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Priority Application
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to a new treatment for osteoporosis.</TD>
</TR>
<TR style="font-size: 6px">
<TD colspan="5" valign="top" align="left" style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">0508174.0
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Priority Application
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to Oral hygiene compositions.</TD>
</TR>
<TR style="font-size: 6px">
<TD colspan="5" valign="top" align="left" style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">0515357.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Priority Application
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to a silicon packaging material.</TD>
</TR>
<TR style="font-size: 6px">
<TD colspan="5" valign="top" align="left" style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">0515353.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Priority Application
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to the use of silicon in food products.</TD>
</TR>
<TR style="font-size: 6px">
<TD colspan="5" valign="top" align="left" style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">0519066.5
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Priority Application
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to an analytical device for testing
body fluids.</TD>
</TR>
<TR style="font-size: 6px">
<TD colspan="5" valign="top" align="left" style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">0519391.7
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Priority Application
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to tissue markers and contrast agents
comprising porous silicon</TD>
</TR>
<TR style="font-size: 6px">
<TD colspan="5" valign="top" align="left" style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">0526332.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Priority Application
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to a pharmaceutical product comprising
an excipient that melts at 37C.</TD>
</TR>
<TR style="font-size: 6px">
<TD colspan="5" valign="top" align="left" style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Not yet known
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Priority Application
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The claims relate to a composition comprising porous
silicon having one or more beneficial organic substances
covalently linked to the silicon surface.</TD>
</TR>
<TR style="font-size: 6px">
<TD colspan="5" valign="top" align="left" style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Notes:</I>
</DIV>




<DIV style="margin-top: 3pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">(a)</TD>
    <TD>&nbsp;</TD>
    <TD>Each invention group is identified by the earliest priority patent application number. Each
priority application is filed at the GB Patent Office, and hence the priority numbers are GB
application numbers.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(b)</TD>
    <TD>&nbsp;</TD>
    <TD>The table shows the status of each invention group. For example a case will typically be
filed as a priority GB application, it will then go on to be filed as an international patent
application. The final stages are national filing (for example in U.S., Europe, etc) and
grant.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(c)</TD>
    <TD>&nbsp;</TD>
    <TD>The nature of the protection provided by the claims is given in the &#147;Subject Matter&#148; part of
the table.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(d)</TD>
    <TD>&nbsp;</TD>
    <TD>Abbreviations are used to indicate the states in which national applications have been filed.
These abbreviations are as follows: AU = Australia, GB = Great Britain, CA = Canada, CN =
China, EP = Europe, HK = Hong Kong, JP = Japan, KR = Korea, NZ = New Zealand, SG = Singapore,
US = United States.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(e)</TD>
    <TD>&nbsp;</TD>
    <TD>Divisional applications are indicated by &#147;1&#148;, &#147;2&#148;, &#147;3&#148; etc, for example GB1, GB2, EP1, EP2,
US1, US2, US3.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(f)</TD>
    <TD>&nbsp;</TD>
    <TD>For NZ and AU applications the term &#147;accepted&#148; means that a Notice of Acceptance has been
received. For the EP applications, the term &#147;accepted&#148; means that a Rule&nbsp;51(4) EPC
Communication, in which the Applicant is informed of the intention to grant a patent, has been
received. For US applications the term &#147;accepted&#148; means that the Notice of Allowance has been
received. For China the term &#147;accepted&#148; means that a Decision on Granting of Patent Right has
been issued.</TD>
</TR>

</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have strengthened our intellectual property portfolio with the granting of an
additional 10 patents during the past year. In August&nbsp;2005, we were granted our fifth patent in
the important United States market which provides
</DIV>

<P align="center" style="font-size: 10pt">31
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">for the classification of porous silicon into monodispersed particles with a tight size
distribution. The classification into tight sized distributions is a key attribute of many
micro-engineered particle products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We were also granted our first patents in China and Korea. We believe that obtaining patent
coverage in China is important as China has the highest incidence of primary liver cancer in the
world with approximately 350,000 cases in 2002. The potential lower cost of the Chinese
registration pathway and the vast need of products treating liver cancer make China an important
commercial target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The two Korean patents provide protection for bioactive and resorbable silicon together with
the electronic-based properties of BioSilicon in the stimulation of orthopedic tissue repair and
re-engineering. The technology also has application for treatment of fractures that do not heal,
such as &#147;bone non-union&#148;. We believe that Korea&#146;s recognized strength in the design and manufacture
of micro-components for the electronics industry makes it an important jurisdiction for this
technology. We hope to capitalize on Korea&#146;s technology strengths as well as the higher margins
associated with healthcare products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that pSivida enjoys a strong intellectual property position, with core biomaterial
patents granted in the valuable United States and European markets. Granted patents are held for
each of our first three inventions that cover the broad use of BioSilicon in healthcare
applications, we own all intellectual property rights in relation to BioSilicon for which there are
as at December&nbsp;31, 2005, 36 granted patents, 31 patent families and over 90 patent applications.
QinetiQ, as a former agency of the United Kingdom government, under the terms of the initial
Intellectual Property assignment, is required to assist in the defense of any challenge to the
initial core patents.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Sales and Marketing</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have no experience in the sales, marketing and distribution of healthcare products. If in
the future we fail to reach or elect not to enter into an arrangement with a collaborative partner
with respect to the sales and marketing of any of our future products, we would need to develop a
sales and marketing organization with supporting distribution capability in order to market such
products directly. Significant additional expenditures would be required for us to develop such a
sales and marketing organization.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Competition</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are engaged in healthcare product development, an industry that is characterized by
extensive research efforts and rapid technological progress. Many established biotechnology
companies, universities and other research institutions with financial, scientific and other
resources significantly greater than ours are marketing or may develop products that directly
compete with any products we may develop. These entities may succeed in developing products that
are safer, more effective or less costly than products we may develop. Even if we can develop
products which should prove to be more effective than those developed by other companies, other
companies may be more successful than us because of greater financial resources, greater experience
in conducting preclinical studies and clinical trials and in obtaining regulatory approval,
stronger sales and marketing efforts, earlier receipt of approval for competing products and other
factors. If we commence significant commercial sales of any products, we or our collaborators will
compete in areas in which we have no experience, such as marketing. There can be no assurance that
our products, if commercialized, will be accepted and prescribed by healthcare professionals.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our principal competitors in this market are the numerous drug delivery and pharmaceuticals
companies that are attempting to improve the safety and efficiency of pharmaceuticals by developing
and introducing novel delivery methods. Most of these companies aim to deliver drugs with
polymer-based systems, some of which are not biodegradable. We do not know of any other company
that is developing a non-polymer &#151; i.e., pure element &#151; drug delivery system.
</DIV>

<P align="center" style="font-size: 10pt">32
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Revenue</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table details the revenue recognized by the company by type and by geographical
location for the years ended June&nbsp;30, 2005, 2004 and 2003.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Years Ended June 30</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="center"><B>(In Australian Dollars)</B><BR></TD>
</TR>

<TR valign="bottom"  style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest income on bank deposits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Australia</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">636,035</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">250,427</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,065</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"  style="background: #cceeff">
<TD><DIV style="margin-left:30px; text-indent:-15px">United Kingdom</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,276</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64,130</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72,729</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Singapore</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,999</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,922</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,881</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
<TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"  style="background: #cceeff">
<TD><DIV style="margin-left:15px; text-indent:-15px">Total interest income on bank deposits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">667,310</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">325,479</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">110,675</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
<TD><DIV style="margin-left:15px; text-indent:-15px">Other revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Australia</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">888</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
<TD><DIV style="margin-left:30px; text-indent:-15px">United Kingdom</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">161,666</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,312</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Singapore</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
<TD><DIV style="margin-left:15px; text-indent:-15px">Total other revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">161,666</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Total Revenue</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">828,976</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">381,679</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">110,675</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Business of pSivida Inc.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;30, 2005 we completed the acquisition of a 100% interest in Control Delivery
Systems, Inc., which was then renamed pSivida Inc. Because of the
short amount of time since the completion of the acquisition, we have
not yet integrated the business and operations of pSivida Inc. with the other business and operations of
pSivida. The following information relates only to the business of pSivida Inc.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Overview</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> designs and develops innovative sustained-release drug delivery
products. Our two proprietary drug delivery systems, AEON and CODRUG, deliver specific quantities
of drugs directly to a target site in the body at controlled rates for predetermined periods of
time ranging from days to years. These systems are designed to address drawbacks of systemic drug
delivery for our target diseases: adverse side effects characteristic of high dosing levels and
reduced treatment benefits due to variations in drug levels at the target site.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> has two commercial products utilizing the AEON system approved by the
FDA for treatment of two sight threatening eye diseases. These two products, Vitrasert and
Retisert, are the only local sustained-release products approved by the FDA for the back of the
eye. Marketed by Bausch &#038; Lomb and sold since 1996, Vitrasert is one of the most effective
treatments for CMV retinitis, a disease that afflicts late-stage AIDS patients. Approved by the
FDA in April&nbsp;2005 and also marketed by Bausch &#038; Lomb, Retisert treats chronic noninfectious uveitis
affecting the posterior segment of the eye, or posterior uveitis, a leading cause of vision loss.
Bausch &#038; Lomb is also conducting two long-term multi-center clinical trials of Retisert for the
treatment of  DME, another leading cause of vision loss. Medidur, an
injectable AEON product, is also designed to treat DME and is currently in fast-track Phase III
clinical trials conducted by Alimera Sciences Inc. pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> also has two AEON product
candidates in pre-clinical studies for other back of the eye diseases.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To date, pSivida Inc. has focused its efforts primarily on research and development of
products based on its AEON system. In Phase I Studies, pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> has explored the use
of its CODRUG system for the treatment of post-surgical pain and two skin diseases.
</DIV>

<P align="center" style="font-size: 10pt">33
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;pSivida Inc<FONT style="font-variant: SMALL-CAPS">.&#146;</FONT>s products and product candidates are currently at the following stages
of development for the listed diseases:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Disease</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Stage of Development</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><I>AEON System</I>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-0px">CMV retinitis
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">FDA approved and commercialized</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-0px">Posterior uveitis
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">FDA approved and commercialized</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-0px">Diabetic macular edema
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Phase III trials (fast-track)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-0px">Dry age-related macular degeneration
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Pre-clinical development</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-0px">Retinitis pigmentosa
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Pre-clinical development</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><I>CODRUG System</I>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-0px">Post-surgical pain
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Phase I</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-0px">Psoriasis/Actinic keratosis
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Phase I</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Market Overview</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Drug Delivery Generally</I>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The therapeutic value of a drug depends on its distribution throughout the body, reaction with
the targeted site, reaction with other tissues and organs in the body, and clearance from the body.
In an ideal treatment, the appropriate amount of drug is delivered to the intended site in the
body and maintained there for an adequate period of time without adversely affecting other tissues
and organs. Accordingly, the manner in which a drug is delivered can be as important to the
ultimate therapeutic value of the treatment as the intrinsic properties of the drug itself.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Drugs are typically administered systemically by oral dosing or by injection and are
subsequently dispersed throughout the body via the circulatory system. In many cases, systemic
administration does not deliver drugs to the intended site at an adequate concentration for a
sufficient period of time or fails to achieve the maximum potential therapeutic benefit.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because systemically delivered drugs disperse throughout the body, they often must be
administered at high dosage levels in order to achieve sufficient concentrations at the intended
site. Some areas of the body, such as the eyes, joints, brain, and nervous system, have natural
barriers that impede the movement of drugs to those areas, requiring the administration of even
higher systemic doses. These high dosage levels can cause harmful side effects when the drug
interacts with other tissues and organs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Timely and repeated administration of drugs by the patient is often necessary to maintain
therapeutic drug levels over an extended period of time. Patients, however, often fail to take
drugs as prescribed and, as a result, do not receive the potential therapeutic benefit. The risk
of patient noncompliance increases if multiple drugs are required, if the dosing regimen is
complicated, or if the patient is elderly or cognitively impaired.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due to the drawbacks of traditional systemic drug delivery, the development of novel methods
to deliver drugs to patients in a more precise, controlled fashion over sustained periods of time
has become a multi-billion dollar industry. More recently developed drug delivery methods include
oral and injectable controlled-release products and skin patches. These methods seek to improve
the consistency of the dosage over time and extend the duration of delivery. However, most of
these methods still cannot provide constant, controlled dosage or deliver drugs for a sufficiently
long duration. This reduces their effectiveness for diseases that are chronic or require precise
dosing. In addition, most of these methods still deliver drugs systemically and, as a result, can
still cause adverse systemic side effects.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Ophthalmic Drug Delivery</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Treatment for diseases in the back of the eye is a significant issue in ophthalmology. Due to
the efficiency of the blood/eye barrier, it is difficult for systematically administered drugs to
reach the eye in sufficient quantities to
</DIV>

<P align="center" style="font-size: 10pt">34
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">have a beneficial effect. There is a need for delivering drugs inside the eye in a manner that
is safe, effective, and practical for long-term use. While there are currently many approaches to
delivering medications to the eye, most do not achieve sufficient concentrations within the eye for
the appropriate period of time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Injecting solutions of drugs directly into the back of the eye can achieve effective but often
transient drug levels in the eye, requiring repeated injections. Examples include Macugen<FONT style="font-family: Symbol">&#212;</FONT>
(pegaptanib sodium) and Lucentis<FONT style="font-family: Symbol">&#212;</FONT> (ranibizumab, formerly RhuFab V2), both of which must be
injected into the eye approximately every month. Apart from inconvenience and cost, repeated
intravitreal injections carry the risk of cataract formation, perforated schlera, vitreous
hemorrhage and serious intraocular infection.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>The pSivida Inc. Technology Systems</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;pSivida Inc<FONT style="font-variant: SMALL-CAPS">.&#146;</FONT>s two proprietary technology systems, the AEON system and the CODRUG
system, are designed to offer three principal advantages:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Localized Delivery</I>. The AEON and CODRUG systems permit implantation, injection or
other application directly at the target site. The<FONT style="font-variant: SMALL-CAPS"> </FONT>delivery systems of
pSivida Inc. use the natural barriers of the body to isolate and maintain appropriate
concentrations of the drug at the target site in an effort to achieve the maximum
therapeutic effect of a drug while minimizing unwanted systemic effects.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Controlled Release Rate</I>. The AEON and CODRUG systems release drugs at a constant or
controlled rate. We believe that this allows the products and product candidates of
pSivida Inc<FONT style="font-variant: SMALL-CAPS">. </FONT>to maintain the optimal drug concentration at a target site and
eliminate variability in dosing over time.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Extended Delivery</I>. The AEON and CODRUG systems deliver drugs for predetermined
periods of time ranging from days to years. We believe that uninterrupted, sustained
delivery offers the opportunity to develop products that reduce the need for repeat
applications, eliminates the risk of patient noncompliance and provides more effective
treatment.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>AEON System</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The AEON system uses a drug core with one or more surrounding polymer layers. The drug
permeates through the polymers into the body at a controlled rate for a predetermined period of
time ranging from days to years. By changing the design of the AEON system, pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT>
can control both the rate and duration of release to meet different therapeutic needs. We believe
that the AEON system might be used to deliver a wide variety of different drugs. pSivida
Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> is currently using AEON technology for all of its ophthalmic products and product
candidates. As of the date of this annual report, pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> either has, or has
exclusive licenses to, 34 issued patents and 133 patent applications covering different aspects of
its AEON technology.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Vitrasert, Retisert and Medidur represent the evolution of the AEON system. Vitrasert is a
device surgically implanted through a 5-6 mm incision that releases drug from its core for
approximately 6-8&nbsp;months. Retisert is a device implanted through a 3-4 mm incision that releases
drug from its core for 30&nbsp;months. Medidur is a device injected through a needle to the back of the
eye in an in-office procedure designed to release drug from its core for up to three years.
pSivida Inc. is working to develop a bioerodible Medidur system.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>CODRUG Technology</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;pSivida
Inc.'s proprietary CODRUG system allows for the simultaneous release of two or more drugs from
the same product at the same controlled rate over a predetermined period of time. Using this
technology, pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> chemically links together two or more identical or different
drugs. CODRUGs can be administered by virtually any delivery method. Regardless of delivery
method, CODRUGs dissolve into the body at a predetermined rate and then separate into the original
active drug(s) when the chemical bond breaks apart. We believe that many drugs can be chemically
linked with our CODRUG technology and has synthesized a library of approximately 298 CODRUG
compounds. pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> has performed Phase I clinical trials involving CODRUGs for the
treatment of post-surgical pain and two skin diseases. As of the date of this annual report,
pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> either has, or has exclusive licenses to, three issued patents and 69 patent
applications covering its CODRUG technology.
</DIV>

<P align="center" style="font-size: 10pt">35
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Products and Product Candidates of pSivida Inc</I></B><I>.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;pSivida Inc.&#146;s products, Vitrasert and Retisert, are the only two sustained-release products
approved by the FDA for back of the eye diseases. The Vitrasert AEON implant is approved for the
treatment of CMV retinitis and the Retisert AEON implant is approved for the treatment of posterior
uveitis, both sight-threatening diseases. pSivida Inc. also has AEON product candidates for
DME, dry age-related macular degeneration, or AMD, and retinitis pigmentosa, or RP, three other
sight-threatening diseases.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;pSivida Inc. is also developing two products, currently in Phase I clinical trials, that rely
on its CODRUG system to treat post-surgical pain and the skin disorders psoriasis and actinic
keratosis, or AK.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Sight-Threatening Eye Diseases</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>CMV Retinitis</I>. Our Vitrasert implant treats CMV retinitis, a blinding eye disease that
frequently occurs in individuals with advanced AIDS. Vitrasert provides sustained treatment of the
disease through the intravitreal delivery of the anti-viral drug ganciclovir for six to eight
months. Vitrasert has been marketed and sold since 1996, first by Chiron Corporation and
subsequently by Bausch &#038; Lomb. Although CMV retinitis was common in the early 1990s, improvements
in the treatment of AIDS/HIV have since significantly decreased the incidence of the disease in
more developed countries. pSivida Inc.&#146;s implant has been used in over 12,000 eyes since 1996.
Studies show that Vitrasert is one of the most effective approved treatments for CMV retinitis.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Posterior Uveitis</I>. Our Retisert implant for treatment of posterior uveitis was approved by
the FDA in April&nbsp;2005, the first drug approved by the FDA to treat this disease. Posterior uveitis
is an autoimmune condition characterized by inflammation of the inside of the eye that can cause
sudden or gradual vision loss. Retisert was approved as an orphan
drug and has seven-year exclusive
marketing rights that the FDA provides for orphan drugs first approved for a particular indication.
Retisert is marketed and sold by Bausch &#038; Lomb.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Like Vitrasert, Retisert is implanted into the back of the eye in a simple, outpatient
procedure. It delivers sustained levels of the anti-inflammatory corticosteroid, fluocinolone
acetonide or FA, for 30&nbsp;months. The most common adverse events &#151; which are anticipated given the
nature of the disease and the type of drug used &#151; include cataract progression, which is managed
by standard cataract surgery, increased intraocular pressure, which is managed with the use of
interocular pressure, or IOP-, lowering eye drops or filtering surgery; and procedural
complications and eye pain. Although no other drugs are approved for posterior uveitis, off-label
treatments include steroidal eye drops, ocular injections of steroids, orally administered
steroids, immunosuppressants, and chemotherapy. These treatments, if successful, generally only
slow the progression of the disease and can have serious side effects such as severe osteoporosis,
muscle wastage, psychosis, cancer and stunted growth. Bausch &#038; Lomb estimates that posterior
uveitis affects 175,000 people in the United States and 800,000 people worldwide.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In two clinical trials involving patients with posterior uveitis, patients were implanted with
either a 2.1 mg or a 0.59 mg Retisert device. In patients with the 0.59 mg device, the rates of
recurrence in the 34&nbsp;weeks after implantation ranged from approximately 7% to 14% compared to
approximately 40% and 54% for the 34&nbsp;week pre-implantation period. In the first study involving
over 250 patients, 10% of those receiving an implant (either dose) experienced a three line
improvement on the eye chart in vision at 34&nbsp;weeks, while in the second study of 234 patients, 21%
experienced an improvement of three lines at 34&nbsp;weeks. The main side effects were elevated
intraocular pressure and cataracts. After two years, approximately 30% of patients with posterior
uveitis with a Retisert implant required a second operation to reduce pressure, and substantially
all patients with a Retisert implant developed cataracts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Diabetic Macular Edema. </I>pSivida Inc.&#146;s injectable Medidur product is currently in Phase III
trials for treatment of diabetic macular edema, a disease causing swelling in the macula, the most
sensitive part of the retina, and a major cause of vision loss in
diabetics and a leading cause of vision loss for Americans under 65. We are not aware of
any approved drug treatment for this disease. It is currently treated by laser therapy, which
burns the retina either in specific sites or in a grid, and vitrectomy, eye surgery that involves
the removal of the vitreous gel from the cavity of the eye. Both have serious limitations, which
include repeat treatments or invasive surgical procedures. Both treatments generally only
temporarily reverse vision loss and slow the progression of the disease.
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Medidur is an implant small enough to be injected through a needle to the back of the eye and
is expected to release drug for up to three years. Alimera Sciences is currently conducting two
Phase III clinical trials for Medidur to treat DME which will follow 900 patients in the U.S. and
Europe for 36&nbsp;months. If approved, pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> has licensed Alimera Sciences to market
and sell Medidur for DME.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Bausch &#038; Lomb is also conducting two randomized, multi-center trials using the Retisert
implant to treat DME, which follow 277 patients for 36&nbsp;months. At two years, both Bausch &#038; Lomb studies showed a statistical difference in
vision of three lines in patients with Retisert implants. Specifically, in the smaller study at
two years, 37% of patients with Retisert implants experienced an improvement in vision of three
lines compared with 14% of the patients randomized to standard of care. In addition, more Retisert
patients had a complete resolution of their edema, and fewer patients had a worsening of their
diabetic retinopathy (both also statistically significant). In the larger study, 28% of patients
with Retisert experienced a three line improvement compared to 9% of patients receiving standard of
care. More patients with Retisert had complete resolution of their edema at two years, and fewer
patients with Retisert had a worsening of their diabetic retinopathy (both statistically
significant). As with Retisert for uveitis, the primary side effects were elevated intraocular
pressure and cataracts. Two years after receiving the Retisert implant, approximately 20% of
patients with DME needed a second surgery to reduce intraocular pressure while essentially all
Retisert patients developed cataracts. We are unable to predict the outcome of these trials at
three years. pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> has licensed the rights with respect to Retisert for DME to
Bausch &#038; Lomb.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Dry Age-Related Macular Degeneration. </I>pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> is in pre-clinical development of
a Medidur product to treat dry age-related macular degeneration. AMD is a leading cause of visual
impairment in Americans over 60 and affects over 10&nbsp;million people in the United States. With dry
AMD, the cells in the central retina die slowly resulting in gradual central vision loss. There
are currently no approved treatments for dry AMD though some studies show that treatment with high
doses of antioxidants and zinc may help delay its development in individuals with less severe forms
of dry AMD.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Retinitis Pigmentosa</I>. pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> is in pre-clinical development of a Medidur
product to treat retinitis pigmentosa. RP comprises a group of inherited eye diseases that affect
the retina, causing the degeneration of photoreceptor cells and resulting in progressive vision
loss. Approximately 100,000 adults in the U.S. have RP. RP is currently treated by antioxidants
such as vitamin A palmitate, which have been shown to slightly slow the progression of the disease.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Non-Ophthalmic Disorders</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Post-Surgical Pain Management</I>. pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> is conducting Phase I clinical trials
for an injectable, biodegradable product for post-surgical pain based on its CODRUG system.
Post-surgical pain is caused by the trauma inflicted on the body by surgical intervention. Doctors
treat post-surgical pain with a variety of drugs, including narcotics and local anesthetics.
Narcotics are typically delivered systemically, either orally or intravenously, and are often used
to treat pain that affects large areas of the body. Narcotics are associated with a variety of
side effects including dizziness, decreased mental and physical capability, excessive sleepiness
and sedation, nausea, and potential dependency. Local anesthetics work for a short period of time
directly at the incision or surgical site to dull feeling without causing sleepiness or loss of
sensation in other body parts. Local anesthetics are commonly delivered by injection and have fewer
side effects than narcotics. Local anesthetics also may be delivered following surgery through an
external pump that delivers the drug to the surgical site through a catheter. Other than through
use of the external pump, which is expensive and poses a risk of serious infection, local
anesthetics cannot be delivered locally by patients at home, leading patients to rely on systemic
narcotics.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Psoriasis and Actinic Keratosis</I>. pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> is studying another CODRUG product
candidate for the treatment of two chronic skin disorders, psoriasis and actinic keratosis, and
successfully completed a Phase I trial of this product candidate in the UK involving 20 patients in
2004. Psoriasis is an autoimmune skin disorder in which the growth cycle of skin cells speeds up
from approximately one month to three or four days, causing inflamed lesions. In more cases,
lesions can cover a significant portion of the body, including the face, hands, and feet.
Psoriasis has no cure. The National Psoriasis Foundation estimates that more than 4.5&nbsp;million
adults in the United States have
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">psoriasis. Treatments include topical treatment of the skin with corticosteroids,
phototherapy, or light (including sunlight) and oral or intravenous medications designed to
suppress the immune system.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;AK is a common skin condition characterized by scaly or crusty bumps on the skin surface that
are horn-like, dry and rough and range in size from one-quarter to one-inch in diameter. AK
lesions are pre-cancerous, with up to 10% of active lesions progressing to squamous cell
carcinomas. AK affects approximately 10&nbsp;million people in the United States and AK lesions are the
most common premalignant lesions in the United States. AK can be treated through surgical removal,
electrical cautery, cryosurgery, chemical peels and topical medications if caught in an early stage
but, if neglected, may metastasize and spread to internal organs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A problem in the treatment of both psoriasis and AK has been effecting the penetration of
drugs through the outer skin layers. The impermeability of many drugs used to treat these
conditions can necessitate systemic delivery, despite the drawbacks of the associated side effects.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Strategic Collaborations</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> has entered into three collaboration agreements to develop and
commercialize its initial products and product candidates, Vitrasert, Retisert and Medidur. In all
of these agreements, pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> retains its rights to the underlying technologies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Chiron Vision Corporation</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;pSivida Inc<FONT style="font-variant: SMALL-CAPS">.&#146;</FONT>s first collaboration was with Chiron Vision Corporation, a subsidiary
of Chiron Corporation. Under a 1992 licensing and development agreement, Chiron Vision financed
the development of Vitrasert, and pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> granted Chiron Vision a worldwide,
exclusive license to make and sell products based on the AEON technology used in Vitrasert for the
treatment of conditions of the eye. Chiron Vision commenced commercial sales of Vitrasert
following FDA approval in 1996. Bausch &#038; Lomb acquired Chiron Vision in 1997, assumed this
agreement and currently markets and sells Vitrasert. Bausch &#038; Lomb pays pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT>
royalties on net sales of Vitrasert under its current agreement, described further below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Bausch &#038; Lomb Incorporated</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 1999, pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> entered into a licensing and development agreement with Bausch
&#038; Lomb for additional products for the treatment of eye diseases. pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> granted
Bausch &#038; Lomb a worldwide, exclusive license for the life of the relevant patents to use its
technologies for the treatment, prevention or diagnosis of any disease, disorder or condition of
the eye in humans or in animals.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2003, the two companies entered into an amended and restated license agreement
that significantly revised the 1992 and 1999 agreements. Under this new agreement, pSivida
Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> granted Bausch &#038; Lomb a worldwide, exclusive license to certain of pSivida
Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> technologies to make and sell Vitrasert and pSivida Inc<FONT style="font-variant: SMALL-CAPS">.&#146;</FONT>s first generation
products, as defined in the agreement, including the Retisert device, for the treatment, prevention
and diagnosis of any disease, disorder or condition of the human eye. Bausch &#038; Lomb agreed to pay
pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> royalties based on net sales for any products that meet the definition of
first generation products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> also granted Bausch &#038; Lomb a non-exclusive license to these technologies
to make and sell certain other products for the delivery of specified active ingredients, using
specified delivery systems, methods of delivery and anchoring methods, to be used in specified
locations for specified indications. If Bausch &#038; Lomb did not commence an Investigational New
Drug, or IND, a status granted by the FDA to investigational drugs approved for administration to
humans, for any such product by December&nbsp;9, 2005, pSivida Inc. may terminate the non-exclusive
license for such product (unless this breach is cured within
90&nbsp;days of receipt of notice). We are not aware as to whether Bausch &#038; Lomb has commenced an IND for any such product. If Bausch &#038; Lomb
does market such products, it will pay pSivida Inc. a royalty based on net sales of the products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Bausch &#038; Lomb is responsible for funding and managing the development and commercialization of
all products under the agreement. Bausch &#038; Lomb also agreed to pay pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> specified
amounts if it achieved certain milestones related to certain licensed products.
</DIV>

<P align="center" style="font-size: 10pt">38
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> agreed not to develop, commercialize or license to a third party rights
to develop or commercialize any product to treat posterior uveitis so long as (1)&nbsp;Bausch &#038; Lomb is
actively pursuing the commercialization of a product to treat uveitis for which Bausch &#038; Lomb would
be required to pay pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> a specified level of royalty, and (2)&nbsp;Bausch &#038; Lomb is not
selling any other uveitis product for which it would not be required to pay pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> a
specified level of royalty. pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> also may not develop, commercialize or license
any product that meets the definition of first generation product as long as Bausch &#038; Lomb has an
exclusive license to such products using pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> technologies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Bausch &#038; Lomb may terminate this agreement, in its entirety or with respect to Vitrasert or
any non-exclusively licensed product, at any time on 90&nbsp;days&#146; written notice. In the event Bausch
&#038; Lomb terminates the agreement in its entirety, Bausch &#038; Lomb&#146;s license to the pSivida
Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> technologies will terminate. In the event Bausch &#038; Lomb terminates the agreement
with respect to Vitrasert or a non-exclusively licensed product, Bausch &#038; Lomb will lose the right
to rely upon pSivida Inc.&#146;s intellectual property to make and sell the relevant product.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Alimera Sciences Inc.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2005, pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> granted Alimera Sciences a world-wide exclusive right
to use certain pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> technologies to make and sell, for the treatment and
prevention of eye diseases (except uveitis) in humans products that have a drug core within a
polymer layer and are approved or designed to be approved to deliver only specified compounds by a
direct delivery method to the posterior portion of the eye. In addition, pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT>
granted to Alimera Sciences a world-wide exclusive right to use certain pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT>
technologies to treat DME by delivering a compound or formulation by a direct delivery method other
than through specified incisions, and which are not exclusively licensed to Bausch &#038; Lomb.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A joint development team of both parties is responsible for monitoring the execution of
activities under the development plan for licensed products. pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> and Alimera
Sciences each pays codevelopment costs that are incurred included in the development budget. The
agreement provided for Alimera Sciences to pay a licensing fee and milestone payment to pSivida
Inc. Alimera Sciences has sole responsibility for making commercially reasonable efforts to
commercialize products licensed under the agreement and for paying all costs and expenses incurred
in connection with such commercialization. After a product becomes profitable in a country,
Alimera Sciences and pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> share the net profits for that product in that country,
subject to Alimera Sciences&#146; pre-profitability net losses for that product. If either party fails
to pay the other party its share of development costs, the unpaid amount plus a delay charge is
recouped from net profits and, in the case of pSivida Inc<FONT style="font-variant: SMALL-CAPS">.,</FONT> milestone payments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Improvements and other inventions developed during the term in whole or in part by Alimera
Sciences that are covered by or derived from the practice of the licensed pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT>
technologies are jointly owned by Alimera Sciences and pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT>, except for
improvements specifically related to active ingredients provided by Alimera Sciences, which are
owned by Alimera Sciences. Each party is free to use and sublicense such improvements, except that
Alimera Sciences shall not have the right to use such improvements in connection with ophthalmic
drug delivery devices (or related methods or processes) that include a drug core.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Either party may terminate the agreement for the other party&#146;s failure to make a development
payment. Either party may terminate the agreement with respect to a particular product if the
other party gives written notice of its intent to abandon the product. The agreement provides for
specific, exclusive remedies in the event of termination resulting from the occurrence of one of
the above events.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Sales and Marketing</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Bausch &#038; Lomb currently markets and sells both Vitrasert and Retisert and has rights to market
and sell any other products licensed to Bausch &#038; Lomb. Alimera Sciences has the rights to market
and sell Medidur for DME if approved and any other products developed under its license agreement
with pSivida Inc. In the future, pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> may independently commercialize and sell
some of its other products. In appropriate cases, pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> may also enter into joint
marketing or license arrangements for other products.
</DIV>

<P align="center" style="font-size: 10pt">39
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Reimbursement</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The successful commercialization of pSivida Inc<FONT style="font-variant: SMALL-CAPS">.&#146;</FONT>s products will depend in
significant part on the extent to which reimbursement of the cost of the products and the related
implantation or injection procedures will be available from government health administration
authorities, private health insurers, and other organizations. Medicaid and Medicare, most major
health maintenance organizations, and most health insurance carriers reimburse $4,240 for the cost
of the Vitrasert implant, with additional reimbursement for associated surgical fees. The Centers
for Medicare and Medicaid Services recently designated Retisert as eligible for Medicare
reimbursement at the rate of $19,345, with associated surgical fees to be reimbursed separately.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Patents, Licenses and Intellectual Property</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Intellectual Property Strategy</I>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;pSivida
Inc<FONT style="font-variant: SMALL-CAPS">.</FONT>&#146;s commercial success will depend, in part, on its ability to obtain
patent protection in the United States and elsewhere for its products or its processes. pSivida
Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> therefore seeks, whenever possible, to obtain protection for these products and
processes. pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> also seeks to expand our product and process portfolio through
collaborations, funded research and licensing technology from others.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Patents and Patent Applications</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> has filed and continues to file patent applications with respect to
multiple aspects of its technologies, products, and processes. As of the date of this annual
report pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> has, or has exclusive rights to, 12 United States patents and 26
foreign patents. In addition, as of the date of this annual report, pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> has, or
has exclusive rights to, 42 patent applications pending in the United States and 167 patent
applications pending in foreign countries. pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT>&#145;s patents expire at various dates
starting in 2012.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Of the above-referenced issued patents, the University of Kentucky Research Foundation holds 6
United States patents and 12 related foreign patents on aspects of pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT>&#145;s
technologies. pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> has exclusive licenses for these patents and related know-how
and is obligated to pay the University of Kentucky Research Foundation royalties based on
sublicensing of these patents and sales of products utilizing these patents.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Other Proprietary Rights</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Some
elements of pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT>&#146;s products, processes, and methods of manufacturing
involve unpatented proprietary technology, processes, know-how, or data. With respect to
proprietary technology, know-how, and data that are not patentable or potentially patentable or
processes other than production processes for which patents are difficult to enforce, pSivida
Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> has chosen or may chose to protect its interests by relying on trade secret
protection and confidentiality agreements with its employees, consultants and contractors. To
maintain the confidentiality of trade secrets and proprietary information, pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT>
maintains a policy of requiring employees, scientific advisors, consultants and collaborators to
execute confidentiality and invention assignment agreements upon commencement of a relationship.
These agreements are designed both to enable pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> to protect its proprietary
information by controlling the disclosure and use of technology to which pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> has
rights, and to provide for its ownership of proprietary technology that pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT>
develops.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Competition</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The pharmaceutical and drug delivery industries are highly competitive. Vitrasert primarily
competes with treatments involving the systemic delivery of ganciclovir, a Roche Holdings AG
product, and other drugs. Retisert is the only FDA approved treatment for posterior uveitis,
though steroids and other existing drugs approved for other uses are commonly administered
systemically or by local injection to treat this condition in off-label use. In addition, pSivida
Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> expects that its proposed products, if approved, will compete with existing therapies
for pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT>&#146;s targeted diseases as well as new drugs, therapies, drug delivery
systems or technological approaches that may be developed to treat these diseases or their
underlying causes.
</DIV>

<P align="center" style="font-size: 10pt">40
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We expect that pSivida Inc<FONT style="font-variant: SMALL-CAPS">.&#146;</FONT>s products and product candidates, if approved, will
compete with existing therapies for its targeted diseases, as well as new drugs, therapies, drug
delivery systems, or technological approaches that may be developed and approved to treat these
diseases or their underlying causes as well as off-label use of products approved to treat other
diseases. We believe that pharmaceutical, drug delivery, and biotechnology companies, research
organizations, governmental entities, universities, hospitals, other nonprofit organizations, and
individual scientists are seeking to develop therapies for pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT>&#145;s targeted
diseases. For many of its targeted diseases, competitors have alternate therapies that are already
commercialized or are in various stages of development ranging from discovery to advanced clinical
trials. Most of the entities with whom pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> will or may compete are much larger,
have much greater financial resources and have much more experience in drug development and sale
than pSivida Inc.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Many companies are pursuing products to treat back of the eye diseases. These include the
following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Eli Lilly and Company is in advanced clinical trials for its protein kinase C beta
inhibitor for the treatment of diabetic retinopathy.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Genentech, Inc. has developed an FDA approved cancer drug, Avastin, which may be
used as an off-label treatment for DME.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Novartis Ophthalmics AG markets cyclosporine, which is used for the systemic
treatment of uveitis.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Allergan, Inc. is in Phase III clinical trials of its product, Posurdex<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP> for the
treatment of persistent macular edema. If approved by the FDA, this product may be
used off-label for the treatment of DME or edema associated with diabetes. In
addition, Allergan and EntreMed, Inc. are collaborating on a program to develop a
treatment for AMD that is at the pre-clinical development stage.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Eyetech Pharmaceuticals, Inc., which recently entered into an agreement to be
acquired by OSI Pharmaceuticals, Inc., has an intraocular injectable product, Macugen,
approved to treat wet AMD and had commenced pivotal clinical trial for the use of
Macugen in the treatment of DME. In addition, Eyetech entered into a collaboration
with Pfizer, Inc. to co-promote Macugen.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>SurModics Inc. has initiated a Phase I clinical trial of a helical coil coated with
drug releasing polymer which is implanted in the back of the eye to treat DME.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Neurotech SA has completed Phase I clinical trials of its NT-501, a cell-based
implant that releases ciliary neurotrophic factor for the treatment of RP.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> successfully develops a product for post-surgical pain, it will
compete against numerous options available for the management of post-surgical pain, including
narcotic and non-narcotic anesthetics delivered orally, by catheter, or by pump. Products in
development in the United States include Pfizer&#146;s injectable cyclooxygenase-2 inhibitor parecoxib,
SkyePharma&#146;s sustained-release injectable DepoBupivacaine anesthetic, AP Pharma, Inc.&#146;s APF112, a
long acting anesthetic in Phase I trials, and Omeros Medical Systems, Inc.&#146;s OMS-103HP, a product
in Phase II clinical trials for the management of pain following orthopedic surgery, Durect
Corporation&#146;s product in Phase III clinical trials designed to treat post-surgical pain through the
sustained release of a local anesthetic, and a number of products in clinical trials designed to
evaluate the sustained release of bupivacaine, a local anesthetic.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> successfully develops a product for psoriasis, it is likely to
compete against various products that are currently marketed or in the final stages of evaluation
for the treatment of psoriasis. Topical agents include Allergan&#146;s Tazorac<FONT style="font-family: Symbol">&#210;</FONT> cream and gel and
Bristol-Myers Squibb Co.&#146;s Dovonex<FONT style="font-family: Symbol">&#210;</FONT> cream and ointment. Allergan also is developing an oral
formulation of its Tazorac product, which is in Phase III trials. Oral agents also include Roche&#146;s
Soriatane<FONT style="font-family: Symbol">&#210;</FONT> product. The first of a class of biologic agents for more severe forms of the
disease has recently been approved for U.S. marketing by Biogen, Inc. Others are currently in
late-stage clinical trials, including the Enbrel<FONT style="font-family: Symbol">&#210;</FONT> (Amgen, Inc.) and Raptiva<FONT style="font-family: Symbol">&#212;</FONT>
(Genentech, Inc. and Xoma, Inc.) injectable products. If pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> successfully
develops a product for AK, it will compete against a variety of AK treatment options
</DIV>

<P align="center" style="font-size: 10pt">41
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">currently available, including 5-fluorouracil cream, surgical removal, electrical cautery,
cryosurgery and chemical peels.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Legal Proceedings</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A potential lender to pSivida Inc. has claimed a break-up fee as a result of the royalty
advance agreement between pSivida Inc. and Bausch &#038; Lomb. An investment banker has claimed an
advisory fee in connection with that agreement as well as the acquisition of pSivida Inc. by
pSivida. We intend to defend against these claims.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Government Regulation</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign
countries impose substantial requirements upon the clinical development, manufacture and marketing
of pharmaceutical products. These agencies and other federal, state and local entities regulate
research and development activities and the testing, manufacture, quality control, safety,
effectiveness, labeling, storage, record keeping, approval, advertising and promotion of our drug
delivery products. The process required by the FDA under the new drug provisions of the Federal
Food, Drug, and Cosmetic Act before our products may be marketed in the United States generally
involves the following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>pre-clinical laboratory and animal tests,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>submission to the FDA of an investigational new drug application, or IND, which must
become effective before clinical trials may begin in the United States,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>adequate and well-controlled human clinical trials to establish the safety and
efficacy of the proposed pharmaceutical in pSivida Inc.&#146;s intended use,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>submission to the FDA of a new drug application, and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>FDA review and approval of the new drug application.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The testing and approval process requires substantial time, effort, and financial resources,
and pSivida Inc. cannot be certain that any approval will be granted on a timely basis, if at all.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pre-clinical tests include laboratory evaluation of the product, its chemistry, formulation
and stability, as well as animal studies to assess the potential safety and efficacy of the
product. The results of the pre-clinical tests, together with manufacturing information,
analytical data and protocols for proposed human clinical trials, are submitted to the FDA as part
of an IND, which must become effective before pSivida Inc. may begin human clinical trials. The
IND automatically becomes effective 30&nbsp;days after receipt by the FDA, unless the FDA, within the
30-day time period, raises concerns or questions about the conduct of the proposed clinical trials
as outlined in the IND and imposes a clinical hold. In such a case, the IND sponsor and the FDA
must resolve any outstanding concerns before clinical trials can begin. There is no certainty that
pre-clinical trials will result in the submission of an IND or that submission of an IND will
result in FDA authorization to commence clinical trials.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Clinical trials involve the administration of the investigational product to human subjects
under the supervision of a qualified principal investigator. Clinical trials are conducted in
accordance with protocols that detail the objectives of the study, the parameters to be used to
monitor safety and any efficacy criteria to be evaluated. Each protocol must be submitted to the
FDA as part of the IND. Further, each clinical study must be conducted under the auspices of an
independent institutional review board at the institution where the study will be conducted. The
institutional review board will consider, among other things, ethical factors, the safety of human
subjects and the possible liability of the institution. Some clinical trials, called
&#147;investigator-sponsored&#148; clinical trials, are conducted by third-party investigators. The results
of these trials may be used as supporting data by a company in its application for FDA approval,
provided that the company has contractual rights to use the results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Human clinical trials are typically conducted in three sequential phases which may overlap:
</DIV>

<P align="center" style="font-size: 10pt">42
</DIV>

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<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>PHASE I: The drug is initially introduced into healthy human subjects or patients
and tested for safety, dosage tolerance, absorption, metabolism, distribution and
excretion.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>PHASE II: Studies are conducted in a limited patient population to identify possible
adverse effects and safety risks, to determine the efficacy of the product for specific
targeted diseases and to determine dosage tolerance and optimal dosage.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>PHASE III: Phase III trials are undertaken to further evaluate clinical efficacy and
to further test for safety in an expanded patient population, often at geographically
dispersed clinical study sites.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the case of products for life-threatening diseases such as cancer, or severe conditions
such as blinding eye disease, the initial human testing is often conducted in patients with the
disease rather than in healthy volunteers. Since these patients already have the targeted disease
or condition, these studies may provide initial evidence of efficacy traditionally obtained in
Phase II trials and so these trials are frequently referred to as Phase I/II trials. If a product
uses a combination of drugs, the FDA requires that clinical trials demonstrate that the combination
is safe and effective and that each drug contributes to efficacy. pSivida Inc. cannot be certain
that it will successfully complete Phase I, Phase II or Phase III testing of pSivida Inc.&#146;s product
candidates within any specific time period, if at all. Furthermore, pSivida Inc., the FDA, the
institutional review board or the sponsor, if any, may suspend clinical trials at any time on
various grounds, including a finding that the subjects or patients are being exposed to an
unacceptable health risk.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The results of product development, pre-clinical studies and clinical studies are submitted to
the FDA as part of a new drug application, or NDA, for approval of the marketing and commercial
shipment of the product. The FDA may deny an NDA if the applicable regulatory criteria are not
satisfied or may require additional clinical data. Even if the additional data are submitted, the
FDA may ultimately decide that the new drug application does not satisfy the criteria for approval.
As a condition of approval, the FDA may require post-marketing &#147;Phase IV&#148; clinical trials to
confirm that the drug is safe and effective for its intended uses. Once issued, the FDA may
withdraw product approval if compliance with regulatory standards for production and distribution
is not maintained or if safety problems occur after the product reaches the market. The FDA
requires surveillance programs to monitor approved products which have been commercialized, and the
agency has the power to require changes in labeling or to prevent further marketing of a product
based on the results of these post-marketing programs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If a drug is intended for the treatment of a serious or life-threatening condition and has the
potential to address unmet medical needs for this condition, the drug sponsor may apply for FDA
&#147;fast track&#148; designation. The fast track designation applies only for the specific indications for
which the product satisfies these two requirements. Under fast track provisions, the FDA is
committed to working with the sponsor for the purpose of expediting the clinical development and
evaluation of the drug&#146;s safety and efficacy for the fast track indication.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Marketing applications filed by sponsors of products in fast track development often will
qualify for expedited review under policies or procedures offered by the FDA, but fast track
designation does not assure this qualification.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If a drug treats a disease or condition that affects fewer than 200,000 people in the United
States, the drug sponsor may apply to the FDA for &#147;orphan drug&#148; designation under the Orphan Drug
Act. More than one drug may be given an orphan drug designation by the FDA for a given disease or
condition, but the first drug with an orphan drug designation to receive marketing approval for the
treatment of that disease or condition is granted a period of marketing exclusivity. Sponsors are
granted seven years of exclusive rights to market the first approved orphan drug for treatment of
that disease or condition, independent of any additional patent protection that may apply to the
product. This marketing exclusivity does not prevent a competitor from obtaining approval to
market a different drug that treats the same disease or condition or the same drug to treat a
different disease or condition. Sponsors also are granted tax incentives for clinical research
undertaken to support an application for an orphan drug, and grants to defray some of these
clinical costs may also be available. In addition, the FDA will typically coordinate with the
sponsor on research study design for an orphan drug and may exercise its discretion to grant
marketing approval on the basis of more limited product safety and efficacy data than would
ordinarily be required. If the FDA withdraws a product&#146;s orphan drug designation, however, these
various benefits no longer apply.
</DIV>

<P align="center" style="font-size: 10pt">43
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Satisfaction of FDA requirements or similar requirements of state, local and foreign
regulatory agencies typically takes several years, and the actual time required may vary
substantially based upon factors including the type, complexity and novelty of the pharmaceutical
product. Such government regulation may delay or prevent marketing of potential products for a
considerable period of time and impose costly procedures upon pSivida Inc.&#146;s activities. Success
in pre-clinical or early stage clinical trials does not assure success in later stage clinical
trials. Data from pre-clinical and clinical activities is not always conclusive and may be
susceptible to varying interpretations which could delay, limit or prevent regulatory approval.
Even if a product receives regulatory approval, the approval may be subject to significant
limitations. Further, even after the FDA approves a product, later discovery of previously unknown
problems with a product may result in restrictions on the product or even complete withdrawal of
the product from the market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any products pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> manufactures or distributes under FDA clearances or
approvals are subject to pervasive and continuing regulation by the FDA, including record-keeping
requirements and reporting of adverse experiences with the products. Drug manufacturers and their
subcontractors are required to register with the FDA and state agencies, and are subject to
periodic unannounced inspections by the FDA and state agencies for compliance with good
manufacturing practices, which impose procedural and documentation requirements upon pSivida Inc.
and its third-party manufacturers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> is also subject to numerous other federal, state and local laws relating
to such matters as safe working conditions, manufacturing practices, environmental protection, fire
hazard control, and disposal of hazardous or potentially hazardous substances. pSivida
Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> may incur significant costs to comply with such laws and regulations now or in the
future. In addition, pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> cannot predict what adverse governmental regulations may
arise from future United States or foreign governmental action.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> also is subject to foreign regulatory requirements governing human
clinical trials and marketing approval for pharmaceutical products which pSivida Inc. sells outside
the U.S. The requirements governing the conduct of clinical trials, product licensing, pricing and
reimbursement vary widely from country to country. Whether or not pSivida Inc<FONT style="font-variant: SMALL-CAPS">.</FONT> obtains
FDA approval, it must obtain approval of a product by the comparable regulatory authorities of
foreign countries before manufacturing or marketing the product in those countries. The approval
process varies from country to country, and the time required for these approvals may differ
substantially from that required for FDA approval. There is no assurance that clinical trials
conducted in one country will be accepted by other countries or that approval in one country will
result in approval in any other country. For clinical trials conducted outside the United States,
the clinical stages generally are comparable to the phases of clinical development established by
the FDA.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>C. ORGANIZATIONAL STRUCTURE</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As at December&nbsp;31, 2005, pSivida had the organizational structure diagrammed below.
</DIV>

<P align="center" style="font-size: 10pt">44
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><IMG src="y16393y1639301.gif" alt="(FLOW CHART)">
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The 100% ownership applies only to capital stock that is currently issued and outstanding and
does not include outstanding options to acquire shares of AION Diagnostics currently held by
directors and employees of AION Diagnostics, of which options over 7.9% of capital, calculated on a
fully diluted basis, have vested.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>D. PROPERTY, PLANT AND EQUIPMENT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We own computer equipment, office furniture and lab equipment, the majority of which are used
in our Malvern laboratory facilities. We lease approximately 223 square meters of laboratory space
and 449 square meters of office space in Malvern, United Kingdom, approximately 305 square meters
of office space in Perth, Western Australia and approximately 366 square meters of laboratory
space, 147 square meters of cleanroom space and 733 square meters of office space in Boston,
Massachusetts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our manufacturing partner QSA, has completed the construction and validation of a
state-of-the-art cleanroom facility, dedicated to the supply of our lead cancer therapy BrachySil,
at QSA&#146;s Auriga Medical&#153; facility in Braunschweig, Germany. This GMP facility will fulfill the
final process in the manufacture of BrachySil for future clinical and commercial use, and
represents the crucial final stage in establishing the manufacturing and supply infrastructure to
support BrachySil as it advances through clinical trials towards the market.
</DIV>
<DIV align="left">
<A name="106"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>You should read the following discussion and analysis in conjunction with Item&nbsp;3A,
Selected Consolidated Financial Data, and the audited consolidated financial statements and other
financial information appearing elsewhere in this annual report. In addition to historical
information, the following discussion and other parts of this annual report contain forward-looking
statements that reflect our plans, estimates, intentions, expectations and beliefs. Our actual
results could differ materially from those discussed in the forward-looking statements. See the
Risk Factors section of Item&nbsp;3 and the warnings associated with the other forward-looking
statements in this annual report for a discussion of some, but not all factors, that could cause or
contribute to such differences.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>A. OPERATING RESULTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Overview</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are a development stage enterprise at an early stage in the
development of BioSilicon and other technologies. We currently have
two products approved for sale and being sold, Vitrasert for CMV
retinitis and Retisert for posterior uveitis. We
have incurred net losses since inception and expect to incur substantial and increasing losses for
the next few years as we expand our research and development
activities and move our other product
candidates into later stages of development. All of our BioSilicon 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
BioSilicon 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 private placements of equity securities, the
exercise of options and share purchase plans.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our revenues are generated in both Australian dollars and Pounds Sterling, and a majority of
our expenses are incurred in either Australian dollars, Pounds Sterling or U.S. dollars.
</DIV>

<P align="center" style="font-size: 10pt">45
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following information is presented on an A-GAAP basis, unless
otherwise noted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Results of Operations</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table is intended to illustrate a tabular analysis of certain consolidated
statement of financial performance data as a percentage of net loss before outside equity interest
for all periods presented.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss before outside equity interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenue from ordinary activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5.5</TD>
    <TD nowrap>%)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5.1</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.0</TD>
    <TD nowrap>)%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation and amortization expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">6.8</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.7</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Research and development expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">54.8</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">93.2</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">85.6</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Employee benefits expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">6.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">16.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">9.8</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign currency (loss)/gain</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">10.7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(19.4</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Corporate office expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">26.3</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">14.2</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">5.9</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The level of research and development expenditure has increased during the past three
years. This is a direct result of the continued development of the BioSilicon technology and its
applications such as the human trials of BrachySil which are being undertaken in Singapore. The
increasing level of general corporate activity has also led to an increase in corporate costs over
the three years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Results of Operations For the Year Ended June&nbsp;30, 2005 Compared to the Year Ended June&nbsp;30, 2004</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Net Loss</I></B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For reasons described further below, our net loss increased to A$14.7&nbsp;million for the year
ended June&nbsp;30, 2005 from A$3.7&nbsp;million for the year ended June&nbsp;30, 2004, an increase of A$11.0
million, or 299.8%. The increase in net loss in 2005 is primarily attributable to our acquisition
of the remaining outside equity interest in pSiMedica in August&nbsp;2004, resulting in the consolidated
group recognizing the full costs of pSiMedica. Other causes include our NASDAQ listing in January
2005 and the associated increase in US regulation and an increase in all areas of corporate
administration including consultants, rent and travel due to the increased levels of activity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Revenue from Ordinary Activities</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue from ordinary activities increased to A$828,976 for the year ended June&nbsp;30, 2005 from
A$381,679 for the year ended June&nbsp;30, 2004, an increase of A$447,297 or 117.2%. Revenue in the
2005 period consisted of A$667,310 interest income compared to A$325,479 in interest income in the
2004 period. The increase in interest income in the 2005 period primarily relates to interest
income earned on pSivida&#146;s higher balances of cash from previous capital raisings. Additionally,
we recognized A$161,666 as other income in the 2005 period, compared with A$56,200 of other income
in the 2004 period, in connection with the research being undertaken by EpiTan and pSivida&#146;s top 5
global pharmaceutical company collaboration partner.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Depreciation and Amortization Expense</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization expense (excluding depreciation of plant and equipment used in
research and development activities) increased to A$1.0&nbsp;million for the year ended June&nbsp;30, 2005
from A$39,360 for the year ended June&nbsp;30, 2004, an increase of
A$990,022, or 2,515.3%. The level of
depreciation expense increased only slightly through the year as capital expenditure on plant and
equipment for other than research and development activities also increased slightly. No amount of
amortization of intellectual property was recognized by us because our intangible assets have not
led to a product at a commercial production stage of development. We recognized
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">goodwill amortization expense of $973,923 for the year as a result of the acquisition of the
remaining outside equity interest in pSiMedica Limited in August&nbsp;2004, representing most of the
increase in the depreciation and amortization expense.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Research and Development Expense</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development expense increased to A$8.3&nbsp;million or the year ended June&nbsp;30, 2005
from A$7.0&nbsp;million for the year ended June&nbsp;30, 2004, an increase of A$1.3&nbsp;million, or 18.2%. This
increase is primarily attributable to an increase in our expenditure on the research and
development into the drug delivery platform and preparations for the planned undertaking of
clinical trials in relation to pancreatic application of BrachySil.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Employee Benefits Expense</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Employee benefits expense decreased to A$1.0&nbsp;million for the year ended June&nbsp;30, 2005 from
A$1.2&nbsp;million for the year ended June&nbsp;30, 2004, a decrease of A$198,374, or 16.0%. This decrease
is attributable to a decrease in employee bonuses during the full year of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Foreign Currency</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An unrealized foreign exchange loss of A$1.6&nbsp;million was recognized during the year ended June
30, 2005 compared to an unrealized foreign exchange gain of A$1.5&nbsp;million during the year ended
June&nbsp;30, 2004. This was primarily due to unfavorable movements in the Pound Sterling and U.S.
dollar against Australian dollar foreign exchange rates. Prior to April&nbsp;2004, no material cash
deposits were held by us other than in Australian dollars.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Corporate Office Expenses</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Corporate office expenses increased to A$3.9&nbsp;million for the year ended June&nbsp;30, 2005 from
A$1.1&nbsp;million for the year ended June&nbsp;30, 2004, an increase of A$2.9, or 272.4%. This increase is
primarily due to our NASDAQ listing during the year, increased U.S. regulation requirements and an
increase in all areas of corporate administration including consultants, rent and travel due to the
increased levels of activity during the year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Results of Operations For the Year Ended June&nbsp;30, 2004 Compared to the Year Ended June&nbsp;30, 2003</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Net Loss</I></B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For reasons described further below, our net loss increased to A$3.7&nbsp;million for the year
ended June&nbsp;30, 2004 from A$2.8&nbsp;million for the year ended June&nbsp;30, 2003, an increase of A$918,052,
or 33.2%. The increase in net loss in 2004 is primarily attributable to the increase in research
and development expenditure with the commencement of human clinical trials of BrachySil in
Singapore.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Revenue from Ordinary Activities</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue from ordinary activities increased to A$381,679 for the year ended June&nbsp;30, 2004 from
A$110,675 for the year ended June&nbsp;30, 2003, an increase of A$271,004, or 244.9%. Revenue in the
2004 period consisted of A$325,479 interest income compared to A$110,675 in interest income in the
2003 period. The increase in interest income in the 2004 period primarily relates to interest
income earned on the A$25.6&nbsp;million net proceeds received in the private placement of ordinary
shares during April&nbsp;2004 (Refer to Note 10 of the consolidated financial statements). Additionally,
we recognized A$56,200 as other income in the 2004 period (up from zero in the 2003 period) in
connection with research being undertaken by EpiTan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Depreciation and Amortization Expense</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization expense (excluding depreciation of plant and equipment used in
research and development activities) increased to A$39,360 for the year ended June&nbsp;30, 2004 from
A$37,835 for the year ended June&nbsp;30, 2003, an increase of A$1,525, or 4.0%. The level of
depreciation and amortization expense remained constant through the year as capital expenditure on
plant and equipment for other than research and development
</DIV>

<P align="center" style="font-size: 10pt">47
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">activities was similar in amount to the prior year. No amount of amortization of intangible
assets was recognized by us because our intangible assets have not led to a product at a commercial
production stage of development.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Research and Development Expense</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development expense increased to A$7.0&nbsp;million for the year ended June&nbsp;30, 2004
from A$4.6&nbsp;million for the year ended June&nbsp;30, 2003, an increase of A$2.4&nbsp;million, or 52.9%. This
increase is attributable to an increase in our expenditure on the completion of pre-clinical trials
of BrachySil and human clinical trials of BrachySil which commenced during 2004 in Singapore.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Employee Benefits Expense</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Employee benefits expense increased to A$1.2&nbsp;million for the year ended June&nbsp;30, 2004 from
A$522,977 for the year ended June&nbsp;30, 2003, an increase of A$715,404, or 136.8%. This increase is
attributable to the increase in full and part time permanent staff employed during the year which
we required as a result of increased levels of research and development activity and additional
finance and administration resource requirements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Foreign Currency</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An unrealized foreign exchange gain of A$1.5&nbsp;million was recognized during the year ended June&nbsp;30,
2004 compared to an unrealized foreign exchange loss of A$1,203 during the year ended June&nbsp;30,
2003. This was primarily due to favorable movements in the Pound Sterling and U.S. dollar against
Australian dollar foreign exchange rates. Prior to April&nbsp;2004, no material cash deposits were held
by us other than in Australian dollars.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Corporate Office Expenses</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Corporate administration expenses increased to A$1.1&nbsp;million from the year ended June&nbsp;30, 2004
from A$318,806 for the year ended June&nbsp;30, 2003, an increase of A$748,175, or 234.7%. This
increase is due to an increase in all areas of corporate administration including consultants, rent
and travel due to the increased levels of activity and our further development during the year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Inflation and Seasonality</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our management believes inflation has not had a material impact on our operations or financial
condition and that our operations are not currently subject to seasonal influences.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Foreign Currency</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on Pounds Sterling and U.S. dollar account balances at June&nbsp;30, 2005, the following
table shows the sensitivity of our consolidated financial performance as a result of an
appreciation or depreciation in the value of the Australian dollar against the Pounds Sterling and
U.S. dollar.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="23%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>A$ Depreciation</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Current Rate</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>A$ Appreciation</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>-15%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>-10%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>-5%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>5%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>10%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>15%</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="27"><B>(In thousands of Australian dollars)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="27" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&#163;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">703</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">469</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">234</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(234</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(469</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(703</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">US</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">818</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">546</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">273</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(273</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(546</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(818</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,521</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">507</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(507</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,015</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,521</TD>
    <TD nowrap>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We do not utilize financial derivatives instruments or other financial instruments
subject to market risk.
</DIV>


<P align="center" style="font-size: 10pt">48
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Quantitative and Qualitative Disclosures About Market Risk</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have exposure to changes in foreign currency exchange rates and interest rates. We do not
utilize derivative financial instruments or other financial instruments subject to market risk.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Government Regulation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are no regulatory or fiscal policies under the governments of either Australia or the
United Kingdom which would adversely affect our operations
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Conditions in Australia</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;pSivida is incorporated under the laws of, and our principal offices are located in the
Commonwealth of Australia. Therefore, we are directly affected by political and economic
conditions in Australia.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Recently Issued Accounting Pronouncements Applicable to pSivida</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Australian Pronouncements</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Impacts of adopting Australian Equivalents to International Financial Reporting Standards</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(a) <I>Management of the transition to AIFRS</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We will be required to prepare financial statements that comply with Australian Equivalents to
International Financial Reporting Standards, or AIFRS, for annual reporting periods beginning on or
after January&nbsp;1, 2005. Accordingly, our first half-year report prepared under AIFRS, as adopted by
the Australian Accounting Standards Board will be for the half-year reporting period ended December
31, 2005, and our first annual financial report prepared under AIFRS
will be for the year ended
June&nbsp;30, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The transitional rules for first time adoption of AIFRS require that the Company restate its
comparative financial statements using AIFRS, except for AASB 132: &#147;Financial Instruments:
Disclosure and Presentation&#148;, or AASB&nbsp;132 and AASB 139:
&#147;Financial Instruments: Recognition and Measurement&#148;, or
AASB&nbsp;139,
where comparative information is not required to be restated. Currently, the Company provides two
years of comparative financial information in its financial statements to comply with applicable
SEC requirements. The SEC has granted a one-time relief from this requirement for foreign
registered companies preparing their first set of financial statements in compliance with
International Financial Reporting Standards. The Company has elected to apply this relief and will
only provide one year of comparative information in the June&nbsp;30, 2006 financial statements. For
reporting in the 2006 fiscal year, comparatives will be remeasured and restated for the half-year
ended 31 December&nbsp;2004 and the financial year ended 30 June&nbsp;2005. Most of the adjustments on
transition are required to be made to opening retained profits at the beginning of the first
comparative period (i.e., at July&nbsp;1, 2004).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2004, we commenced a review of accounting policies in preparation for managing the
transition to AIFRS. Priority has been given to considering the preparation of an opening balance
sheet in accordance with AIFRS as at July&nbsp;1, 2004, our transition date to AIFRS. This will form
the basis of accounting for AIFRS in the future and is required when we prepare our first fully
AIFRS-compliant financial report for the year ending June&nbsp;30, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">(b) <I>The likely impacts of AIFRS on the results and financial position of pSivida and the
consolidated entity</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Set out below are the known key differences in accounting policy and our known estimable
transitional differences identified as of 30 June&nbsp;2005, where accounting policies are expected to
change on adoption of AIFRS and the likely impacts on the current year operating results and
financial position of the Company, had the financial statements been prepared using AIFRS, based on
the directors&#146; accounting policy decisions current at the date of this financial report. The
adjustments included are based on the AIFRS standards effective as at June&nbsp;30, 2005. These are
subject to ongoing review and any amendments by the AASB, or by interpretative guidance from the
International Accounting Standards Board or AASB, could change the adjustments included. The AIFRS
standards and interpretations that will apply to the Company will be those effective as at December
31, 2005 being the date of the
</DIV>

<P align="center" style="font-size: 10pt">49
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">first half year financial statements that the Company has to publish under AIFRS. The
disclosures below represent the Company&#146;s current best estimate of the quantitative impact of the
AIFRS implementation at the date of this report and accordingly they remain subject to change.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are certain items that still require resolution and additional differences in accounting
policy that may be identified. The directors may, at any time until the completion of the Company&#146;s
first AIFRS compliant financial report, elect to revisit, and where considered necessary, revise
the accounting policies applied in preparing the disclosures below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">(c) <I>Adjustments to balance sheet items under AIFRS (net of tax)</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(i)&nbsp;Intangibles</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
AASB 3: &#147;Business Combinations&#148;, or AASB&nbsp;3, goodwill will not be
permitted to be amortized but instead is subject to impairment testing on an annual basis or upon
triggers which may indicate a potential impairment. As a result accumulated amortization of
$973,923 (all expensed during the 2005&nbsp;year) would be added back to the value of intangibles.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(ii)&nbsp;Share-based payments</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
AASB 2: &#147;Share-Based Payment&#148;, or AASB&nbsp;2, equity-settled share-based payments in respect of equity
instruments issued after November&nbsp;7, 2002 that were unvested as at January&nbsp;1, 2005 are measured at
fair value at grant date. The fair value determined at grant date of equity-settled share-based
payments is expensed on a straight-line basis over the vesting period, based on the estimated
number of equity instruments that will vest. As a consequence, contributed equity will increase by
$591,900 for the financial year ended June&nbsp;30, 2005.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(iii)&nbsp;Foreign currency translation reserve</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The directors have elected to set the translation reserve to zero as at AIFRS transition as
permitted under AASB 1: &#147;First-Time Adoption of Australian Equivalents to International Financial
Reporting Standards&#148;, or AASB&nbsp;1. This results in the transfer of $78,220 from the foreign currency translation
reserve to retained earnings as at AIFRS transition.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(iv)&nbsp;Accumulated losses</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With limited exceptions, adjustments required on first-time adoption of AIFRS are recognized
directly in accumulated losses at the date of transition to AIFRS. The cumulative effect of these
adjustments for the consolidated entity will be an increase in opening accumulated losses of
$78,220.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">(d) <I>Adjustments to current year loss under AIFRS (net of tax)</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(i)&nbsp;Intangibles</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under AASB 3, goodwill would not be permitted to be amortized but
instead is subject to impairment testing on an annual basis or upon triggers which may indicate a
potential impairment. As a result goodwill amortization expense of $973,923 recorded in the year
ended June&nbsp;30, 2005 would be added back to the net loss for the year. There is no goodwill
amortization required to be added back to the net loss upon the
transition date of July&nbsp;1, 2004.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(ii)&nbsp;Share-based payments</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under AASB 2, equity-settled share-based payments in respect of equity
instruments issued after November&nbsp;7, 2002 that were unvested as at January&nbsp;1, 2005 are measured at
fair value at grant date. The fair value determined at grant date of equity-settled share-based
payments is expensed on a straight-line basis over the vesting period, based on the estimated
number of equity instruments that will vest. As a consequence, an additional employee benefit
expense of $508,613 and consultancy fees expense of $83,287 will be recognized in the profit and
loss for the financial year ended June&nbsp;30, 2005.
</DIV>

<P align="center" style="font-size: 10pt">50
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">(e) <I>Other impacts</I>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Management has yet to determine whether to apply the exemption provided in
AASB 1 which permits entities
not to restate business combinations that occurred prior to the date of transition to AIFRS.
Business combinations occurring after the date of transition (i.e.
July&nbsp;1, 2004) will be
subject to the provisions of AASB 3.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">(ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Management has decided to apply the exemption provided in
AASB 1 which permits entities
not to apply the requirements of AASB 132 and AASB 139 for the financial year ended
June&nbsp;30, 2005. The standards will be applied from July&nbsp;1, 2005. Management is in the process
of determining the impact that adopting the standards would have on the financial statements
of the Company.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">(iii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Under AASB 136: &#147;Impairment of Assets&#148;, or AASB 136, the consolidated entity&#146;s assets, including goodwill
would be tested for impairment as part of the cash generating unit to which they belong, and
any impairment losses recognized in the income statement. At this stage in our review process
we are not aware of any impairment issues that would result in a material adjustment to the
financial statements.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">(iv)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>No material impacts are expected to the cash flows presented under current A-GAAP on adoption
of AIFRS.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">(f) <I>Acquisition of minority interest</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the year we purchased minority interests in controlled entity pSiMedica. Under current
A-GAAP this acquisition has been accounted for separately from other acquisitions (that is, as a
step acquisition, which involved the separate determination and recognition of the fair values of
the net assets of the subsidiary and any goodwill arising on the acquisition).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;AASB
127: &#147;Consolidated and Separate Financial Statements&#148;, or
AASB 127 requires minority interests to be
classified as equity. Consequently our acquisition of additional ownership interests in pSiMedica
Limited represents an equity transaction. As such, accounting for the transaction as a step
acquisition is inappropriate. The financial effect of the adjustment required on the restatement
of the June&nbsp;30, 2005 accounts is yet to be determined.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>U.S. Pronouncements</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2004, the Financial Accounting Standards Board, or FASB, issued Statement of
Financial Accounting Standards, or SFAS, No.&nbsp;123 (revised 2004):
&#147;Share-Based Payments&#148;, or SFAS 123R.
This statement eliminates the option to apply the intrinsic value measurement provisions of
Accounting Principles Board, or APB, Opinion No.&nbsp;25:
&#147;Accounting for Stock Issued to Employees&#148;, or APB&nbsp;25, to stock compensation awards issued to
directors and employees. Rather, SFAS 123R requires companies to measure the cost of director and
employee services received in exchange for an award of equity instruments based on the grant-date
fair value of the award. That cost will be recognized over the period during which the director,
executive or employee is required to provide services in exchange for the award &#150; the requisite
service period (usually the vesting period). SFAS 123R applies to all awards granted after the
required effective date (July&nbsp;1, 2005 for pSivida) and to awards modified, repurchased, or
cancelled after that date. As permitted by SFAS 123, we accounted for share-based payments to
directors, executives and employees using APB 25, the intrinsic value method through June&nbsp;30, 2005.
Accordingly, the adoption of the SFAS 123R fair value method may have a significant impact on our
results of operations, although it will have no impact on its overall financial position. The full
impact of the adoption of SFAS 123R cannot be predicted at this time, as it depends on levels of
share-based payments for future grants. However, had the Company adopted SFAS 123R for director,
executive and employee options in prior periods, the impact of that standard would have
approximated the pro forma impact of SFAS 123, as disclosed in Note
27(a), Share-based compensation
&#151; Options issued to directors and employees for services rendered.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
December&nbsp;2004, the FASB issued SFAS No.&nbsp;153:
&#147;Exchanges of Nonmonetary Assets&#148;, or SFAS 153, which
amends APB Opinion No.&nbsp;29: &#147;Accounting for
Nonmonetary
</DIV>

<P align="center" style="font-size: 10pt">51
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Transactions&#148; to eliminate the exception for nonmonetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of nonmonetary assets that do not have
commercial substance. SFAS 153 is effective for nonmonetary assets exchanges occurring in fiscal
periods beginning after June&nbsp;15, 2005 (fiscal 2006 for pSivida). At this time, management
reasonably believes that the adoption of SFAS 153 will not have a material effect on our financial
position or results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2005, the
FASB issued SFAS No.&nbsp;154: &#147;Accounting Changes and Error Corrections,&#148; or
SFAS 154, which replaces APB Opinion No.&nbsp;20: &#147;Accounting Changes&#148; and SFAS No.&nbsp;3: &#147;Reporting
Accounting Changes in Interim Financial Statements&#148;. The standard is effective for fiscal years beginning after
December&nbsp;15, 2005 (fiscal 2007 for pSivida). SFAS 154 changes the requirements for the accounting
for and reporting of a voluntary change in accounting principle as well as the changes required by
an accounting pronouncement which does not include specific transition provisions. At this time
management reasonably believes that the adoption of SFAS 154 will not have a material effect on our
financial position or results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Differences between Australian Accounting Standards and U.S. Accounting Standards</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
prepare our audited consolidated 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:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Years ended June 30,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss in accordance with A-GAAP</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(14,726,523</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,683,205</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,765,153</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss in accordance with US GAAP
(as restated for the years ended June
30, 2004 and 2003)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(16,561,512</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,019,974</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,268,603</TD>
    <TD nowrap>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>As at June 30,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total equity in accordance with A GAAP</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79,987,614</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,428,943</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,299,519</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total equity in accordance with US
GAAP (as restated at June&nbsp;30, 2004
and 2003)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">87,650,337</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,794,705</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,140,316</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See Note 27 to pSivida&#146;s audited consolidated financial statements for a description of
the differences between A-GAAP and U.S. GAAP as they relate to it, and a reconciliation to U.S.
GAAP of net loss and total equity for the dates and periods indicated therein. Differences between
A-GAAP and U.S. GAAP for the years ended June&nbsp;30, 2005, 2004 and
2003 that have a material effect on net loss and total equity primarily relate to
share-based compensation and purchase accounting.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Restatement of U.S. GAAP Amounts</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subsequent to the issuance of our June&nbsp;30, 2004 consolidated financial statements, we changed
the amounts previously reported in the U.S. GAAP reconciliation for the accounting for deferred
income taxes as follows:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Deferred tax liability for acquired intangible assets &#151; Previously, deferred taxes
were not recorded on the intangible assets acquired in connection with the step
acquisition of pSiMedica as the book to tax basis differences were deemed to be permanent
as the amortization of the related intangibles is not deductible for income tax purposes.
We have subsequently concluded that, although under tax law we will not receive a tax
deduction in the future for recovery of the intangible assets, recognition of a deferred
tax</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">52
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #textcolor#; background: #bgcolor#">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>liability on the acquired intangibles is nevertheless required under U.S. GAAP because it
is assumed for financial reporting purposes that we will generate future revenues at least
equal to the recorded amount of the investment, and recovery will result in future taxable
amounts.</TD>
</TR>

</TABLE>
</DIV>






<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Valuation allowance for deferred income tax assets &#151; Previously establishing a
valuation allowance, we fully reserved the total balance of the deferred income tax
assets related to tax loss carryforwards as it was deemed more likely than not that the
deferred tax assets would not be realized. As a result of the recognition of the U.S.
GAAP deferred tax liabilities in connection with the step acquisition of pSiMedica
described above, we have reevaluated the recoverability of the deferred income tax
assets, taking into consideration the reversal of taxable temporary differences under the
U.S. GAAP.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Amortization of intangible assets &#151; Where the recognition of a deferred tax liability
for acquired intangible assets as per the above resulted in additional basis of the
related intangible, the additional basis is being amortized over the remaining estimated
useful life of the intangible assets for U.S. GAAP purposes.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Refer to Note 27 to our audited consolidated financial statements included elsewhere herein
for a summary of the significant effects of the restatement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Critical Accounting Policies</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We prepare our
audited consolidated financial statements in accordance with A-GAAP. As such,
we are required to make certain estimates, judgments, and assumptions that management believe 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 consolidated financial statements that management believe are the
most critical to aid in fully understanding and evaluating our financial condition and results of
operations under A-GAAP are discussed below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Valuation of intangible assets</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other than cash deposits held, the value recognized in intangible assets on the consolidated
statement of financial position is the most significant asset held by us and the accounting
principles adopted and estimated by management in recognizing these assets are therefore considered
critical.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Intellectual property principally represents the license granted to pSiMedica from QinetiQ
(formerly the Defence Evaluation and Research Agency in the United Kingdom) and patents granted.
The QinetiQ license is an exclusive worldwide royalty-free license to the BioSilicon technology in
the field of human and animal healthcare and in vivo diagnostic applications.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We consolidated the results of pSiMedica upon the acquisition of a controlling economic
interest in pSiMedica on May&nbsp;10, 2001. Prior to this date, pSiMedica had undertaken little
research and development activities and the cost of any research and development that had been
undertaken was expensed in the accounts of pSiMedica. Upon the acquisition of additional share
capital in pSiMedica in May&nbsp;2001, it was considered reasonable to assume that the majority of the
value paid by us at this time should be attributable to the value of the license. The remainder
was attributable to receivables, plant, property and equipment and payables. Attributing the bulk
of the value paid by us to the license was also considered reasonable on the basis that prior to
acquisition of the additional share capital in pSiMedica there had not been any material patent
grants.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Therefore, we considered that it was reasonable that the value of A$5.1&nbsp;million, being the
bulk of the value of the consideration paid on May&nbsp;10, 2001 in acquiring the additional pSiMedica
shares, should be primarily attributable to the value of the license and represented a reasonable
fair value of the license at the time of the transaction.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;4, 2004 we completed the acquisition of the pSiMedica shares that we did not already
hold such that we now hold 100% of the issued capital in pSiMedica. Prior to acquiring 100% of the
issued capital in pSiMedica, the most recent step in the acquisition of pSiMedica took place on
October&nbsp;13, 2003. At this point in time, management ascribed no value to the patent portfolio of
pSiMedica and as a result the value acquired was recognized purely as the QinetiQ license.
However, since this time, pSiMedica has been granted significant patents and it was thought
appropriate that this position be reviewed. Based on management&#146;s assessment at the date of
acquisition, the total amount of the incremental increase in the value of intangible assets of A$25
million should be attributed to the patents granted since October&nbsp;2003. Consequently, based on
management&#146;s assessment we recognize the intangible assets in the form of the license at the value
of A$64.4&nbsp;million and patents at the value of A$25&nbsp;million.
</DIV>

<P align="center" style="font-size: 10pt">53
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In our A-GAAP consolidated financial statements, recognition of the value of intangible assets
acquired has been made with reference to the actual cost of the investment made by us in acquiring
pSiMedica shares. More specifically, the bulk of this value is attributed to the fair value of the
license granted to pSiMedica by QinetiQ amounting to $35.6&nbsp;million and patents granted in relation
to the BioSilicon technology of approximately $13.8&nbsp;million and goodwill of approximately $9.9
million. The remainder was attributable to receivables, plant, property and equipment and
payables. Other than the intangible assets, the value of assets acquired was considered nominal in
value, particularly on the basis that the costs of research and development were expensed and no
significant patents had been granted at May&nbsp;10, 2001, when pSiMedica was first recognized in the
consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Intellectual property is recorded at the cost of acquisition and is carried forward as an
asset on the expectation that it will lead to commercialization. The carrying value of intangibles
is reviewed by our board of directors at each reporting date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Estimated Useful Economic Life</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on the level of development of BioSilicon products, the competitive nature of the drug
delivery industry and what is considered industry practice, a period of 12&nbsp;years is considered by
management to be a reasonable estimation of the expected useful economic life of the license and
patents.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our directors gave due consideration to the technical and commercial life of the intellectual
property (being patents and licenses) concluding that a 12&nbsp;year useful life was appropriate to
determine their useful economic life to be the lesser of 12&nbsp;years or the average remaining life of
the intellectual property. Amortization will be recognized on the commencement of commercial
production of products calculated on a straight-line basis over the remaining balance of the
estimated useful life. We review the commercial status of products on at least an annual basis and
it is expected that amortization of intellectual property will commence during the year ending June
30, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation of plant and equipment is recognized on a straight-line basis over the estimated
useful lives of three years. As our business is competitive and developmental in nature, plant and
equipment is required to be regularly updated due to technological advancements and three years
therefore is considered by management to be a reasonable estimation of the expected useful economic
life of its plant and equipment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Realization of Deferred Tax Assets</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The recognition of deferred tax assets is based upon the likelihood of recoverability from
future taxable income will be available, against which the reversal of timing differences can be
deducted. To the extent that recovery is not likely, a valuation allowance is established. (Refer
to Note 5 of the consolidated financial statements.) The recognition of deferred tax balances
therefore involves judgment regarding our future financial performance in which the deferred tax
asset is recognized. On this basis we have not achieved profitability and expect to continue to
incur net losses through to 2007. As we do not expect BrachySil to be widely marketed before then,
no tax asset has been recognized.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>B. LIQUIDITY AND CAPITAL RESOURCES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash and
cash equivalents totaled A$12.9&nbsp;million at June&nbsp;30, 2005 compared to A$31.4&nbsp;million
at June&nbsp;30, 2004. We have financed our operations primarily through private placements of equity
securities, the exercise of options and share purchase plans. With
the exception of a convertible note entered into by us on
November&nbsp;16, 2005 we have utilized no borrowings since December
1, 2000 and we do not anticipate utilizing any borrowings in the near
future. We
have no off-balance sheet financing and we expect that our current cash levels will be sufficient
to support current levels of research and development until the second quarter of calendar year
2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;However,
we may increase our level of research and development activity which will directly
increase our need for cash reserves as research and development is our most significant cost
driver. We have reported negative cash
</DIV>

<P align="center" style="font-size: 10pt">54
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">flows from operations and we expect this to continue at least until the end of 2006, as we are
in the development stage and have not yet commercialized most of our products, including
BrachySil.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On April&nbsp;20, 2004, we raised A$19.4&nbsp;million, net of issue costs through a private placement of
19,375,000 ordinary shares to institutional and accredited investors at a subscription price of
US$0.80 and on April&nbsp;23, 2004, we raised an additional A$6.2&nbsp;million net of issue costs through a
private placement of 5,625,000 ordinary shares to institutional and accredited investors at a
subscription price of US$0.85.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
August&nbsp;23, 2005 we raised US$4.3&nbsp;million (A$5.7&nbsp;million) before costs via the private
placement of 665,000 ADRs to predominantly U.S. investors at US$6.50 (A$8.61) each, pursuant to a
PIPE.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
November&nbsp;16, 2005 we issued a convertible note to a New York-based institutional accredited
investor, pursuant to which the investor purchased US$15&nbsp;million (A$19.7&nbsp;million) subordinated
convertible debentures, convertible into pSivida ADSs at an initial conversion price of US$7.10
(A$9.50).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used in operating activities totaled A$12.3&nbsp;million for the year ended June&nbsp;30, 2005
compared to A$7.8&nbsp;million for the year ended June&nbsp;30, 2004 and A$4.6&nbsp;million for the year ended
June&nbsp;30, 2003. Research and development expenditure is the most significant expenditure item
resulting in increased cash flows during the years ended June&nbsp;30, 2005, 2004 and 2003 and amounted
to A$8.3&nbsp;million, A$6.1&nbsp;million and A$3.9&nbsp;million
respectively. (Refer to &#147;Business Overview&#148; for
a detailed description of our research and development activities). Payments to suppliers and
employees during the years ended June&nbsp;30, 2005, 2004 and 2003 were A$4.8&nbsp;million, A$2.0&nbsp;million and
A$787,216, respectively. The increase in payments from the year ended June&nbsp;30, 2003 to the year
ended June&nbsp;30, 2005 consisted of increased expenses relating to additional administrative
activities and the timing of cash payments related to these activities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used in investing activities totaled A$8.1&nbsp;million for the year ended June&nbsp;30, 2005
compared to A$527,168 for the year ended June&nbsp;30, 2004 and A$51,948 for the year ended June&nbsp;30,
2003 principally for the cash paid for the acquisition of the remaining outside equity interest in
pSiMedica, the construction of a cleanroom facility in Germany and the purchase of laboratory and
computer equipment in Malvern, United Kingdom and in Perth, Western Australia.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash flows from financing activities totaled A$3.6&nbsp;million for the year ended June&nbsp;30,
2005 compared to A$37.0&nbsp;million for the year ended June&nbsp;30, 2004 and A$852,567 for the year ended
June&nbsp;30, 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash flows from financing activities during the year ended June&nbsp;30, 2005 reflected the
following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>During the year ended June&nbsp;30, 2005 we raised A$3.6&nbsp;million on the issue of
additional share capital upon the exercise of options previously issued. At various
times during the year, a total of 13,070,000 options were exercised at a price of
A$0.20, 2,200,000 options were exercised at a price of A$0.40, 150,000 were exercised
at a price of A$0.50 and 150,000 options were exercised at a price of A$0.65.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>During the year we incurred $27,422 in issue costs in relation to the acquisition of
the remaining outside equity interest in pSiMedica in August&nbsp;2004.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash flows from financing activities during the year ended June&nbsp;30, 2004 reflected the
following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On August&nbsp;4, 2003, we issued 3,891,572 ordinary shares at A$0.24 per share, raising
A$932,298 net of issue costs. On October&nbsp;6, 2003, we issued additional share capital
through a placement of 13,000,000 ordinary shares at A$0.50 per share to investors,
raising A$6.2&nbsp;million net of issue costs;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On April&nbsp;20, 2004, we issued additional share capital through a placement of
19,375,000 ordinary shares at US$0.80 per share to investors, raising A$19.4&nbsp;million
net of issue costs, and on April&nbsp;23, 2004, we raised an additional A$6.2&nbsp;million net of
issue costs through the issue of additional share capital with a further placement of
5,625,000 ordinary shares at US$0.85 per share to investors;</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">55
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On October&nbsp;13, 2003, we subscribed for additional share capital in pSiMedica,
increasing its direct ownership by 3.4% to 46.25% with indirect effective control over
53.05%. The consideration paid by us in relation to this additional investment
amounted to &#163;2&nbsp;million (A$4.84&nbsp;million). This transaction had no impact on the
consolidated statement of cash flows. Additional equity contributions received by the
subsidiary totaled A$2.6&nbsp;million;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>During the year a total of 8,130,000 options were exercised raising A$1.6&nbsp;million.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash flows from financing activities during the year ended June&nbsp;30, 2003 reflected the
following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On October&nbsp;14, 2002, we issued additional share capital through a placement of
7,000,000 ordinary shares at A$0.12 per share raising A$792,567 net of issue costs; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>During the year a total of 300,000 options were exercised raising A$60,000.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;12, 2002, we
entered into an agreement for a fully underwritten A$7.5&nbsp;million
equity line of credit with Global Emerging Markets, also known as GEM, a New York based private
equity group. A commitment fee equivalent to 1.67% of the total value of the facility is payable
by us to GEM on the proceeds of drawdowns. In addition, GEM was issued options to acquire
2,000,000 of pSivida&#146;s ordinary shares at A$0.20 per share, expiring on December&nbsp;31, 2004. These
options were exercised by GEM on February&nbsp;4, 2004. This agreement has now been terminated and no
drawdowns were made by us on this facility.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From commencing business as a development stage enterprise to June&nbsp;30, 2005, our capital
expenditures have totaled A$4.8&nbsp;million consisting of computer equipment and laboratory equipment
that is being used in connection with our research and development activities undertaken in
Malvern, United Kingdom and administration in Perth, Western Australia. Capital expenditures for
plant and equipment and leasehold improvements are being depreciated on a straight line basis over
the estimated useful lives of three years, with a net balance at June&nbsp;30, 2005 of A$3,273,663. We
do not have significant capital spending requirements, but expect to continue to engage in capital
spending consistent with anticipated growth in operations and personnel. Capital expenditure has
been funded largely through the private placement of ordinary share capital.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that our existing cash and cash equivalents will be sufficient to support our
current operating plan until the second quarter of calendar year 2007. However, we have based this
expectation on assumptions that may prove to be incorrect. Our future funding requirements will
depend upon many factors, including, but not limited to:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Costs and timing of obtaining regulatory approvals;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The costs and timing of obtaining, enforcing and defending our patent and intellectual property;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The progress and success of pre-clinical and clinical trials of BioSilicon;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The costs and timings of CDS research programs in development;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The timing and degree of sales activity leading to revenue on the sale of CDS
marketed product; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The progress and number of our research programs in development.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our primary
activity is the development of products based on nano-structured BioSilicon. Our
research and development expenses were A$8.3&nbsp;million,
A$7.0&nbsp;million and A$4.6&nbsp;million during the years
ended June&nbsp;30, 2005, 2004 and 2003 respectively. These research and development expenses consist
primarily of compensation and related costs for research and development personnel, expenses for
testing and laboratory facilities and depreciation on property, plant and equipment used solely for
research and development activities. Such costs are charged to the operations as we incur them.
The increase in the latest fiscal year is primarily attributable to an increase in our
</DIV>


<P align="center" style="font-size: 10pt">56
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">expenditures on the research and development of the drug delivery platform and preparations
for the undertaking of clinical trials relating to pancreatic application of BrachySil.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For a more detailed discussion of our research and development activities and policies, please
see Item&nbsp;4B, &#147;Business Overview&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>D. TREND INFORMATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As we are a development stage enterprise, it is not possible for us to predict with any degree
of accuracy the outcome of the research and commercialization efforts being undertaken.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As in prior periods, expenditure on research and development, as a proportion of total costs,
is expected to be significant and increase from the A$8.3&nbsp;million spent during the year ended June
30, 2005, unless cutbacks are required to conserve cash. Prior to completing the acquisition of
CDS on December&nbsp;30, 2005, we expected that research and development expenditure during the year
ending June&nbsp;30, 2006 would be approximately A$13.5&nbsp;million as we continued with the clinical trials
in Singapore of BrachySil and expected to undertake additional work on other applications of
BioSilicon, including targeted in situ cancer treatments. Following the acquisition of CDS,
however, it is expected that this pre-acquisition estimate will
increase significantly. However, we expect to continue to fund this
expense from existing cash balances in the near future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our recent acquisition of CDS will have profound effects on the nature of our business and
operations as a whole and we expect that therefore our current reported financial information may
not be indicative of our future results or financial condition. For a description of the
acquisition, see Item&nbsp;8B, &#147;Significant Changes&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>E. OFF-BALANCE SHEET ARRANGEMENTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently do not have any off-balance sheet arrangements that have or are reasonably likely
to have a current or future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources
that is material to investors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>F. CONTRACTUAL OBLIGATIONS TABULAR DISCLOSURE</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table outlines our contractual obligations as of June&nbsp;30, 2005 for payments
under our indebtedness (including capital leases), purchase obligations, operating leases and other
obligations and the effects such obligations are expected to have on our liquidity and cash flows
in future periods:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="18"><B>Payments Due by Period</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="18" style="border-bottom: 1px solid #000000"><B>(In thousands of Australian Dollars)</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Less than</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>More than</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>1 year</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>1-3 years</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>3-5 years</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>5 years</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Contractual Obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-Term Debt Obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital (Finance) Lease Obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating Lease Obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">448</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">326</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">122</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchase Obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other Long-Term Liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Total</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">448</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">326</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">122</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">57
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="107"></A>
</DIV>


<!-- link1 "ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES" -->


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>A. DIRECTORS AND SENIOR MANAGEMENT</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>pSivida</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The members of the board of directors of pSivida and their principal occupations are as
follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="22%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="17%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="52%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Date of Appointment</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Principal Occupation</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dr. Roger Brimblecombe
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March&nbsp;5, 2002
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Independent Consultant</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dr. Roger Aston (1)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">December&nbsp;1, 2000
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Independent Consultant</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mr. Gavin Rezos
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">December&nbsp;1, 2000
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director, pSivida Limited</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ms. Alison Ledger (2)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">July&nbsp;30, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Independent Consultant</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mr. Stephen Lake
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">July&nbsp;30, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Investment Director, QinetiQ</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dr. David Mazzo
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">July&nbsp;25, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Non-Executive Director, pSivida
Limited; President and Chief
Executive Officer, Chugai Pharma
U.S.A</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mr. Michael Rogers
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">July&nbsp;27, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Non-Executive Director, pSivida
Limited; Vice President, Chief
Financial Officer and Treasurer
of Indevus Pharmaceuticals
Incorporated</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dr. Paul Ashton
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">December&nbsp;30, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Executive Director of
Strategy, pSivida Limited and
Interim President, pSivida Inc.</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ms. Heather Zampatti
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">January&nbsp;11, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Non-Executive Director,
pSivida Limited; Head of Wealth
Management Australia, Bell Potter
Securities</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Dr.&nbsp;Aston resigned from pSivida&#146;s board on November&nbsp;15, 2005<B><I>.</I></B></TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Ms.&nbsp;Ledger resigned from pSivida&#146;s board on January&nbsp;11, 2006.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Dr.&nbsp;Roger Brimblecombe</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dr.&nbsp;Brimblecombe, Ph.D., D.Sc., F.R.C.Path., C.Biol., F.I.Biol., is a former chairman of
SmithKline and French Research Ltd. He is currently chairman of MVM Ltd, the venture capital arm
of the UK Medical Research Council. He is also non-executive chairman of Oxxon Therapeutics, Inc
(U.S.), and a non-executive director of Vertex Pharmaceuticals Inc
(U.S.A), Vertex Pharmaceuticals (Europe) Ltd and Tissue
Science Laboratories Ltd. He has provided strategic
consultancy services to research and development companies in Europe, the U.S. and Japan. He is a
fellow of the Royal Society of Medicine, the Royal College of Pathologists and the Institute of
Biology. He is consultant editor of Drug Discovery World magazine. Dr.&nbsp;Brimblecombe is also
chairman of pSiMedica and pSiOncology, and a director of pSivida Inc.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Gavin Rezos</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Rezos, B.Juris., LL.B., B.A., earned a law degree from the University of Western Australia
and has been admitted as a barrister and solicitor in Western Australia, England and New South
Wales. He practiced law in London in corporate finance before joining Midland Montagu, an
investment bank now known as HSBC Investment Bank plc, in 1990. He was an investment banking
director at HSBC in positions based in London, Sydney and Dubai. Mr.&nbsp;Rezos is currently principal
of Viaticus Capital Pty Ltd, a biotechnology venture capital and corporate advisory company. He
has investment banking experience in a variety of industries and geographical locations including
Europe, Latin America, the Middle East and Asia. Mr.&nbsp;Rezos is also a director of pSiMedica,
pSiOncology, pSiNutria and AiMedics Pty Ltd (Australia) and
non-executive chairman of AION Diagnostics and pSivida Inc.
</DIV>

<P align="center" style="font-size: 10pt">58
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Dr.&nbsp;Roger Aston</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dr.&nbsp;Aston has more than 20&nbsp;years&#146; experience in the pharmaceutical and biotechnology
industries. His previous positions have included CEO of Peptech Limited (Australia), director of
Cambridge Antibody Technology Limited (UK)&nbsp;and chairman of Cambridge Drug Discovery Limited &#151; now
BioFocus plc (UK). Dr.&nbsp;Aston was also founder and CEO of Biokine Technology Ltd (UK)&nbsp;prior to its
acquisition by the Peptech Group. He was a founder and is the former CEO of pSiMedica and
pSiOncology. Dr.&nbsp;Roger Aston is also chairman of Australian Cancer Technology Limited (Australia).
Dr Roger Aston retired as a director and executive officer of pSivida and pSiOncology at the
pSivida annual general meeting held on November&nbsp;15, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Alison Ledger</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ms.&nbsp;Ledger was most recently a principal at McKinsey &#038; Co both in Sydney and London
specializing in financial institutions including banking, asset management, stock exchanges,
insurance and regulatory compliance. She joined McKinsey in 1995 after holding positions with
Bankers Trust in London marketing investment funds to European corporate and institutional clients.
Ms.&nbsp;Ledger has extensive financial experience and knowledge of international capital markets with
a breadth of knowledge in strategy, operations, performance improvement, cost management, new
business building and geographic expansion. She has a Harvard MBA and has lived and worked in
numerous countries including the UK, Australia and the U.S. Ms.&nbsp;Ledger resigned as a director of
pSivida on January&nbsp;11, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Stephen Lake</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Lake, BA (Jt. Hons), MBA, ACA, is Investment Director, QinetiQ Limited. He has over 20
years of experience in the high technology sector as a senior executive in both large
multi-national and early stage venture backed companies. He was a founding executive of Reuters
venture capital arm Greenhouse. He has extensive international experience having worked in the
U.S. for 10&nbsp;years, as well as in France and the Nordic countries. Mr.&nbsp;Lake is a UK-qualified
chartered accountant and has an MBA in technology and strategy from the Theseus Institut (France).
He is a non-executive director of Quintel Technology Limited and QS4 Group Limited, a joint venture
between Rotch and QinetiQ.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Dr.&nbsp;David Mazzo</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dr.&nbsp;Mazzo, BA (Hons), BSc (Hons), MSc, PhD, is President and Chief Executive Officer of Chugai
Pharma U.S.A, and is based in New Jersey, U.S.A. Chugai Pharma U.S.A is part of the Roche group of
companies and is a subsidiary of Chugai Pharmaceutical Company Limited (Japan), a global
research-based pharmaceutical company. Dr Mazzo holds a Bachelor of Arts with Honors
(Interdisciplinary Humanities) and a Bachelor of Science with Honors in Chemistry from Villanova
University, and a Master of Science in Chemistry and a PhD in Analytical Chemistry from the
University of Massachusetts. He complemented his American education as a Research Fellow at the
ecole Polytechnique Federale de Lausanne, Switzerland. Dr Mazzo is also a director of AMEX-listed
Avanir Pharmaceuticals (appointed 1 August&nbsp;2005).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Michael Rogers</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Rogers, BA, MBA, is Executive Vice President, Chief Financial Officer and Treasurer of
Indevus Pharmaceuticals Incorporated, a biopharmaceutical company based in Lexington,
Massachusetts, U.S.A. Mr.&nbsp;Rogers received an MBA from the Darden School of Business, University of
Virginia and a BA, Political Science from Union College, and brings significant financing,
acquisition, investment banking and partnering experience relating to pharmaceutical and
biotechnology companies to the pSivida board. He will chair the Audit Committee and is the
designated &#147;audit committee financial expert.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Dr.&nbsp;Paul Ashton</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dr.&nbsp;Ashton was the President and Chief Executive Officer of CDS prior to its acquisition by
pSivida on December&nbsp;30, 2005. He co-founded CDS in 1991 and since then has served as a director of
CDS, becoming President and Chief Executive Officer in 1996. As a scientist, Dr.&nbsp;Ashton is
internationally renowned in the field of
</DIV>

<P align="center" style="font-size: 10pt">59
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">ocular drug delivery and is one of the inventors of Vitrasert<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP> and Retisert&#153;, two CDS products
approved by the FDA. He has authored over 200 papers and abstracts, holds more than 25 patents and
has more than 150 pending patent applications. Dr.&nbsp;Ashton received a Bachelor of Science in
Chemistry from Durham University, England and a PhD in pharmaceutical science for the University of
Wales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Heather Zampatti</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ms.&nbsp;Zampatti, BSc, DipEd, is Head of Wealth Management, Australia, for Bell Potter Securities
and has over 20&nbsp;years&#146; experience in investment advising, specializing in stockbrokerage and
financial investment planning. Ms.&nbsp;Zampatti holds board positions on the Princess Margaret
Hospital for Children Foundation, the Australian Institute of Management (Western Australia) and
Osteoporosis Australia. Ms.&nbsp;Zampatti holds a Bachelor of Science and a Diploma of Education from
the University of Western Australia and is a Certified Financial Planner.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From January&nbsp;7, 2003 until July&nbsp;30, 2004, Nadine Donovan was a member of pSivida&#146;s board of
directors. Following Mrs.&nbsp;Donovan&#146;s resignation to concentrate on personal endeavors, Mr.&nbsp;Lake and
Ms.&nbsp;Ledger were appointed directors by a resolution of shareholders at a general meeting of
shareholders held on July&nbsp;30, 2004. Mrs.&nbsp;Donovan joined pSivida in March&nbsp;2001 as Company
Secretary/Financial Controller.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The current executive officers of pSivida and their titles are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="25%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="70%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Title</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mr. Gavin Rezos
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director, pSivida Limited</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mr. Aaron Finlay
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Financial Officer and Company
Secretary, pSivida Limited</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dr. Anna Kluczewska
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director, AION Diagnostics</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dr. Paul Ashton
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Executive Director of Strategy, pSivida Limited and
Interim President, pSivida Inc.</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mr. Michael Soja
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President of Finance, Chief Financial Officer and
Treasurer, pSivida Inc.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ms. Lori Freedman
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President for Corporate Affairs, General Counsel
and Secretary, pSivida Inc.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Aaron Finlay</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Finlay joined pSivida as of May&nbsp;17, 2004, as CFO and Company Secretary. His most recent
role was as INVESCO Australia&#146;s Chief Financial Officer where he had responsibility for the
operations of finance, as well as the compliance, legal, and human resources functions. Prior to
that position, Mr.&nbsp;Finlay was head of group tax and treasury for INVESCO&#146;s global operations in
London. Prior to joining INVESCO, Mr.&nbsp;Finlay worked for PricewaterhouseCoopers (then Price
Waterhouse) in London and Perth. Mr.&nbsp;Finlay is also chief financial officer and company secretary
of AION Diagnostics.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Dr.&nbsp;Anna Kluczewska</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dr.&nbsp;Kluczewska held the position of global product manager for Baxter Healthcare&#146;s BioSurgery
division. At Baxter, she oversaw the management of Baxter BioSurgery&#146;s products in over 50
countries focusing on registration, product launch and global product management. Dr.&nbsp;Kluczewska
is also Managing Director of AION Diagnostics.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Michael Soja</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Soja has served as CDS&#146; Vice President of Finance and Chief Financial Officer since 2001.
From 1974 to 2001, Mr.&nbsp;Soja was employed by XTRA Corporation, a lessor of transportation equipment,
serving as Vice President and Chief Financial Officer from 1980 to 2001. Mr.&nbsp;Soja received a B.A.
in Mathematics from the College of the Holy Cross in 1970, an M.S. in Accounting from Northeastern
University in 1971 and an M.B.A. from Babson College in 1978.
</DIV>

<P align="center" style="font-size: 10pt">60
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Lori Freedman</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ms.&nbsp;Freedman has served as CDS&#146; Vice President of Corporate Affairs, General Counsel, and
Secretary since 2001. From March&nbsp;2001 through September&nbsp;2001, Ms.&nbsp;Freedman served as Vice
President, Business Development, and Counsel of Macromedia, Inc., a provider of software for
creating Internet content and business applications. Ms.&nbsp;Freedman served as Vice President, General
Counsel, and Secretary of Allaire Corporation, a provider of Internet infrastructure for building
business applications, from 1999 until Allaire was acquired by Macromedia in 2001. From May&nbsp;1998 to
December&nbsp;1998, Ms.&nbsp;Freedman worked for Polaroid Corporation as a Corporate Counsel. Prior to
joining Polaroid, Ms.&nbsp;Freedman was with the law firm of McDermott, Will &#038; Emery. Ms.&nbsp;Freedman
received a B.S. in Economics and Psychology from Brandeis University and a J.D. from Boston
University.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>pSivida Inc.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;30, 2005, pSivida acquired all of the capital stock of Control Delivery Systems,
Inc., which was renamed pSivida Inc. The members of the board of directors of pSivida Inc. and
their principal occupations are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="25%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="70%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Principal Occupation</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mr. Gavin Rezos
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director, pSivida Limited</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mr. Roger Brimblecombe
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Independent Consultant</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dr. Paul Ashton
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Interim President of pSivida Inc. and Executive
Director of Strategy, pSivida Limited</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mr. Michael Soja
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President of Finance, Chief Financial Officer
and Treasurer, pSivida Inc.</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ms. Lori Freedman
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President for Corporate Affairs, General
Counsel and Secretary, pSivida Inc.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The executive officers of pSivida Inc. and their principal occupations are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="25%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="70%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Title</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mr. Gavin Rezos
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dr. Paul Ashton
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Interim President</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mr. Michael Soja
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President of Finance, Chief Financial Officer and
Treasurer</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ms. Lori Freedman
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President for Corporate Affairs, General Counsel
and Secretary</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>pSiMedica Limited</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The members of the board of directors of pSiMedica and their principal occupations are as
follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="25%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="70%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Principal Occupation</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dr. Roger Brimblecombe
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Independent Consultant</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mr. Gavin Rezos
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director, pSivida Limited</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Prof. Leigh Canham
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Scientific Officer, pSiMedica</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dr. Mark Parry-Billings
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Research &#038; Development
Director, pSiMedica</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">61
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The executive officers of pSiMedica and their titles are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="25%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="70%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Title</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Prof. Leigh Canham
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Scientific Officer</TD>
</TR>
<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dr.
Mark Parry-Billings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Research and Development Director</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mr. Stephen Connor
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director of Development</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dr. Jill Ogden
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Commercial Director</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dr. David Petty
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Intellectual Property Manager</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Prof. Leigh Canham</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prof. Canham has 25&nbsp;years of research experience related to silicon technology. He was
awarded an honorary chair at the University of Birmingham in 1999 for his work on the
optoelectronic properties of nano-structured silicon. Trained at University College (BSc physics)
and Kings College (PhD solid state physics) in London, Prof. Canham then conducted research at
QinetiQ (formerly, RSRE, DERA) in Malvern UK from 1986 to 2000. In December&nbsp;2000, he co-founded
pSiMedica with Dr.&nbsp;Aston to develop the BioSilicon technology platform invented in QinetiQ. He is
a frequent speaker on the subject of the medical applications of silicon technology and is member
of the editorial board of international journal <I>Biomedical Microdevices</I>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Dr.&nbsp;Mark Parry-Billings</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dr.&nbsp;Parry-Billings joined pSiMedica in November&nbsp;2004. Dr.&nbsp;Parry-Billings earned a BS with
first class honors from the University of Loughborough and subsequently earned a DPhil from the
Department of Biochemistry, University of Oxford where he conducted post-graduate work before
joining Schering Healthcare. For the six years prior to joining pSiMedica, Dr.&nbsp;Parry-Billings was
Director of Research &#038; Development at Innovata Biomed Ltd. He joined Innovata BioMed in 1994 from
Schering Healthcare Ltd where he was a Senior Clinical Research Associate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Stephen Connor</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Connor joined pSiMedica in November&nbsp;2001. Previously, he held increasingly senior
positions in Cambridge at Murex Medical Research Ltd, Quantum Biosystems Ltd, Cantab
Pharmaceuticals Research Ltd, Chiroscience R&#038;D Ltd, and most recently, Imutran Ltd &#150; a Novartis
Pharma company. From 1978 to 1985, he worked at the Withington Hospital, Manchester.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Dr.&nbsp;Jill Ogden</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dr.&nbsp;Ogden joined pSiMedica in November&nbsp;2003. She has 18&nbsp;years of commercial and R&#038;D
experience in the biotechnology, healthcare and drug delivery industries. She graduated with a BSc
and PhD in Genetics from the University of Sheffield. Following her postdoctoral research at the
Universities of Edinburgh and Oxford, she joined Delta Biotechnology Ltd. In 1993, Dr.&nbsp;Ogden
co-founded and was principal of Propharma Consultants, a consultancy specializing in the
biopharmaceutical industry. Between 1996 and 2000, she was business development manager of Andaris
Ltd and the Quadrant Healthcare plc. Following the acquisition of Quadrant by Elan Corporation,
she became director of business development for Elan Drug Delivery Ltd.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Dr.&nbsp;David Petty</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dr.&nbsp;Petty joined pSiMedica in July&nbsp;2002. Dr.&nbsp;Petty graduated in chemistry and subsequently
obtained a PhD in organic semiconductors in 1991 at the University of Nottingham. After a one year
fellowship at The Institute for Molecular Science, Okazaki, Japan he earned an MSc in intellectual
property management at the University of London and then worked for a database company specializing
in pharmaceutical patents. Dr.&nbsp;Petty subsequently worked for Fisons Instruments&#146; patent department
from 1994 before joining the Ministry of Defence IP department in 1996. Over the last five years,
he has been responsible for managing the BioSilicon portfolio of patents at both DERA/QinetiQ and
pSiMedica.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>pSiOncology Pte Ltd</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The members of the board of directors of pSiOncology and their principal occupations are as
follows:
</DIV>

<P align="center" style="font-size: 10pt">62
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="25%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="70%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Principal Occupation</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dr. Roger Brimblecombe
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Independent Consultant</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mr. Gavin Rezos
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director, pSivida Limited</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dr. Beng Choo Lim
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Clinical Director, pSiOncology Pte
Ltd</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mr. Stephen Lake
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Investment Director, QinetiQ</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Dr.&nbsp;Beng Choo Lim</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dr.&nbsp;Lim has worked with multinational pharmaceutical corporations such as Pharmacia (now
Pfizer), Glaxo and Smith Kline Beecham and several start up companies. Dr.&nbsp;Lim received her
doctorate in pharmacology from the National University of Singapore and is registered with the
Singapore Board of Pharmacy. Her clinical research experience includes initiation and project
management of all phases of clinical trials to support registration in the U.S., Europe and Asia in
the therapeutic areas of naso-pharyngeal cancer, vitreous hemorrhage, Hepatitis B, peptic ulcer,
respiratory, dermatology and anti-infectives.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
executive officer of pSiOncology and her title is as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="25%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="70%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Name</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Title</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dr. Beng Choo Lim
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Clinical Project Manager</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>AION Diagnostics Limited</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Wholly-owned subsidiary AION Diagnostics Limited appointed Dr J&#246;rg Schreiber PhD as a
non-executive director in May&nbsp;2005. Dr Schreiber has over 20&nbsp;years&#146; experience in the diagnostics
industry, principally with Roche Diagnostics and Boehringer Mannheim in Germany and brings with him
leadership and expertise in the commercialization of world class diagnostic products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The members of the board of directors of AION Diagnostics and their principal occupations are
as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="25%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="70%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Principal Occupation</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mr. Gavin Rezos
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director, pSivida</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Prof. Leigh Canham
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Scientific Officer, pSiMedica; Director, AION
Diagnostics</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dr. Anna Kluczewska
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Head of Diagnostics, pSivida; Managing Director,
AION Diagnostics</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dr. J&#246;rg Schreiber PhD
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Non-executive Director</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The executive officers of AION Diagnostics and their titles are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="25%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="70%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Title</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dr. Anna Kluczewska
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mr. Aaron Finlay
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Financial Officer and Company Secretary</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>pSiNutria Limited</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Wholly-owned subsidiary pSiNutria was incorporated on December&nbsp;5, 2005. The members of the
Board of Directors of pSiNutria and their principal occupations are as follows:
</DIV>

<P align="center" style="font-size: 10pt">63
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="25%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="70%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Principal Occupation</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mr. Gavin Rezos
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Director, pSivida Limited</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Prof. Leigh Canham
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Scientific Officer, pSiMedica; Director, AION
Diagnostics</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mr. Stephen Lake
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Investment Director, QinetiQ</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mr. Aaron Finlay
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Financial Officer and Company
Secretary, pSivida Limited</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>B. COMPENSATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Compensation of directors and officers is recommended by the remuneration committee of
pSivida&#146;s board and approved by pSivida&#146;s full board including a majority of the independent
directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Remuneration for the services of our executive directors are formalized in a service
agreement. Details of the nature and amount of each element of the emoluments of each of our
directors for the financial year are shown in the following table. The following table presents
all compensation paid to our directors and executive management for the year ended June&nbsp;30, 2005.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>Primary</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Post</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Salary and</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Employment</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Other</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Equity</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Fees</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Bonus</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Superannuation</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Benefits</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Options</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>$</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>$</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>$</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>$</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>$</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>$</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><I>Specified directors</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Dr R Brimblecombe</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">224,459</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">229,296</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">478,755</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Mr G Rezos</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">348,062</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,905</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,361,127</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,795,094</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Dr R Aston</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">315,683</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,438</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,189</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">558,592</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">908,902</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Mr S Lake</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,917</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">114,635</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Ms A Ledger</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,475</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">121,693</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Mrs N Donovan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,083</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">188</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,271</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="23" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">940,704</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">125,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,189</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,332,451</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,421,350</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="23" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><I>Specified executives</I>(1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prof L Canham</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">193,780</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,553</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,056</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">353,524</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">575,913</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Mr A Finlay</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">144,572</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,135</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">370,396</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">560,603</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Dr A Kluczewska</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">208,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">299,808</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">518,141</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Mr S Connor</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">181,146</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,738</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,612</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">143,751</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">357,247</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Dr J Ogden</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">169,816</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,378</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,060</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">143,751</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">340,005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="23" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">897,647</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77,804</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,728</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,311,230</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,351,909</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="23" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Specified executives were the five highest paid executives of
pSivida for the year ended June&nbsp;30, 2005,
other than members of the board of directors.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Options were granted to specified directors and executives on August&nbsp;5, 2004 and have a value
at the date of grant of A$0.46 per option using a Black-Scholes model, taking into account time
value and the volatility of the stock price. The options are exercisable at A$1.18, being a 10%
premium to the share price at the time of grant and may be exercised between August&nbsp;5, 2004 and
August&nbsp;5, 2009.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Options were granted to specified directors (after receiving shareholder approval at our
annual general meeting held on November&nbsp;15, 2005) and executives on April&nbsp;22, 2005 and have values
ranging between A$0.30 and A$0.34 per option at the date of grant using a Black-Scholes model,
taking into account time value and the volatility of the stock price. The options are exercisable
at A$0.80, being a 7% premium to the share price at the time of grant and may be exercised between
April&nbsp;22, 2005 and March&nbsp;31, 2010 subject to vesting periods of up to 2&nbsp;years.
</DIV>

<P align="center" style="font-size: 10pt">64
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have entered into consulting contracts with certain directors or their related entities for
an indefinite period which may be terminated by either party on three months written notice or
summary notice in the event of a breach in the terms of the agreement, the consultant is found
guilty of any criminal act, misconduct or negligence or becomes insolvent. There are no
termination benefits other than what applicable statute dictates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Pension, Retirement or Similar Benefits</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Australian government regulations, we are legally required to contribute 9% of
employees&#146; gross income to an approved superannuation fund. Employees are entitled to contribute
additional amounts to the fund at their own discretion. We make the required contribution to each
employee&#146;s nominated Superannuation Fund. Contributions by pSivida of up to 9% of employees&#146; wages
and salaries are legally enforceable in Australia.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;pSiMedica operates a defined contribution pension scheme. The pension cost charges for the
years ended June&nbsp;30, 2005, 2004 and 2003 under the defined contribution scheme were &#163;79,411
(approximately A$195,863), &#163;30,660 (approximately A$75,149) and &#163;28,672 (approximately A$77,740)
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>C. BOARD PRACTICES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The business of pSivida is managed by its directors. The directors exercise all of the powers
that our constitution, the Corporations Act 2001, the Australian Stock Exchange or the Australian
Stock Exchange Listing Rules do not reserve to the shareholders in general meeting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The directors exercise their powers and discharge their duties as a board.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The board&#146;s policies and practices exist within a framework of:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Corporations Act 2001;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the general law, including the law relating to directors&#146; duties;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Australian Stock Exchange Corporate Governance Council&#146;s Principles of Good
Corporate Governance and Best Practice Recommendations; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Australian Stock Exchange Listing Rules.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The overall role of the board, as set out in its charter, includes:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>setting our strategic direction;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>identifying the expectations of our shareholders;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>identifying regulatory and ethical expectations and obligations; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>identifying areas of significant business risk and ensuring arrangements are in
place to adequately manage those risks.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The board delegates responsibility for the operation and administration of our company and its
subsidiaries to the Managing Director.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The board ensures management&#146;s objectives and activities are aligned with those expectations
and risks identified by the board through the mechanisms set out below:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>oversight of our business, including its control and accountability systems;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>appointing and removing the chief executive officer (or equivalent);</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>ratifying the appointment and, where appropriate, the removal of the chief
financial officer and the company secretary;</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">65
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>input into and final approval of corporate strategy and performance objectives;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reviewing and ratifying systems of risk management and internal compliance and
control, codes of conduct and legal compliance;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>monitoring senior management&#146;s performance and implementation of strategy, and
ensuring appropriate resources are available;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>approving and monitoring the progress of major capital expenditure, capital
management, and acquisitions and divestitures;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>approving and monitoring financial and other reporting; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>monitoring compliance of tax processes.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Composition of the board</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The composition of the board is determined in accordance with the following principles and guidelines:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the board must comprise at least three directors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the board must comprise directors with an appropriate range of qualifications
and expertise; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the board must meet regularly and follow meeting guidelines set down to ensure
all directors are made aware of, and have available, all necessary information, to
participate in an informed discussion of all agenda items.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The performance of all directors is reviewed annually by the Chairman of the board in order to
ensure that the board continues to discharge its responsibilities in an appropriate manner.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our constitution provides that the board may appoint a director at any time other than during
a general meeting. However, any director so appointed automatically retires at the next general
meeting and must seek re-election at that general meeting. Otherwise, our constitution permits the
election of a director at general meeting and by ordinary resolution. One third of directors other
than the director who is the Managing Director (or is one of the Managing Directors and has been
nominated by the board as exempt from retirement) must retire at each Annual General Meeting. If
the applicable number of directors is not a multiple of three, the nearest whole number to one
third is applied in determining how many directors must retire from office. This will mean that for
the year ending June&nbsp;30, 2006, (subject to the appointment of any new directors by the company in
general meeting prior to the 2006 Annual General Meeting), two of the current seven directors must
retire and will be eligible for re-election. The directors chosen to retire will be the directors
who have held office the longest since last being elected or appointed. If additional directors
are appointed and more than one director is required to retire, then where two or more directors
have held office for the same amount of time, they may agree which of them will retire and if they
cannot decide they will draw lots.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dr.&nbsp;Brimblecombe was appointed a director on March&nbsp;5, 2002 and was re-elected at the general
meeting held on November&nbsp;17, 2004. Both Mr.&nbsp;Rezos and Dr.&nbsp;Aston were appointed directors by a
resolution of shareholders at a general meeting of shareholders on November&nbsp;24, 2000 becoming
effective on December&nbsp;1, 2000 and Dr.&nbsp;Aston was re-elected at a general meeting by ordinary
resolution on October&nbsp;21, 2003 and did not stand for re-election at pSivida&#146;s most recent Annual
General Meeting held on November&nbsp;15, 2005. Mr.&nbsp;Lake and Ms.&nbsp;Ledger were appointed directors by a
resolution of shareholders at a general meeting of shareholders held on July&nbsp;30, 2004. Dr.&nbsp;Mazzo
and Mr.&nbsp;Rogers were appointed by the board and re-elected at our annual general meeting held on
November&nbsp;15, 2005. Ms.&nbsp;Ledger resigned as a director on January&nbsp;11, 2006, and the board appointed
Ms.&nbsp;Zampatti as a director on the same date.
</DIV>

<P align="center" style="font-size: 10pt">66
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furthermore, any director who is not a Managing Director must retire from office at the
conclusion of the third annual general meeting after which they were elected and are eligible for
re-election.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our constitution does not prescribe any maximum age limit for directors. This means that
automatic retirement from office is not imposed upon reaching a certain age.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Whether or not a director&#146;s appointment is expressed to be for a specified period, our
constitution permits:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>members by ordinary resolution; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>members holding a majority of our issued, voting shares by written notice to the company,</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">to remove any director from office. The Corporations Act 2001 supports and supplements these
members&#146; powers to remove directors from office.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Compliance with U.S. law and NASDAQ rules regarding director independence, shareholder approvals
and other matters.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>General</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the Sarbanes-Oxley Act of 2002, the SEC has issued new rules that,
among other things, require NASDAQ to impose independence requirements on each member of the audit
committee. The new NASDAQ rules implement two basic criteria for determining independence: (i)
audit committee members would be barred from accepting any consulting, advisory or other
compensatory fee from the issuer or an affiliate of the issuer, other than in the member&#146;s capacity
as a member of the board of directors and any board committee, and (ii)&nbsp;audit committee members of
an issuer that is not an investment company may not be an &#147;affiliated person&#148; of the issuer or any
subsidiary of the issuer apart from his or her capacity as a member of the board and any board
committee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The SEC defines &#147;affiliate&#148; for non-investment companies as &#147;a person that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or is under common
control with, the person specified.&#148; The term &#147;control&#148; is proposed to be consistent with the other
definitions of this term under the Exchange Act as &#147;the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a person, whether through
the ownership of voting securities, by contract, or otherwise.&#148; A safe harbor has been proposed by
the SEC, under which a person who is not an executive officer, director or 10% shareholder of the
issuer would be deemed not to have control of the issuer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For purposes of NASDAQ, an &#147;independent director&#148; is a person who is not an officer or
employee of the company or any of its subsidiaries and who does not have a relationship that, in
the opinion of the board, would interfere with the exercise of independent judgment in carrying out
the responsibilities of a director.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Recently-adopted SEC and NASDAQ rules have applied to us since July&nbsp;31, 2005. We have taken
appropriate steps with respect to our corporate governance system so that our board of directors
satisfies provisions of Rule&nbsp;10A-3 under the Exchange Act and the amended corporate governance
standards of NASDAQ implementing the requirements of Rule&nbsp;10A-3, including the requirements
relating to the independence of the audit committee members and responsibilities of the audit
committee. For so long as we are listed on NASDAQ and rules applicable to us so require:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>we will continue to have a board of directors consisting of a majority of
independent directors, as defined under NASDAQ&#146;s corporate governance rules;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>we will continue to have an audit committee of at least three members, comprised
solely of directors each of whom: (1)&nbsp;meets NASDAQ&#146;s definition of independence;
(2)&nbsp;meets the SEC&#146;s definition of independence; (3)&nbsp;has not participated in the
preparation of our financial statements or any of our current subsidiaries at any
time during the past three years; and (4)&nbsp;is able to read and understand
fundamental financial statements, including a balance sheet, income statement, and
cash flow statement.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">67
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>we will continue to have at least one member of the audit committee who has past
employment experience in finance or accounting, requisite professional
certification in accounting, or any other comparable experience or background which
results in the individual&#146;s financial sophistication, including being or having
been a chief executive officer, chief financial officer or other senior officer
with financial oversight responsibilities.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>we will have adopted a formal written audit committee charter that complies with
NASDAQ&#146;s rules, and that the audit committee will, among other things, review and
assess the adequacy of the charter on an annual basis.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>we will either ensure that our nomination committee and remuneration committee
have only independent directors or that all decisions made by the board in respect
of compensation of officers and nomination of directors are approved by a majority
of our independent directors.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>we will have adopted a code of conduct applicable to all directors, officers and
employees which complies with NASDAQ and SEC rules, and such code will be publicly
available.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>we will hold regularly scheduled meetings at which only independent directors
are present.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have been granted an exemption from the quorum requirement under NASDAQ rules which
requires each issuer to provide for a quorum as specified in its by-laws for any meeting of the
holders of common stock, which shall in no case be less than 33 1/3% of the outstanding shares of a
company&#146;s common voting stock. Our constitution provides for a quorum requirement of two members
at general meetings of our shareholders. This quorum requirement is in accordance with Australian
law and generally accepted business practices in Australia.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Independence of Directors</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During her tenure as a director of pSivida, the board of directors considered Ms.&nbsp;Ledger to be
an independent director. She had an indirect interest in 1,900,000 ordinary shares held by her
spouse representing 0.49% of the outstanding ordinary shares as of December&nbsp;31, 2005. Ms.&nbsp;Ledger
resigned from the board on January&nbsp;11, 2006 and Ms.&nbsp;Zampatti was appointed to the board on the same
date. The board considers Ms.&nbsp;Zampatti to be an independent director. She currently holds no
shares or options of pSivida.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The board of directors considers Messrs.&nbsp;Mazzo and Rogers to be independent directors. We have
recently granted Dr.&nbsp;Mazzo 200,000 options, and Mr.&nbsp;Rogers 200,000 options.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The board of directors considers Mr.&nbsp;Lake to be an independent director. Mr.&nbsp;Lake was
separately recommended by the nomination committee of the board on the basis of his extensive
experience in building and developing growth technology businesses. Mr.&nbsp;Lake is currently employed
by and responsible for managing and developing the QinetiQ Ventures portfolio of spin-out
companies. QinetiQ is currently our largest shareholder, holding approximately 9.22% of our issued
share capital at December&nbsp;31, 2005. The board does not consider that QinetiQ&#146;s shareholding
affects Mr.&nbsp;Lake&#146;s independence on the basis that QinetiQ has sufficient and suitably documented
policies and procedures in place separating Mr.&nbsp;Lake and the corporate department of
QinetiQ responsible for all dealing in relation to their interest in pSivida&#146;s ordinary shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Existing board committees</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To assist in the execution of its responsibilities, the board has established a number of
committees including a nomination committee, a remuneration committee and an audit and compliance
committee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Nomination Committee</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The primary purpose of the nomination committee is to ensure that the board is comprised of
individuals who are best able to discharge the responsibilities of directors having regard to the
law and the highest standards of corporate governance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The nomination committee meets this mandate by:
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>assessing the skills required on the board and from time to time considering the
extent to which the required skills are represented on the board;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>establishing processes for the review of the performance of individual directors
and the board as a whole; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>establishing processes for the identification of suitable candidates for
appointment to the board.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The duties and responsibilities of the nomination committee are:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to periodically assess the skills required to competently discharge the board&#146;s
duties, having regard to our strategic direction, and report the outcome of that
assessment to the board;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to assess the skills represented on the board by the directors and determine
whether those skills meet the required skills as identified, as and when it
considers appropriate but in any event on each occasion on which an existing
director retires;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to make recommendations to the chairman of the board on means by which skill
levels of existing directors can be enhanced;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to implement a process for the identification of suitable candidates for
appointment to the board;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to make recommendations to the board on candidates it considers appropriate for
appointment;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to inform the board of the names of directors who are retiring in accordance
with our constitution and make recommendations to the board as to whether the board
should support the re-nomination of that retiring director; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to undertake a process of review of the retiring director&#146;s performance during
the period in which the director has been a member of the board and conduct that
review by whatever means it consider appropriate including assessment of
performance by peers and self. However, a member of the nomination committee must
not participate in the review of his or her own performance.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The decisions of the nomination committee, as contained in its minutes, constitute
recommendations to the full board. The board has adopted procedures whereby any action taken after
July&nbsp;31, 2005 based on a recommendation of the nomination committee must be ratified by a majority
of the independent directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The nomination committee must be comprised of at least two members of the board. The terms of
appointment to the nomination committee are at the discretion of the board and vacancies may be
filled as they arise. From August&nbsp;2, 2004 until November&nbsp;14, 2005, the members of the nomination
committee were Dr.&nbsp;Brimblecombe (Chairperson); Ms.&nbsp;Ledger and Dr.&nbsp;Aston. Since November&nbsp;14, 2005
the members of the nomination committee have been Dr.&nbsp;Brimblecombe (Chairperson) and Mr.&nbsp;Rezos.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Remuneration Committee</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The role of the remuneration committee is to assist the board in ensuring that appropriate and
effective remuneration packages and policies for the Managing Director and executive directors are
implemented within our company and its subsidiaries. The remuneration committee&#146;s role also
extends to the review of non-executive directors&#146; fees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The duties and responsibilities of the remuneration committee are to:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>review and recommend to the board remuneration policies and packages for the
Managing Director and executive directors;</TD>
</TR>

</TABLE>
</DIV>
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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>recommend to the board any changes in remuneration policy relating to
superannuation, other benefits and remuneration structure for the Managing Director
and executive directors and that are likely to have a material impact on our
company and its subsidiaries;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>review and recommend to the board proposals for employee and non-executive
director equity plans;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>review and recommend to the board proposals for short and long term incentive
programs for the Managing Director and executive directors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>review and recommend to the board any changes to non-executive directors&#146; fees;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>ensure there is a proper performance management process in place throughout the
organization and that it is operating effectively; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>be informed of:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="10%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>current trends in executive remuneration and associated incentive initiatives; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="10%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>legislative issues associated with executive remuneration programs.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The decisions of the committee, as contained in its minutes, shall constitute recommendations
to the board. The board has adopted procedures whereby any action taken based on a recommendation
of the remuneration committee must be ratified by a majority of the independent directors. In
addition the compensation of our chief executive officer will be determined, or recommended to the
board for determination, either by a majority of the independent directors or a compensation
committee comprised solely of independent directors. Further, our chief executive officer may not
be present during voting or deliberations. Compensation of all other executive officers will also
be determined, or recommended to the board for determination, either by a majority of the
independent directors, or a compensation committee comprised solely of independent directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The remuneration committee is comprised of at least two members of the board. From August&nbsp;2,
2004 until November&nbsp;15, 2005, and the member of the renumeration committee were Dr.&nbsp;Brimblecombe
(Chairman), Mr.&nbsp;Lake and Dr.&nbsp;Aston. Since November&nbsp;15, 2005 the members of the remuneration
committee have been Dr.&nbsp;Brimblecombe (Chairperson) and Mr.&nbsp;Lake.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The terms of appointment to the remuneration committee are at the discretion of the board and
vacancies may be filled as they arise.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Audit and Compliance Committee</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The board established the audit and compliance committee to facilitate:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the effective operation of systems and controls which minimize financial and operational risk;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reliable financial and management reporting policies and procedures;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>compliance with laws and regulations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>maintenance of an effective and efficient internal and external audit process; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>oversight of the accounting and financial reporting process of the company and
the audits of the company&#146;s financial statements.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The audit and compliance committee is particularly concerned with audit compliance amongst our
company and its subsidiaries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The audit and compliance committee is directly responsible to the board for the following:
</DIV>

<P align="center" style="font-size: 10pt">70
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>ensuring appropriate accounting policies and procedures are defined, adopted and
maintained;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>ensuring that operating and management reporting procedures, and the system of
internal control, are of a sufficiently high standard to provide timely, accurate
and relevant information;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reviewing the financial statements prior to their approval by the board;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reviewing the scope of work including approval of strategic and annual audit
plans and effectiveness of both the external and internal audit functions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>monitoring the proper operation of and issues raised through our subsidiary&#146;s
audit and compliance committees;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>ensuring that appropriate processes are in place to ensure compliance with all
legal requirements;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>ensuring that all internal and industry codes of conduct and standards of
corporate behavior are being complied with;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>appointment of, on recommendation by the Managing Director, a person(s)
responsible for internal audit functions as specified from time to time by, and in
accordance with, the audit and compliance committee&#146;s terms of reference;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>establishing procedures for the receipt, retention and treatment of complaints
regarding accounting, internal accounting controls, or auditing matters, and the
confidential, anonymous submission by our employees of concern regarding
questionable accounting or auditing maters;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>taking action with respect to any other business processes or functions that may
be referred to it by the board; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>ensuring its receipt from the outside auditors of a formal written statement
delineating all relationships between the auditor and the company, consistent with
appropriate standards, and actively engaging in a dialogue with the auditor with
respect to any disclosed relationships or services that may impact the objectivity
and independence of the auditor and for taking, or recommending that the full board
take, appropriate action to oversee the independence of the outside auditor.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The decisions of the audit and compliance committee, as contained in its minutes, shall
constitute recommendations to the board.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The audit and compliance committee is directly responsible for making recommendations to the
board on the appointment, reappointment or replacement (subject, if applicable, to shareholder
ratification), remuneration, monitoring of effectiveness, and independence of the external
auditors, including resolution of disagreements between management and the auditor regarding
financial reporting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The audit and compliance committee approves all audit and non-audit services provided by the
external auditors and must not engage the external auditors to perform any non-audit/assurance
services that may impair or appear to impair the external auditor&#146;s judgment or independence. The
audit and compliance committee may delegate approval authority to a member of the audit and
compliance committee. The decisions of any audit and compliance committee member to whom approval
authority is delegated must be presented to the full audit and compliance committee at its next
scheduled meeting. Our audit and compliance committee is empowered to determine its own
procedures, and the charter for the committee and its adequacy must be reviewed annually by the
committee and the board.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When reviewing the independence of the external auditor the committee will encourage the
rotation of the audit partner at least once every five years.
</DIV>

<P align="center" style="font-size: 10pt">71
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The audit and compliance committee is comprised of at least three members of the board. The
members of our audit and compliance committee shall meet the independence and experience
requirements of the SEC and NASDAQ. At least one of the members of our audit and compliance
committee appointed by pSivida&#146;s board shall be determined by the board to be a financial expert as
defined by the SEC and NASDAQ, and all such members shall be able to read and understand
fundamental financial statements. From August&nbsp;2, 2004 to July&nbsp;28, 2005 the members of the audit and
compliance committee were Ms.&nbsp;Ledger (Chair), Dr.&nbsp;Brimblecombe and Mr.&nbsp;Lake. From July&nbsp;28, 2005 to
January&nbsp;11, 2006 the members of the audit and compliance committee were Mr.&nbsp;Rogers (Chair), Ms.
Ledger and Dr.&nbsp;Mazzo. As of January&nbsp;11, 2006 the members of pSivida&#146;s audit and compliance
committee are Mr.&nbsp;Rogers (Chair), Dr.&nbsp;Mazzo and Ms.&nbsp;Zampatti. Since July&nbsp;28, 2005, the committee&#146;s
financial expert has been Mr.&nbsp;Rogers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The terms of appointment to the audit and compliance committee are at the discretion of the
board and vacancies may be filled as they arise.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Conduct and Ethics</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our code of conduct was adopted on June&nbsp;30, 2003 and was made available from the corporate
governance sections of our website on July&nbsp;1, 2003. The code of conduct applies to all employees
of the company including the Managing Director and Chief Financial Officer and covers a broad range
of issues and practices necessary to maintain confidence in our integrity, including procedures in
relation to:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>compliance with the law;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>financial records;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>contributions to political parties, candidates and campaigns;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>occupational health and safety;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>confidential information;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>conflict of interest;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>efficiency;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>equal opportunity;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>corporate bribery; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>membership to industry and professional associations.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The code of conduct directs individuals to report any contraventions of the code to their
immediate superior or the Managing Director.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, we have adopted separate corporate governance policies relating to insider
trading, continuous disclosure, communications strategy and risk management. Summaries of these
policies are available on our corporate website, and we make the full policies available to the
public upon request. We believe that our continuous disclosure policy and our communications
strategy policy satisfy the requirements of the SEC&#146;s rules requiring companies to adopt written
standards relating to the full, fair, accurate, timely, and understandable disclosure in reports
and documents that a registrant files with, or submits to, the SEC and in other public
communications made by the registrant. These policies mandate continuous disclosure of material
information to the public by means of an ASX release and our corporate website. In addition, we
file with the SEC on Form 6-K a copy of each release which we file with the ASX and post on our
corporate website.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Shareholder Approval of Share Issuance</I></B>
</DIV>


<P align="center" style="font-size: 10pt">72
</DIV>

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<DIV align="left"><FONT size="1">

</FONT></DIV>
<DIV align="left"><FONT size="1">

</FONT></DIV>
<DIV style="font-family: 'Times New Roman',Times,serif">
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 4pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The issuance of securities by us is subject to the shareholder approval requirements of the
ASX Listing Rules and the NASDAQ Marketplace Rules. ASX Listing Rule&nbsp;7.1 states that a company may
not issue securities amounting to more than 15% of such company&#146;s issued share capital in any 12
month period without obtaining shareholder approval. Rule&nbsp;4350(i)(1) of the NASDAQ Marketplace
Rules states that an issuer must obtain shareholder approval in order to issue securities in
certain transactions, including issuances in connection with a transaction (other than a public
offering) of securities having 20% or more of the voting power outstanding before the issuance.
NASDAQ Marketplace Rules permit a foreign private issuer to follow its home country practice in
lieu of the requirements of the shareholder approval requirements of Rule&nbsp;4350. A foreign private
issuer that follows a home country practice in lieu of one or more provisions of Rule&nbsp;4350 must
disclose each requirement of Rule&nbsp;4350 that it does not follow and describe the home country
practice followed by the issuer in lieu of such requirements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 4pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In obtaining shareholder approval for the issuance of shares underlying the convertible note
entered into by us on November&nbsp;16, 2005, we obtained shareholder approval pursuant to our home
country practice as embodied in ASX Listing Rule&nbsp;7.1, and while the issuance of the shares was
approved, we may not have received shareholder approval under NASDAQ Marketplace Rule&nbsp;4350(i)(1),
as we did not specifically request approval under that rule.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>D. EMPLOYEES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 4pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of June&nbsp;30, 2005, we had 36 employees, excluding directors and consultants. Of such
employees, 20 were employed in research and development and 16 in management and administration; 19
employees were located in Malvern, United Kingdom, 4 in Singapore and 13 in Perth, Western
Australia.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 4pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;30, 2005, we completed the acquisition of Control Delivery Systems, Inc., which
has been renamed pSivida Inc. As a result of the acquisition, as of December&nbsp;31, 2005 we have 12
employees located in Boston, U.S.A.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 4pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Australian, UK, Singaporean and US labor laws and regulations are applicable to all of our
employees depending upon their location of employment. 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>E. SHARE OWNERSHIP</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 4pt"><B>Beneficial Ownership of Executive Officers and Directors</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 4pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth certain information as of December&nbsp;31, 2005 regarding the
beneficial ownership by each of our directors and executive officers:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 4pt"><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Directors and Executive
Officers of pSivida Limited</I></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="32%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="2">Options in</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="2">Ordinary Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="2">Options</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="2">Subsidiary&nbsp;(19)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">Total Share</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">Held</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">Held</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">Held</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">Held</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">Ownership</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">Held</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">Held</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">Directly</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">Indirectly</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">Directly</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">Indirectly</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">(3)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">Directly</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">Indirectly</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">R. Brimblecombe (8)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">445,067</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,324,111</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">G J Rezos (4), (7)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,018,630</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,272,652</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,371,030</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,800,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.05%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">250,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">S Lake
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">242,061</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">A Ledger
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,900,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">200,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">D Mazzo
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">200,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">M Rogers
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">200,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">P Ashton (5), (9)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,992,810</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">671,270</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,380,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.78%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">A Finlay (10)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,100,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">108,760</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">A Kluczewska (11)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,425,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">495,040</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">L Freedman (12)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,786,320</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">237,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">M Soja (13)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,060,460</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">237,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,303,287</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,843,922</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,617,902</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,100,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.68%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">495,040</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">358,760</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 2pt"><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Other
pSivida Group
Executive Officers</I></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="32%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="2">Options in</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="2">Ordinary Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="2">Options</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="2">Subsidiary&nbsp;(19)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">Total Share</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">Held</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">Held</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">Held</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">Held</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">Ownership</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">Held</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">Held</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">Directly</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">Indirectly</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">Directly</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">Indirectly</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">(3)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">Directly</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">Indirectly</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">R Aston (6), (14)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,618,586</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,475,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,049,111</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">500,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.22%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">L Canham (15)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,730,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">864,289</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.15%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">110,840</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">M Parry-Billings (16)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,200,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">J Ogden (17)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">554,708</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">S Connor (18)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">189,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">444,645</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,348,586</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,664,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,112,753</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">500,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.70%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">110,840</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,651,873</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,507,922</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,730,655</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,600,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15.20%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">495,040</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">469,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

</DIV>
<DIV align="center" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;73
</DIV>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>These Executive Officers and Directors hold less than 1% of our outstanding capital
stock.</TD>
</TR>


<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>The percentages are based on 387,009,956 ordinary shares issued and outstanding as at
December&nbsp;31, 2005.</TD>
</TR>


<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Beneficial ownership is determined in accordance with the rules of the SEC, and
generally include voting or investment power with respect to securities. Ordinary shares
relating to options currently exercisable or exercisable within 60&nbsp;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, 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.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
<TD>For the purposes of calculating total share ownership, the number
of ordinary shares held includes shares issuable upon the exercise
of options that are exercisable or will become exercisable within 60&nbsp;days
of December&nbsp;31, 2005 for the following individuals: Dr.&nbsp;
Brimblecombe (1,024,111&nbsp;shares), Mr.&nbsp;Rezos
(4,571,030&nbsp;shares), Mr.&nbsp;Lake (242,061&nbsp;shares),
Ms.&nbsp;Ledger (200,000&nbsp;shares), Dr. Ashton
(880,700&nbsp;shares), Mr. Finlay (900,000&nbsp;shares),
Dr.&nbsp;Kluczewska (1,300,000&nbsp;shares), Dr.&nbsp;Ashton
(1,549,111&nbsp;shares), Prof.&nbsp;Canham (739,289&nbsp;shares),
Dr.&nbsp;Parry-Billings (400,000&nbsp;shares), Dr.&nbsp;Ogden
(439,708&nbsp;shares) and Mr.&nbsp;Connor (319,645&nbsp;shares).</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(4)</TD>
    <TD>&nbsp;</TD>
    <TD>Of such shares, 2,018,630 are directly held by Mr.&nbsp;Rezos, 3,325,717 are held by Joanne
Rezos, Mr.&nbsp;Rezos&#146; wife, 3,059,333 are held by Mr. and Mrs.&nbsp;Rezos as trustees for the Rezos
family superannuation Fund, 2,510,607 are held by Aymon Pacific Pty Ltd as trustee for the
Jerezos Discretionary Trust and 376,995 are held by Viaticus Capital Pty Ltd, a Australian
corporation owned by Mr.&nbsp;Rezos. Mr.&nbsp;Rezos may be deemed to be the beneficial owner of the
ordinary shares held directly by Aymon Pacific Pty Ltd as trustee for the Jerezos
Discretionary Trust, Mr. and Mrs.&nbsp;Rezos as trustees for the Rezos Family Superannuation
Fund, Mrs.&nbsp;Rezos and Viaticus Capital Pty Ltd.</TD>
</TR>


<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(5)</TD>
    <TD>&nbsp;</TD>
    <TD>Of such shares, 16,992,810 are held directly by
Dr.&nbsp;Ashton and 671,270 are held by Paul Ashton Children&#146;s
Irrevocable Trust as to which Dr.&nbsp;Ashton disclaims beneficial ownership.</TD>
</TR>





<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(6)</TD>
    <TD>&nbsp;</TD>
    <TD>Of such shares, 5,618,586 are held directly by Dr Aston, 1,475,000 are held by Equity
Insinger (Trust) (Jersey) Ltd, a Jersey corporation owned by Dr Aston. Dr Aston may be
deemed to be the beneficial owner of the ordinary shares held directly by Insinger Equity
(Trust) (Jersey) Ltd.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(7)</TD>
    <TD>&nbsp;</TD>
    <TD>Of such options, 2,771,030 are held directly by Mr.&nbsp;Rezos available to be exercised
into an equal number of ordinary shares with an exercise price of A$1.18 per share expiring
in August&nbsp;2009; 1,200,000 are held by Aymon Pacific Pty Ltd as trustee for the Jerezos
Discretionary Trust available to be exercised into an equal number of ordinary shares with
an exercise price of A$0.61 per share expiring on December&nbsp;31, 2007; 600,000 are held
directly by Mr.&nbsp;Rezos available to be exercised into an equal number of ordinary shares
with an exercise price of A$0.80 per share expiring on March&nbsp;31, 2010; and 600,000 are held
by Mrs.&nbsp;Joanne Rezos available to be exercised into an equal number of ordinary shares with
an exercise price of A$0.92 per share expiring on September&nbsp;30, 2010.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(8)</TD>
    <TD>&nbsp;</TD>
    <TD>Of such options, 400,000 are held directly by Dr Brimblecombe available to be exercised
into an equal number of ordinary shares with an exercise price of A$0.61 per share expiring
on December&nbsp;31, 2007; 549,111 are held directly by Dr Brimblecombe available to be
exercised into an equal number of ordinary shares with an exercise price of A$1.18 per
share expiring in August&nbsp;2009; 300,000 are held directly by Dr.&nbsp;Brimblecombe available to
be exercised into an equal number of ordinary shares with an exercise price of A$0.80 per
share expiring on March&nbsp;31, 2010; and 75,000 are held directly by Dr.&nbsp;Brimblecombe
available to be exercised into an equal number of ordinary shares with an exercise price of
A$0.92 per share expiring on September&nbsp;30, 2010.</TD>
</TR>
<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(9)</TD>
    <TD>&nbsp;</TD>
    <TD>Of such options, 352,280 are held directly by Dr.&nbsp;Ashton and available to be exercised
into an equal number of ordinary shares with an exercise price of US$0.22709 per share
expiring on August&nbsp;25, 2009; 528,420 are held directly by Dr.&nbsp;Ashton available to be
exercised into an equal number of ordinary shares with an exercise price of US$0.17742 per
share expiring on September&nbsp;18, 2007; and 500,000 are held directly by Dr.&nbsp;Ashton available
to be exercised into an equal number of ordinary shares with an exercise price of A$0.92
per share expiring on September&nbsp;30, 2010.</TD>
</TR>


</TABLE>


<P align="center" style="font-size: 10pt">74
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">





<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(10)</TD>
    <TD>&nbsp;</TD>
    <TD>Of such options 700,000 are held by Mrs.&nbsp;Sophie Finlay as trustee for the Aylesford
Trust available to be exercised into an equal number of ordinary shares with an exercise
price of A$1.18 per share expiring on August&nbsp;5, 2009; 200,000 are held by Mrs.&nbsp;Sophie
Finlay as trustee for the Aylesford Trust available to be exercised into an equal number of
ordinary shares with an exercise price of A$0.80 per share expiring on March&nbsp;31, 2010; and
200,000 are held by Mrs.&nbsp;Sophie Finlay as trustee for the Aylesford Trust available to be
exercised into an equal number of ordinary shares with an exercise price of A$0.92 per
share expiring on September&nbsp;30, 2010.</TD>
</TR>
<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(11)</TD>
    <TD>&nbsp;</TD>
    <TD>Of such options, 1,200,000 are held directly by Dr Kluczewska with one third vesting
annually from October&nbsp;21, 2003 available to be exercised into an equal number of ordinary
shares with an exercise price of A$0.61 per share expiring in December&nbsp;2007; 100,000 are
held directly by Dr Kluczewska available to be exercised into an equal number of ordinary
shares with an exercise price of A$1.18 per share expiring in August&nbsp;2009 and 125,000 are
held directly by Dr Kluczewska available to be exercised into an equal number of ordinary
shares with an exercise price of A$0.80 per share expiring on 31 March&nbsp;2010.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(12)</TD>
    <TD>&nbsp;</TD>
    <TD>Of such options, 237,500 are held directly by
Ms.&nbsp;Freedman available to be exercised into an equal number of
ordinary shares with an exercise price of A$0.92&nbsp;per share
expiring on September&nbsp;30, 2010.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(13)</TD>
    <TD>&nbsp;</TD>
    <TD>Of such options, 237,500 are held directly by Mr.&nbsp;Soja
available to be exercised into an equal number of ordinary shares
with an exercise price of A$0.92&nbsp;per share expiring on
September&nbsp;30, 2010.</TD>
</TR>


<TR valign="top">
    <TD nowrap align="left">(14)</TD>
    <TD>&nbsp;</TD>
    <TD>Of such options, 500,000 are held directly by Dr Aston available to be exercised into
an equal number of ordinary shares with an exercise price of A$0.61 per share expiring on
December&nbsp;31, 2007; 549,111 are held directly by Dr Aston available to be exercised into an
equal number of ordinary shares with an exercise price of A$1.18 per share expiring in
August&nbsp;2009 and 500,000 are held by Newtonmore Biosciences Pty Ltd, an Australian
corporation owned by Dr Aston, available to be exercised into an equal number of ordinary
shares with an exercise price of A$1.18 per share expiring in August&nbsp;2009. Dr Aston may be
deemed to be the beneficial owner of the options held directly by Insinger (Trust) Jersey
Ltd and Newtonmore Biosciences Pty Ltd.</TD>
</TR>


<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(15)</TD>
    <TD>&nbsp;</TD>
    <TD>Of such options, 739,289 are held directly by Prof Canham available to be exercised
into an equal number of ordinary shares with an exercise price of A$1.18 per share expiring
in August&nbsp;2009 and 125,000 are held directly by Prof Canham
available to be exercised into an equal number of ordinary shares with
an exercise price of A$0.80&nbsp;per share expiring on 31&nbsp;March
2010.</TD>
</TR>


<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(16)</TD>
    <TD>&nbsp;</TD>
    <TD>Of such options, 1,200,000 are held directly by Dr Mark Parry-Billings with one third
vesting annually from April&nbsp;22, 2005 available to be exercised into an equal number of
ordinary shares with an exercise price of A$0.80 per share expiring
on 31&nbsp;March&nbsp;2010.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(17)</TD>
    <TD>&nbsp;</TD>
    <TD>Of such options, 429,708 are held directly by Dr Ogden available to be exercised into
an equal number of ordinary shares with an exercise price of A$1.18 per share expiring in
August&nbsp;2009 and 125,000 are held directly by Dr Ogden available to be exercised into an
equal number of ordinary shares with an exercise price of A$0.80 per
share expiring on 31
March&nbsp;2010.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(18)</TD>
    <TD>&nbsp;</TD>
    <TD>Of such options, 319,645 held directly by Mr.&nbsp;Connor available to be exercised into an
equal number of ordinary shares with an exercise price of A$1.18 per share expiring in
August&nbsp;2009 and 125,000 are held directly by Mr.&nbsp;Connor available to be exercised into an
equal number of ordinary shares with an exercise price of A$0.80 per
share expiring on 31
March&nbsp;2010.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(19)</TD>
    <TD>&nbsp;</TD>
    <TD>Options in a subsidiary represent options to acquire shares in the wholly-owned
subsidiary AION Diagnostics Limited at an exercise price of nil, expiring 3 February&nbsp;2008
and subject to various vesting conditions.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Stock Option Plan</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At our annual general meeting on November&nbsp;1, 2001, shareholders approved the Employee Share
Option Plan, or ESOP, whereby directors and executives of the consolidated entity are issued
options over the ordinary shares of pSivida. Shareholders re-approved the ESOP at the Company&#146;s
annual general meeting held on November&nbsp;17, 2004. The options are issued without consideration in
accordance with performance guidelines established by the board of directors of pSivida. The
following table presents option grant information as of December&nbsp;31, 2005.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Options outstanding</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Weighted Average exercise price</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:15px; text-indent:-15px">31,169,162*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">A$1.00</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Note that 11,442,490 of these options were not issued under the ESOP.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Plan Administration</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The ESOP is administered by pSivida&#146;s board.
</DIV>


<P align="center" style="font-size: 10pt">75
</DIV>


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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="108"></A>
</DIV>


<!-- link1 "ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS" -->

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>A.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>MAJOR SHAREHOLDERS</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth certain information as at December&nbsp;31, 2005, regarding the
beneficial ownership by all shareholders known to us to own beneficially 5% or more of pSivida&#146;s
ordinary shares, including shares held by means of ADSs. The voting rights of our major
shareholders do not differ from the voting rights of other holders of its ordinary shares.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Percentage of</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Ordinary Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Outstanding</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beneficially</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Ordinary</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Shareholder</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Owned(1)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Shares(2)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">QinetiQ Group Plc</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">35,699,629</TD>
    <TD nowrap>(3)</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">9.22%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Bausch &#038; Lomb Incorporated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">21,136,940</TD>
    <TD nowrap>(4)</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">5.5%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>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&nbsp;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, 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 ordinary shares shown as
beneficially owned by them.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>The percentages are based on 387,009,956 ordinary shares issued and outstanding as at
December&nbsp;31, 2005.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>Of such shares, 10,053,203 are held directly by QinetiQ Group Plc, and 25,646,426 are held
indirectly by QinetiQ Group Plc. QinetiQ&#146;s address is Cody Technology Park, Ively Road,
Hampshire&nbsp;GU14&nbsp;OLX, United Kingdom.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(4)</TD>
    <TD>&nbsp;</TD>
    <TD>Held in the form of ADSs, each of which represents 10 ordinary shares.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, we had 387,009,956 ordinary shares on issue, of which 129,314,638
were held by 3,557 Australian resident holders and 257,695,318 were held by 774 foreign holders.
Of the foreign holders, 624 representing 167,279,360 ordinary shares, or 43.2%, are known by us to
have U.S. addresses at December&nbsp;31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, we had 31,169,162 options convertible into ordinary shares on issue,
of which 11,115,141 were held by 15 Australian resident holders and 20,054,021 were held by 56
foreign holders. Thirty-two of the foreign holders, representing 13,132,490 options, are known by
us to have U.S. addresses as of December&nbsp;31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;QinetiQ on behalf of itself and its affiliates has entered into a deed poll whereby it has
pledged that, until October&nbsp;26, 2009, as long as it holds 10% or more of our outstanding ordinary
shares, it will exercise its voting rights in line with the majority of proxy votes exercisable by
validly appointed proxies in relation to any resolution of our shareholders. The deed poll can be
enforced by any of our shareholders. In addition, if at some time QinetiQ owns less than 10% of
pSivida&#146;s outstanding ordinary shares and subsequently again owns 10% or more of pSivida&#146;s
outstanding ordinary shares, QinetiQ&#146;s obligations under the deed poll would again be effective.
The voluntary restriction on QinetiQ is irrevocable and applies for a period of five years until
October&nbsp;26, 2009.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are not aware of any direct or indirect ownership or control of pSivida by another
corporation(s), by any foreign government or by any other natural or legal person(s) severally or
jointly. We do not know of any arrangements, the operation of which may at a subsequent date result
in a change in control of pSivida.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>B.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>RELATED PARTY TRANSACTIONS</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the years ended June&nbsp;30, 2005, 2004 and 2003, we paid consultancy fees and other
amounts totaling Nil, A$341,362 and A$173,333, respectively to Aymon Pacific Pty Ltd, a company
controlled by Mr.&nbsp;Rezos. These fees and other amounts have been included in remuneration of
directors and executive remuneration.
</DIV>

<P align="center" style="font-size: 10pt">76
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the years ended June&nbsp;30, 2005, 2004 and 2003, amounts of &#163;220,689 (approximately
A$544,320), &#163;186,682 (approximately A$457,567) and &#163;207,492 (approximately A$564,033),
respectively, were paid or payable to QinetiQ for the use of laboratory facilities and for patent
filing and administration. Amounts of &#163;32,491 (approximately
A$76,324) were paid during the
period from July 1 to December&nbsp;31 of 2005. Following the transaction on August&nbsp;4, 2004 to acquire
the shares in pSiMedica that pSivida did not already own, QinetiQ and its related entities held
approximately 17.5% of pSivida&#146;s issued share capital. By December&nbsp;31, 2004, QinetiQ&#146;s ownership
interest in pSivida was reduced to 9.22%, principally as a result of the December&nbsp;30, 2005
acquisition of CDS.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the years ended June&nbsp;30, 2005, 2004 and 2003 we paid consultancy fees and other amounts
totaling A$319,941 and A$44,000 and Nil, respectively, to Newtonmore Biosciences Pty Ltd, a company
controlled by Dr.&nbsp;Aston. These fees and other amounts have been included in remuneration of
directors and executive remuneration. Amounts of A$148,317 were paid during the period from July 1
to December&nbsp;31 of 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the years ended June&nbsp;30, 2005, 2004 and 2003, we paid consultancy fees of A$2,083,
A$71,858 and A$45,000, respectively, to Blackwood Pty Ltd, a company controlled by Mrs.&nbsp;Donovan.
These fees have been included in remuneration of directors and executive remuneration.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the years ended June&nbsp;30, 2005, 2004 and 2003, we paid amounts of Nil, A$12,367 and
A$52,187, respectively, to Viaticus Capital Pty Ltd, a company controlled by Mr.&nbsp;Rezos, for sublease of
BGC Centre office space. In addition, amounts of A$438,556 were paid during the period from July 1
to December&nbsp;31 of 2005 for consulting services provided by
Mr.&nbsp;Rezos.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the years ended June&nbsp;30, 2005, 2004 and 2003, we paid Blake Dawson Waldron A$114,832,
A$78,068 and A$22,622, respectively, for various routine arms-length legal services. Blake Dawson
Waldron is a national Australian law firm, and one of the partners thereof is a relative of a
pSivida director. Amounts of A$178,568 were paid during the period from July 1 to December&nbsp;31 of
2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the years ended June&nbsp;30, 2005, 2004 and 2003, amounts of A$125,982, A$149,489, and Nil
respectively, were paid or payable to Albion Capital Partners, of which Mr.&nbsp;Rezos is a partner, for
sublease of BGC Centre office space. Amounts of A$165,220 were paid to Albion Capital during the
period from July 1 to December&nbsp;31 of 2005 for the sublease of BCG Centre office space and for
financial analysis and accounting services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the year ended June&nbsp;30, 2005, CDS (now pSivida Inc.) revised a license
agreement with Bausch &#038; Lomb Incorporated, a large shareholder
in CDS. CDS received an immediate payment of
US$3&nbsp;million (A$4.1&nbsp;million) from Bausch &#038; Lomb in exchange for the right to receive
future royalties in the amount of US$6.25&nbsp;million
(A$8.6&nbsp;million) otherwise payable under the original license
agreement. Upon pSivida&#146;s acquisition of CDS in December&nbsp;30, 2005,
Bausch &#038; Lomb became the holder of 5.5% of pSivida&#146;s outstanding capital stock. The license
agreement was not affected by the acquisition and remains in full
force and effect.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amounts owing to directors, director-related parties and other related parties as of June&nbsp;30,
2005, 2004 and 2003 were A$50,102 A$37,145 and A$31,182, respectively.
</DIV>


<P align="center" style="font-size: 10pt">77
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>C.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>INTERESTS OF EXPERTS AND COUNSEL</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>

<DIV align="left">
<A name="109"></A>
</DIV>

<!-- link1 "ITEM 8. FINANCIAL INFORMATION" -->

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 8. FINANCIAL INFORMATION</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>A.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See Item&nbsp;18, &#147;Financial Statements&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Legal Proceedings</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A potential lender to pSivida Inc. (formerly CDS) has claimed a break-up fee as a result of
the royalty advance agreement between pSivida Inc. and Bausch &#038; Lomb Incorporated. An investment
banker has claimed an advisory fee in connection with that agreement as well as the acquisition of
CDS by pSivida. We intend to defend against these claims.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Dividend Distribution Pending</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently intend to retain any future earnings to finance the growth, development and
expansion of our business. Accordingly, we do not intend to declare or pay any dividends on
pSivida&#146;s ordinary shares for the foreseeable future. The declaration, payment and amount of
future dividends, if any, will be at the sole discretion of our board of directors after taking
into account various factors, including our financial condition, results of operations, cash flow
from operations, current and anticipated capital requirements and expansion plans, the income tax
laws then in effect and the requirements of applicable corporate law.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>B.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>SIGNIFICANT CHANGES</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Private Investment in Public Equity</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
August&nbsp;2005, we raised US$4.3&nbsp;million (A$5.7&nbsp;million) in gross proceeds in a private placement structured
as a private investment in public equity, commonly known as a PIPE. In the PIPE, we sold 665,000
ADSs to investors at US$6.50 per ADS together with 133,000 three-year warrants exercisable for
US$12.50 per ADS.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Acquisition of CDS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The Merger</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;3,
2005, we entered into a merger agreement with CDS, a Boston-based company engaged in the design and development of drug
delivery products. The merger agreement provided that a newly-formed
subsidiary of pSivida would merge into CDS, with CDS surviving the merger as a wholly-owned subsidiary of pSivida with the
name of pSivida Inc. After approval by the required majorities of both companies&#146; shareholders and
the fulfillment of other closing conditions, the merger was completed on December&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Consideration</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In exchange
for their CDS shares, the former stockholders of CDS received 15,983,661 of our
ADSs. Based on a price of A$0.71 per share, the price prevailing upon the closing of the merger,
the transaction represents a purchase price of approximately
A$118.8&nbsp;million (US$86.7&nbsp;million). As of December&nbsp;31, 2005, the ADSs received by the former CDS stockholders
represented approximately 41.3% of the capital stock of the combined company. Certain former
shareholders of CDS received cash rather than ADSs for their CDS shares. The total amount of such
cash, which depended on the market value, on or about the date of the merger, of the ADSs that such
shareholders would have received in the merger, was US$83,116. In addition, each outstanding
option to purchase CDS stock was assumed by us and effectively converted into an option to acquire
such number of ADSs as the holder would have been entitled to receive in the merger if such holder
had exercised such option in full immediately before completion of the merger.
</DIV>

<P align="center" style="font-size: 10pt">78
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Restricted ADSs; Registration Rights Agreement</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The ADSs issued to the former CDS stockholders in the merger have not been registered under
the Securities Act, but have been issued in a private placement conducted in accordance with
Section&nbsp;4(2) of the Securities Act and Regulation&nbsp;D thereunder. Accordingly, such ADSs may not be
sold unless registered with the SEC for resale or sold in a transaction exempt from registration
under the Securities Act. We have agreed to register the resale of the ADSs issued to the former
CDS stockholders who have entered into a registration rights agreement with us and, among other
things, have agreed not to transfer or sell their ADSs for the six months following the closing of
the merger (subject to certain exceptions).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Interests of Officers of CDS in the Merger</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain executive officers of CDS are expected to be employed by us in various capacities.
Dr.&nbsp;Paul Ashton, recently President and Chief Executive Officer of CDS, will be appointed to the
board of directors of pSivida and will serve as Executive Director of Strategy and Head of Research
and Development of Ophthalmology of pSivida as well as Interim President of CDS. We intend to make
employment offers to each of Lori Freedman, the general counsel of CDS and Michael Soja, the chief
financial officer of CDS. These offers are currently being discussed and negotiated, and there can
be no assurance that we will reach agreement with all or any of Dr.&nbsp;Ashton, Ms.&nbsp;Freedman and Mr.
Soja regarding their employment relationship with the combined company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Business of the former CDS</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;CDS, now renamed pSivida Inc., designs and develops innovative sustained-release drug delivery
products. CDS&#146; two proprietary drug delivery systems, AEON and CODRUG, deliver specific quantities
of drugs directly to a target site in the body at controlled rates for predetermined periods of
time ranging from days to years. These systems are designed to address drawbacks of systemic drug
delivery for pSivida Inc.&#146;s target diseases: adverse side effects characteristic of high dosing
levels and reduced treatment benefits due to variations in drug levels at the target site.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;pSivida Inc. has two commercial
products utilizing the AEON system approved by the FDA for
treatment of two sight threatening eye diseases. These two products, Vitrasert and Retisert, are
the only local sustained-release products approved by the FDA for the back of the eye. Marketed by
Bausch &#038; Lomb and sold since 1996, Vitrasert is one of the most effective treatments for CMV
retinitis, a disease that afflicts late-stage AIDS patients. Approved by the FDA in April&nbsp;2005 and
also marketed by Bausch &#038; Lomb, Retisert treats chronic noninfectious uveitis affecting the
posterior segment of the eye, or posterior uveitis, the third leading cause of blindness in the
U.S. Bausch &#038; Lomb is also conducting two long-term multi-center clinical trials of Retisert for
the treatment of DME, another leading cause of vision loss. Medidur, an
injectable AEON product, is also designed to treat DME and is currently in fast-track Phase III
clinical trials conducted by Alimera Sciences Inc. pSivida Inc. also has two AEON product
candidates in pre-clinical studies for other back of the eye diseases. For a more detailed
description of the business of pSivida Inc., see Item&nbsp;4B &#147;Business of Psivida Inc.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>License Agreement with Beijing Med-Pharm</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;27, 2005 we signed a license with Beijing Med-Pharm Corporation for the clinical
development, marketing and distribution of BrachySil in China. Under the terms of the license, we
will manufacture BrachySil and Beijing Med-Pharm will be responsible for clinical development,
securing regulatory approval, marketing and distribution in China. pSivida will retain
manufacturing rights for BrachySil under the license. It is a condition of the license that a
manufacturing and supply agreement for pSivida to supply BrachySil to Beijing Med-Pharm is
concluded within 90&nbsp;days. The license includes upfront payments
to pSivida of US$375,000 (approximately A$514,000) upon
entering into the license and US$375,000 (approximately A$514,000) upon entering into the manufacturing and supply agreement,
and additional payments of up to US$1,750,000 (approximately A$2,400,000) if certain milestones are achieved. In addition, we
will receive royalties ranging from 10% up to 30%, depending upon level of sales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Convertible Note Financing</B>
</DIV>

<P align="center" style="font-size: 10pt">79
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;16, 2005, we issued a subordinated convertible promissory note in the principal
amount of US$15&nbsp;million (A$19.7&nbsp;million) to an institutional investor. The note will bear interest
at a rate equal to 8% per annum, have a term of three years and a conversion price of US$7.10,
subject to adjustment based on certain events or circumstances, including the market price of ADSs
for the ten trading days ending on May&nbsp;5, 2006. We also issued a warrant with a term of six years
which will entitle the investor to purchase 633,803 ADSs at US$7.20 per ADS, subject to adjustment.
We have also entered into a registration rights agreement pursuant to which we have agreed to file
a registration statement covering the resale of the ADSs underlying the note and the warrant as
soon as practicable and to have the registration statement declared effective within 180&nbsp;days of
issuance of the notes and warrants. The proceeds of the issuance are expected to be used for the
expanded development of BioSilicon and for general corporate purposes.
</DIV>
<DIV align="left">
<A name="110"></A>
</DIV>

<!-- link1 "ITEM 9. THE OFFER AND LISTING" -->

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 9. THE OFFER AND LISTING</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>A.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>OFFER AND LISTING DETAILS</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our ordinary shares were listed on the ASX in December&nbsp;2000. The following table sets forth,
for the periods indicated, the highest and lowest market quotations for the ordinary shares
reported on the daily official list of the ASX.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="43%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="5" valign="top" align="left" style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Calendar Year</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="5"><B>(in Australian dollars)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">2005</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">First quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">1.25</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.85</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">Second quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.935</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.535</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">Third quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.945</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.75</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fourth quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.94</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.55</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">July</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.875</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.75</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">August</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.945</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.815</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">September</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.90</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.80</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">October</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.94</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.72</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">November</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.79</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.55</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">December</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.75</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.58</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>



<TR style="font-size: 1px">
    <TD colspan="9" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">2004</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">First quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">1.44</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.52</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">Second quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">1.34</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">1.03</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">Third quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">1.16</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.90</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fourth quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">1.43</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">1.02</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">2003</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">First quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.21</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.155</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">Second quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.275</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.16</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">Third quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.69</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.23</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fourth quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.70</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.51</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">2002</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">First quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.265</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.225</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">Second quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.245</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.155</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">Third quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.175</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.135</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fourth quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.215</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.10</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">2001</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">First quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.40</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.30</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">Second quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.335</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.21</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">Third quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.27</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.09</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fourth Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.34</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">0.11</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our ADSs were listed on the NASDAQ National Market in January&nbsp;2005. The following table sets
forth, for the periods indicated, the highest and lowest market quotations for the ADSs reported on
the daily official list of the NASDAQ National Market.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="43%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="5" valign="top" align="left" style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Calendar Year</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="5"><B>(in Australian dollars)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">2005</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">First quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">12.14</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">6.30</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">Second quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;&nbsp;8.00</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">4.15</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">80
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="43%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="5" valign="top" align="left" style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Calendar Year</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="5"><B>(in U.S. dollars)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">Third quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">8.75</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">5.60</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fourth Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">7.00</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">4.21</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">July</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">7.13</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">5.60</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">August</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">8.75</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">6.25</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">September</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">6.80</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">6.02</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">October</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">7.00</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">5.20</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">November</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">6.00</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">4.21</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">December</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">5.697</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">4.32</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>B.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>PLAN OF DISTRIBUTION</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>C.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>MARKETS</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our primary listing is on the ASX, trading under the symbol &#147;PSD&#148;. Since January, 2005 we
have been listed in the NASDAQ National Market under the symbol &#147;PSDV&#148;. In addition, we are also
listed on the Frankfurt, Berlin, Munich and Stuttgart exchanges under the symbol &#147;PSI&#148;. Our shares
also trade in the United Kingdom on the OFEX International Market Service (IMS)&nbsp;under the symbol
&#147;PSD&#148;.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>D.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>SELLING SHAREHOLDERS</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>E.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>DILUTION</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>F.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>EXPENSES OF THE ISSUE</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="111"></A>
</DIV>

<!-- link1 "ITEM 10. ADDITIONAL INFORMATION" -->

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 10. ADDITIONAL INFORMATION</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>A.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>SHARE CAPITAL</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>B.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>OUR CONSTITUTION</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This information is included in Item&nbsp;10B of the registration statement filed by us on Form
20-F with the SEC on January&nbsp;20, 2005, and is incorporated herein by reference.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>C.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>MATERIAL CONTRACTS</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>AEA Technology QSA GmbH</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During March&nbsp;2004 pSiMedica entered into a three year agreement with AEA Technology QSA GmbH
for the production and manufacture of radioactive 32P-BioSilicon nano-structured microparticles to
meet pSiMedica&#146;s commercial supply requirements. Under the terms of the agreement we will be
required to meet &#163;870,000 (approximately A$2.28&nbsp;million) in project costs as part of the
development phase to enable the production of 32P-BioSilicon. This cost relates to the acquisition
of Hot Cells and production plant and equipment, the title of which will be transferred to us.
This facility was completed in September&nbsp;2005.
</DIV>

<P align="center" style="font-size: 10pt">81
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Acquisition of pSiMedica Limited</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;4, 2004, we completed the A$57.8&nbsp;million acquisition of the outside equity interest
in shares of pSiMedica Ltd. The transactions entered into in order to affect the acquisition
involved firstly the minority shareholders in pSiOncology exchanging their pSiOncology shares for
newly issued shares in pSiMedica, such that pSiMedica now holds 100% of the issued share capital of
pSiOncology. Subsequently, we acquired the balance of pSiMedica shares, namely those held by the
QinetiQ group and other minority shareholders, including pSiMedica management, SGH Technology
Ventures Pre Ltd and Biotech Research Ventures Pte Ltd. In consideration for the pSiMedica shares,
we paid A$4,323,622 in cash and issued an additional 49,804,381 ordinary shares at A$1.09. In
addition, we issued 678,537 options at an exercise price of A$1.18 which expire on August&nbsp;5, 2009
in relation to pSiMedica options previously granted to directors and employees of pSiMedica.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Private Investment in Public Equity</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
August&nbsp;2005, we raised US$4.3&nbsp;million (A$5.7&nbsp;million) in gross proceeds in a private placement structured
as a private investment in public equity, commonly known as a PIPE. In the PIPE, we sold 665,000
ADSs to investors at US$6.50 per ADS together with 133,000 three-year warrants exercisable for
US$12.50 per ADS.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Acquisition of CDS &#151; Merger Agreement</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;3, 2005, we entered into a merger agreement with CDS, a Boston-based company engaged in the design and development of drug
delivery products. The merger agreement provided that a newly-formed subsidiary of pSivida would merge into CDS, with CDS surviving the merger as a wholly-owned subsidiary of pSivida with the
name of pSivida Inc. After approval by the required majorities of both companies&#146; shareholders and
the fulfillment of other closing conditions, the merger was completed on December&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In exchange for their CDS shares, the former stockholders of CDS received 15,983,661 of our
ADSs. Based on a price of A$0.71 per share, the price prevailing upon the closing of the merger,
the transaction represents a purchase price of approximately
A$118.8&nbsp;million (US$86.7&nbsp;million).
As of December&nbsp;31, 2005, the ADSs received by the former CDS stockholders represented approximately
41.3% of the capital stock of the combined company. Certain former shareholders of CDS received
cash rather than ADSs for their CDS shares. The total amount of such cash, which depended on the
market value, on or about the date of the merger, of the ADSs that such shareholders would have
received in the merger, was US$83,116. In addition, each outstanding option to purchase CDS stock
was assumed by us and effectively converted into an option to acquire such number of ADSs as the
holder would have been entitled to receive in the merger if such holder had exercised such option
in full immediately before completion of the merger.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>License Agreement with Beijing Med-Pharm</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;27, 2005 we signed a license with Beijing Med-Pharm Corporation for the clinical
development, marketing and distribution of BrachySil in China. Under the terms of the license, we
will manufacture BrachySil and Beijing Med-Pharm will be responsible for clinical development,
securing regulatory approval, marketing and distribution in China. pSivida will retain
manufacturing rights for BrachySil under the license. It is a condition of the license that a
manufacturing and supply agreement for pSivida to supply BrachySil to Beijing Med-Pharm is
concluded within 90&nbsp;days. The license includes upfront payments
to pSivida of US$375,000 (approximately A$514,000) upon
entering into the license and US$375,000 (approximately A$514,000) upon entering into the manufacturing and supply agreement,
and additional payments of up to US$1,750,000 (approximately
A$2,400,000) if certain milestones are achieved. In addition, we
will receive royalties ranging from 10% up to 30%, depending upon level of sales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Convertible Note Financing</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;16, 2005, we issued a subordinated convertible promissory note in the principal
amount of US$15&nbsp;million (A$19.7&nbsp;million) to an institutional investor. The note will bear interest
at a rate equal to 8% per annum, have a term of three years and a conversion price of US$7.10,
subject to adjustment based on certain events or circumstances, including the market price of ADSs
for the ten trading days ending on May&nbsp;5, 2006. We also issued a warrant with a term of six years
which will entitle the investor to purchase 633,803 ADSs at US$7.20 per
</DIV>

<P align="center" style="font-size: 10pt">82
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">ADS, subject to adjustment. We have also entered into a registration rights agreement pursuant to
which we have agreed to file a registration statement covering the resale of the ADSs underlying
the note and the warrant as soon as practicable and to have the registration statement declared
effective within 180&nbsp;days of issuance of the notes and warrants. The proceeds of the issuance are
expected to be used for the expanded development of BioSilicon and for general corporate purposes.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>D.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>EXCHANGE CONTROLS</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>The Foreign Acquisitions and Takeovers Act 1975</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 Federal
Treasurer or in certain other limited circumstances. These limitations are set forth in the
Australian Foreign Acquisitions and Takeovers Act 1975, or the Foreign Takeovers Act.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Foreign 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
Australian Federal Treasurer may make an order requiring 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 Federal 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As stated above, the Australia-United States Free Trade Agreement has resulted in amendments
being made to the Foreign Acquisitions and Takeovers Act regulations in Australia. The amendments
provide that from January&nbsp;1, 2005 the need for the Australian Federal Treasurer&#146;s approval will, in
relation to acquisitions of interests in Australian shares by U.S. investors, only be required in
relation to Australian companies with assets of more than A$800&nbsp;million. The approval process for
non-U.S. investors will continue to be triggered by the current asset threshold of A$50&nbsp;million.
The application of the A$800&nbsp;million threshold is subject to certain criteria including (but not
limited to) the nature and residency of the U.S. investor.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If the level of foreign ownership exceeds 15% (for a single foreign person and their
associates) (which is currently the case on the basis of the QinetiQ Group&#146;s holdings), or 40% (in
aggregate for more than one foreign person and their associates) at any time, we would be
considered a foreign person under the Foreign Takeovers Act. As such, we would be required to
obtain the approval of the Australian Federal Treasurer, together with our associates, to acquire;
(i)&nbsp;more than 15% of an Australian company or business with assets totaling over A$50&nbsp;million; or
(ii)&nbsp;any direct or indirect ownership interest in Australian residential real estate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 do 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our constitution does not contain any additional limitations on a non-resident&#146;s right to hold
or vote our securities.
</DIV>

<P align="center" style="font-size: 10pt">83
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Corporations Act 2001</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As applied to us, the Corporations Act 2001 prohibits any legal person (including a
corporation) from acquiring a relevant interest in Ordinary Shares if after the acquisition that
person or any other person&#146;s voting power in pSivida increases from 20% or below to more than 20%,
or from a starting point that is above 20% and below 90%.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This prohibition is subject to a number of specific exceptions set out in section 611 of the
Corporations Act 2001 which must be strictly complied with to be applicable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In general terms, a person is considered to have a &#147;relevant interest&#148; in a share in pSivida
if that person is the holder of that share, has the power to exercise, or control the exercise of,
a right to vote attached to that share, or has the power to dispose of, or to control the exercise
of a power to dispose of that share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;It does not matter how remote the relevant interest is or how it arises. The concepts of
&#147;power&#148; and &#147;control&#148; are given wide and extended meanings in this context in order to deem certain
persons to hold a relevant interest. For example each person who has voting power above 20% in a
company or a managed investment scheme which in turn holds shares in pSivida is deemed to have a
relevant interest in those pSivida shares. Certain situations (set out in section 609 of the
Corporations Act 2001) which would otherwise constitute the holding of a relevant interest are
excluded from the definition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A person&#146;s voting power in pSivida is that percentage of the total votes attached to Ordinary
Shares in which that person and its associates (as defined in the Corporations Act 2001) holds a
relevant interest.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>E.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>TAXATION</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a summary of the material U.S. federal income tax and Australian tax
consequences to U.S. holders, as defined below, of the acquisition, ownership and disposition of
ADSs, or ordinary shares and is based on the laws in force as at the date of this annual report.
Holders are advised to consult their tax advisers concerning the overall tax consequences of the
acquisition, ownership and disposition of ADSs or ordinary shares in their particular
circumstances. This discussion relies in part on representations by the depositary in the deposit
agreement and related documents and the assumption that each obligation in the deposit agreement
and related documents will be performed in accordance with their terms.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Commonwealth of Australia Taxation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Dividends</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the current double taxation convention between Australia and the U.S., dividends paid by
us to a U.S. resident shareholder of pSivida, including a pSivida ADS holder, whose holding is not
effectively connected with a permanent establishment in Australia or, in the case of a shareholder
who performs independent personal services from a &#147;fixed base&#146; situated therein, is not connected
with that &#147;fixed base&#146;, may be subject to Australian withholding tax at a rate not exceeding 15% of
such gross dividend. If the U.S. resident shareholder is a company which holds directly at least
10% of the voting power of pSivida, the withholding tax rate is limited to 5%.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends paid to non-residents of Australia are exempt from withholding tax to the extent to
which such dividends are &#147;franked&#146; under Australia&#146;s dividend imputation system or paid out of a
foreign dividend account. Dividends are considered to be &#147;franked&#146; to the extent that they are paid
out of post 1986-87 income on which Australian income tax has been levied. The foreign dividend
account is an accumulation of dividends remitted to Australia by foreign subsidiaries. Any part of
a dividend paid to a U.S. resident, which is not &#147;franked&#146; and is not paid out of a foreign
dividend account, will generally be subject to Australian withholding tax unless a specific
exemption applies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Sale of Ordinary Shares and ADSs</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A U.S. citizen who is a resident of Australia, or a U.S. corporation that is a resident of
Australia (by reason of carrying on business in Australia, and being managed or controlled in
Australia, or having its voting power controlled by shareholders who are residents of Australia)
may be liable for income tax on any profit on disposal of
</DIV>

<P align="center" style="font-size: 10pt">84
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">ordinary shares or pSivida ADSs, or Australian capital gains tax on the disposal of ordinary
shares or pSivida ADSs acquired after September&nbsp;19, 1985.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Australian law as currently in effect, no income or other tax is payable on any profit
on disposal of ordinary shares or pSivida ADSs held by persons not resident in Australia except if
the profit is of an income nature and sourced in Australia, or the sale is subject to Australian
capital gains tax.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The source of any profit on the disposal of ordinary shares or pSivida ADSs will depend on the
factual circumstances of the actual disposal. Where the ordinary shares or pSivida ADSs are
acquired and disposed of pursuant to contractual arrangements entered into and concluded outside
Australia, and the seller and the purchaser are non-residents of Australia and do not have
permanent establishments in Australia, the profit should not have an Australian source. If the
profit is sourced in Australia, it will not be taxable in Australia if it represents business
profits of an enterprise of the U.S. and the enterprise does not carry on business in Australia
through a permanent establishment situated in Australia.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any gain upon disposal of ordinary shares or pSivida ADSs, if held by a person not resident in
Australia, may be subject to capital gains tax if the ordinary shares or pSivida ADSs have the
&#147;necessary connection with Australia&#148;. The ordinary shares or pSivida ADSs will have the necessary
connection with Australia if the non-resident (together with associates, if any) beneficially owned
at any time during the five years before the disposal, at least 10% by value of the shares of
pSivida (excluding shares carrying no right to participate beyond a specified amount in a
distribution of profits or capital). Ordinary shares or pSivida ADSs will also have the necessary
connection with Australia if they have been used by the non-resident in carrying on a trade or
business, wholly or partly, at or through a permanent establishment in Australia.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Australian capital gains tax is generally payable upon the profit arising from the sale of
assets acquired after September&nbsp;19, 1985. The profit is calculated as the disposal proceeds less
the cost base. For assets acquired prior to September&nbsp;19, 1999 and held for at least 12&nbsp;months,
the cost base can be indexed for inflation up to September&nbsp;21, 1999. However, individuals can
elect for only 50% of the profit (with no indexation) arising from the sale from assets acquired on
or after 11:45 am Australian Eastern Standard Time September&nbsp;21, 1999, to be subject to capital
gains tax (provided the asset is held for at least 12&nbsp;months). For assets acquired before
September&nbsp;21, 1999 but sold after September&nbsp;21, 1999, individuals have the choice of calculating
the capital gain as either 50% of the profit with no indexation or the disposal proceeds less the
cost indexed for inflation up to September&nbsp;30, 1999. Capital losses are not subject to indexation
and can only be offset against capital gains.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Australian Stamp Duty</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No Australian stamp duty will be payable on the acquisition of pSivida ADSs or on any
subsequent transfer of a pSivida ADS, provided that the ADR evidencing such ADS remains at all
times outside Australia, that the instrument of transfer is not executed in Australia and remains
at all times outside Australia, and that the depositary maintains no register of pSivida ADSs, or
any other securities, in Australia.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any transfer of ordinary shares will not be subject to Australian stamp duty.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>U.S. Federal Income Tax Considerations</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Material U.S. Federal Income Tax Consequences</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following discussion describes the material U.S. federal income tax consequences of the
acquisition, ownership and disposition of pSivida&#146;s ADSs or ordinary shares by a beneficial owner
of those ADSs or ordinary shares, referred to in each case for purposes of this discussion as a
&#147;U.S. Holder,&#148; that is:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a citizen or individual resident of the United States;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a corporation or other entity taxable as a corporation for U.S. federal income tax
purposes that is created or organized in the United States or under the law of the
United States or of any state or the District of Columbia;</TD>
</TR>

</TABLE>
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>an estate whose income is includible in gross income for U.S. federal income tax
purposes regardless of its source; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a trust, if (1)&nbsp;a court within the United States is able to exercise primary
supervision over the administration of the trust, and one or more United States persons
have the authority to control all substantial decisions of the trust, or (2)&nbsp;the trust
was in existence on August&nbsp;20, 1996 and properly elected to continue to be treated as a
United States person.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For U.S. federal income tax purposes, the beneficial owner of pSivida ADSs will be treated as
the owner of the ordinary shares represented by the pSivida ADSs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This summary does not purport to be a comprehensive description of all of the tax
considerations that may be relevant to each U.S. Holder. This discussion is based on current
provisions of the U.S. Internal Revenue Code of 1986, as amended, or the &#147;Code&#148;, current and
proposed Treasury Department regulations promulgated thereunder, judicial decisions and published
positions of the U.S. Internal Revenue Service, referred to as the &#147;IRS&#148;, and other applicable
authorities, all as in effect as of the date of this annual report, and each of which is subject to
change or to differing interpretations, possibly with retroactive effect. This discussion does not
address all aspects of U.S. federal income taxation that may be relevant to any particular
shareholder based on the shareholder&#146;s individual circumstances. In particular, this discussion
considers only U.S. Holders that own pSivida&#146;s ADSs or ordinary shares as capital assets and does
not address the potential application of the alternative minimum tax or the U.S. federal income tax
consequences to U.S. Holders that are subject to special treatment, including, for example, U.S.
Holders that:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>are broker-dealers or insurance companies;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>have elected mark-to-market accounting;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>are tax-exempt organizations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>are financial institutions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>hold pSivida ADSs or ordinary shares as part of a straddle, &#147;hedge&#148; or &#147;conversion
transaction&#148; with other investments;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>acquired their pSivida ADSs or ordinary shares through the exercise of options or
similar derivative securities or otherwise as compensation;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>have a functional currency that is not the U.S. dollar;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>are regulated investment companies, real estate investment trusts or financial asset
securitization investment trusts; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>persons who actually or constructively own ten percent or more of pSivida&#146;s ADSs or
ordinary shares.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, this discussion does not consider the tax treatment of persons who hold pSivida
ADSs or ordinary shares through a partnership or other pass-through entity. This discussion does
not address any aspect of state, local or non-U.S. tax laws or any U.S. federal tax laws other than
U.S. federal income tax laws.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To ensure compliance imposed by the Internal Revenue Service, you are advised that the U.S.
tax advice contained in this communication (i)&nbsp;is written in connection with the promotion or
marketing of the transactions and matters addressed by this communication, and (ii)&nbsp;is not intended
or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding U.S. tax
penalties. You are urged to consult with your tax advisor as to the tax consequences of the
transaction to you in light of your particular circumstances, including the applicability and
effect of any state, local or foreign tax laws.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You are advised to consult your own tax adviser with respect to the specific tax consequences
to you of holding or disposing of pSivida&#146;s ADSs or ordinary shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Taxation of Dividends Paid on ADSs or Ordinary Shares</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to the rules applicable to passive foreign investment companies, described below, a
U.S. Holder will be required to include in gross income as ordinary income an amount equal to the
U.S. dollar value of any distribution, plus any Australian tax withheld, paid on a pSivida ADS or
ordinary share on the date the distribution is received by the depositary or the U.S. Holder, as
the case may be, based on the exchange rate on that date, to the extent the distribution is paid
out of pSivida&#146;s current or accumulated earnings and profits as determined for U.S. federal income
tax purposes. Generally, any gain or loss resulting from the conversion of Australian dollars into
U.S. dollars will be ordinary income or loss. A distribution in excess of earnings and profits
will be treated first as a nontaxable return of capital, reducing the U.S. Holder&#146;s basis in the
pSivida ADS or ordinary share and, to the extent in excess of basis, will be treated as gain from
the sale or exchange of the pSivida ADS or ordinary share. Notwithstanding the foregoing, we do
not intend to maintain calculations of our earnings and profits as determined for U.S. federal
income tax purposes. Accordingly, our distributions generally will be presumed to constitute
dividends paid out of our earnings and profits. Our dividends will not qualify for the dividends
received deduction generally available to corporations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Noncorporate taxpayers are subject to U.S. tax on dividends paid by certain non-U.S.
corporations to a maximum rate of 15% (or, with respect to dividends that otherwise would be taxed
at the 10% or 15% rates, to 5%, except for taxable years beginning after December&nbsp;31, 2007, for
which the tax is eliminated). The reduced rates apply for purposes of both the regular tax and the
alternative minimum tax. A dividend paid by a non-U.S. corporation qualifies for the reduced rate
of tax if the stock on which the dividend is paid is readily tradable on an established securities
market in the United States. ADRs listed on NASDAQ should qualify for such treatment. Even if the
pSivida ADSs are so tradable at the time a dividend is paid, to qualify for the reduced rates, a
shareholder must hold the share of stock on which the dividend is paid for more than 60&nbsp;days during
the 120-day period beginning 60&nbsp;days before the ex-dividend date, disregarding for this purpose any
period during which the taxpayer has an option to sell, is under a contractual obligation to sell
or has made (and not closed) a short sale of substantially identical stock or securities, is the
grantor of an option to buy substantially identical stock or securities or, pursuant to Treasury
regulations, has diminished its risk of loss by holding one or more other positions with respect to
substantially similar or related property. In addition, to qualify for the reduced rates, the
taxpayer must not be obligated to make related payments with respect to positions in substantially
similar or related property. Payments in lieu of dividends from short sales or other similar
transactions will not qualify for the reduced rates. A taxpayer that receives an extraordinary
dividend eligible for the new reduced tax rates must treat any loss on the sale of the stock as a
long-term capital loss to the extent of the dividend. For purposes of determining the amount of a
taxpayer&#146;s deductible investment interest expense, a dividend is treated as investment income only
if the taxpayer elects to treat the dividend as not eligible for the new reduced rates. Special
limitations on foreign tax credits with respect to dividends subject to the reduced rates apply to
reflect the reduced rates of tax. Except where noted, the new reduced tax rates on dividends apply
to taxable years beginning before January&nbsp;1, 2009.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A U.S. Holder will generally have the option of claiming the amount of any Australian
withholding tax either as a deduction from gross income or as a dollar-for-dollar credit against
the U.S. Holder&#146;s U.S. federal income tax liability. An individual who does not claim itemized
deductions, but instead utilizes the standard deduction, may not claim a deduction for the amount
of any Australian withholding tax, but that amount may be claimed as a credit against the
individual&#146;s U.S. federal income tax liability. The amount of foreign income tax that may be
claimed as a credit in any year is subject to limitations and restrictions, which must be
determined on an individual basis by each shareholder. The limitations include, among others,
rules that limit foreign tax credits allowable with respect to specific classes of foreign source
income to the U.S. federal income tax otherwise payable with respect to each of those classes of
income. The limitations on the foreign tax credit are exceedingly complex, and U.S. Holders
therefore should consult their own tax advisers with respect to those limitations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A U.S. Holder should not be eligible for a foreign tax credit against its U.S. federal income
tax liability for Australian taxes we pay (other than Australian withholding taxes described
above).
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Taxation of the Sale of ADSs or Ordinary Shares</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to the rules applicable to passive foreign investment companies, discussed below, upon
the sale of a pSivida ADS or ordinary share, a U.S. Holder generally will recognize capital gain or
loss in an amount equal to the difference, if any, between the U.S. Holder&#146;s basis in the pSivida
ADS or ordinary share and the amount realized on the sale. Capital gain or loss from the sale of a
pSivida ADS or ordinary share held more than one year is long-term capital gain or loss.
Noncorporate taxpayers pay a maximum federal income tax on adjusted net capital gain at 15&nbsp;percent
(or, with respect to adjusted net capital gain that otherwise would be taxed at the 10% or 15%
rates, to 5%, except for taxable years beginning after December&nbsp;31, 2007, for which the tax is
eliminated). The rate applies to taxable years ending before January&nbsp;1, 2009, after which the
maximum tax rate on adjusted net capital gain for noncorporate taxpayers would revert back to 20
percent. The deductibility of a capital loss recognized on the sale of an ADS or ordinary share is
subject to limitations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In general, the rules regarding a deduction or credit for Australian withholding tax discussed
above in &#147;Taxation of Dividends Paid on ADSs or Ordinary Shares&#148; also apply to any Australian tax
paid on a sale of a pSivida ADS or ordinary share. See Item&nbsp;10E, &#147;Taxation &#151; Commonwealth of
Australia Taxation &#151; Sale of Ordinary Shares and ADSs&#148;. Except as discussed below, gain or loss
recognized by a U.S. Holder on a sale of a pSivida ADS or ordinary share generally will be treated
as U.S. source passive income or loss for purposes of the U.S. foreign tax credit limitations. In
that case, unless a U.S. Holder has sufficient foreign source passive income from other
transactions subject to foreign income tax at a rate sufficiently below the U.S. federal income tax
rate applicable to that income, the U.S. foreign tax credit limitation rules could prevent the U.S.
Holder from utilizing a foreign tax credit for part or all of any Australian tax paid on the gain.
Nevertheless, U.S. Holders eligible for benefits under the current double taxation convention
between Australia and the U.S., as amended, may be relieved of the source-related limitation on the
use of such Australia foreign tax credits. Such persons are urged to consult with their tax
advisors as to the potential benefits of this double tax convention. The foreign tax credit rules
are complicated and could, in some cases, result in a U.S. holder being subject to taxation in
Australia as well as in the United States on the same capital gain.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Tax Consequences if pSivida Is a Passive Foreign Investment Company</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In general, we will be a passive foreign investment company, or &#147;PFIC&#148;, for any taxable year
if either (1)&nbsp;75&nbsp;percent or more of pSivida&#146;s gross income in the taxable year is passive income,
or (2)&nbsp;50&nbsp;percent or more of the average value of pSivida&#146;s assets in the taxable year produces, or
is held for the production of, passive income. In general, for purposes of the asset test, a
corporation can elect to take its assets into account at their adjusted basis, but only if the
corporation is not publicly traded, and pSivida believes it is publicly traded for that purpose.
The IRS takes the position that interest on working capital or any other cash is passive income and
that the corresponding asset is an asset that produces or is held for the production of passive
income. Unfavorable tax consequences for a U.S. Holder can occur if we are treated as a PFIC for
any year while a U.S. Holder owns pSivida&#146;s ADSs or ordinary shares. These tax consequences can be
mitigated if the U.S. Holder makes, or has made, a timely qualified electing fund election or
election to mark to market the holder&#146;s ADSs or ordinary shares, and such election is in effect for
the first taxable year during which the U.S. Holder owns pSivida&#146;s ADSs or ordinary shares that
pSivida is a PFIC. If neither election is made, under the PFIC provisions, in any year in which
the U.S. Holder either disposes of an ADS or an ordinary share at a gain or receives one or more
&#147;excess distributions,&#148; special rules apply to the taxation of the gain or the excess
distributions. For purposes of these rules, &#147;excess distributions&#148; are the portion of our
distributions in a taxable year, whether or not out of its earnings and profits, that exceed 125
percent of the average of our distributions, subject to adjustment to the extent there were excess
distributions that the U.S. Holder received on the pSivida ADS or ordinary share during the
previous three years or, if shorter, the U.S. Holder&#146;s holding period for the pSivida ADS or
ordinary share on which the distributions are paid. A disposition of an ADS or ordinary share, for
purposes of these rules, includes many transactions on which gain or loss is not realized under
general U.S. federal income tax rules. The gain or the excess distributions must be allocated
ratably to each day the U.S. Holder has held the pSivida ADS or ordinary share. Amounts allocated
to each year are taxable as ordinary income in their entirety (not eligible for the reduced rate
for dividends) and not as capital gain, and amounts allocable to prior years may not be offset by
any deductions or losses. Amounts allocated to each such prior year are taxable at the highest
rate in effect for that year and are subject to an interest charge at the rates applicable to
deficiencies for income tax for those periods. In addition, a U.S. Holder&#146;s tax basis in an ADS or
ordinary share that
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">is acquired from a decedent would not receive a step-up to fair market value as of the date of
the decedent&#146;s death but instead would be equal to the decedent&#146;s basis, if lower.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The special PFIC rules described above will not apply to a U.S. Holder if the U.S. Holder
makes a timely election, which remains in effect, to treat pSivida as a qualified electing fund, or
QEF, for the first taxable year in which the U.S. Holder owns a pSivida ADS or ordinary share and
in which pSivida is a PFIC, provided it complies with certain reporting requirements. Instead, a
U.S. Holder that has made a QEF election is required for each taxable year to include in income a
pro rata share of pSivida&#146;s ordinary earnings as ordinary income and a pro rata share of its net
capital gain as long-term capital gain, subject to a separate election to defer payment of taxes,
which deferral is subject to an interest charge. In order for the QEF election to be valid, we
must provide U.S. Holders either (i)&nbsp;a statement showing such U.S. Holder&#146;s pro rata share of our
ordinary earnings and net capital gain (calculated for U.S. tax purposes) for our taxable year,
(ii)&nbsp;sufficient information to enable the U.S. Holder to calculate its pro rata share for such
year, or (iii)&nbsp;a statement that we have permitted the U.S. Holder to inspect and copy its permanent
books of account, records, and such other documents as may be maintained by pSivida that are
necessary to establish that PFIC ordinary earnings and net capital gain are computed in accordance
with U.S. income tax principles. In the event we are classified as PFIC, we intend to provide
sufficient information to U.S. Holders to be able for them to enable them to calculate its pro rata
share for such year. The QEF election is made on a shareholder-by-shareholder basis and can be
revoked only with the consent of the IRS. A shareholder makes a QEF election by attaching to a
timely filed U.S. federal income tax return a properly completed IRS Form&nbsp;8621 that reflects the
information provided in the PFIC Annual Information Statement supplied by pSivida to the
shareholder and by filing a second copy of that form with the IRS Service Center in Philadelphia,
Pennsylvania. Even if a QEF election is not made, if we are a PFIC in the hands of a U.S. Holder,
that U.S. Holder must file each year a completed IRS Form&nbsp;8621 with its U.S. federal income tax
return. Although a QEF election generally cannot be revoked, if a U.S. Holder made a valid and
timely QEF election for the first taxable year it owned an ADS or ordinary share and we are a PFIC,
the QEF election does not apply in a later taxable year in which we do not satisfy the tests to be
a PFIC. If a QEF election was not made for that first taxable year, certain elections can be made
while a foreign corporation continues to satisfy the definition of a PFIC that, combined with a QEF
election, can cause the QEF election to be treated as having been made for that first taxable year.
Those elections may require the electing shareholder to recognize gain on a constructive sale or
to be taxable on the shareholder&#146;s share of certain undistributed profits of the foreign
corporation. If gain or income is recognized pursuant to one of those elections, the rules set
forth in the preceding paragraph would apply to that gain or income. Even if a QEF election ceases
to apply because in a later taxable year we cease to satisfy the tests to be a PFIC, the QEF
election will apply again in any subsequent year in which we again satisfy the tests to be a PFIC.
Moreover, if you sell all of the pSivida ADSs and ordinary shares you own and later reacquire other
ADSs or ordinary shares of pSivida&#146;s, any QEF election you have made that remains in effect will
apply to the pSivida ADSs and ordinary shares acquired later. Treasury regulations provide that
the Commissioner of Internal Revenue has the discretion to invalidate or terminate a QEF election
if the U.S. Holder or pSivida, or an intermediary, fails to satisfy the requirements for the QEF
election.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The special PFIC rules described in the second preceding paragraph will not apply to a U.S.
Holder if the U.S. Holder elects to mark the U.S. Holder&#146;s ADSs or ordinary shares to market each
year, provided pSivida&#146;s ADSs or ordinary shares are considered &#147;marketable stock&#148; within the
meaning of the Treasury regulations. A U.S. Holder that makes this election will recognize as
ordinary income or loss each year an amount equal to the difference, if any, as of the close of the
taxable year between the fair market value of the holder&#146;s pSivida ADSs or ordinary shares and the
holder&#146;s adjusted tax basis in the pSivida ADSs or ordinary shares. Losses would be allowed only
to the extent of net mark-to-market gain previously included in income by the U.S. Holder under the
election for prior taxable years, reduced by losses allowed in prior taxable years. If the
mark-to-market election were made, then the rules set forth in the second preceding paragraph would
not apply for periods covered by the election. In general, the pSivida ADSs or ordinary shares
will be marketable stock within the meaning of the Treasury regulations if they are traded, other
than in de minimus quantities, on at least 15&nbsp;days during each calendar quarter on a &#147;qualified
exchange or other market&#148; within the meaning of the Treasury regulations. A U.S. exchange is a
&#147;qualified exchange or other market&#148; if such exchange is registered with the SEC or is established
pursuant to the national market system established pursuant to section 11A of the Securities
Exchange Act of 1934. A non-U.S. exchange is a &#147;qualified exchange or other market&#148; if the
exchange is regulated or supervised by a governmental authority of the country where the market is
located and (1)&nbsp;the exchange has trading volume, listing, financial disclosure, surveillance and
other requirements designed to prevent fraudulent and manipulative acts and practices, to remove
impediments to and perfect the mechanism of a free and open, fair and orderly market, and to protect
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">investors, and the laws of the country where the exchange is located and the rules of the
exchange ensure that those requirements are actually enforced, and (2)&nbsp;the rules of the exchange
effectively promote active trading of listed stocks. If a non-U.S. exchange has more than one tier
or market level on which stock may be separately listed or traded, each such tier is treated as a
separate exchange. NASDAQ and the ASX are each a qualified exchange within the meaning of the
Treasury regulations. Thus, we believe that both the pSivida ADSs and the ordinary shares are
&#147;marketable stock&#148; within the meaning of the Treasury regulations. If a U.S. Holder makes a
mark-to-market election, but does not make that election for the first taxable year in which the
U.S. Holder owns a pSivida ADS or ordinary share and in which we are a PFIC, and if the U.S. Holder
had not made a QEF election for that first such taxable year, the rules set forth in the second
preceding paragraph will apply to any distributions on a pSivida ADS or ordinary share in the year
of the mark-to-market election, to any gain recognized on an actual sale of a pSivida ADS or
ordinary share in that year and to any gain recognized in that year pursuant to the mark-to-market
election. The mark-to-market rules generally continue to apply to a U.S. Holder who makes the
mark-to-market election, even in years we do not satisfy the tests to be a PFIC.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A U.S. Holder who owns pSivida ADSs or ordinary shares during a year we are a PFIC generally
will remain subject to the rules set forth in the third preceding paragraph for all taxable years
if the U.S. Holder has not made a QEF election or a mark-to-market election, for the first taxable
year in which the U.S. Holder owns a pSivida ADS or ordinary share and in which we are a PFIC. In
that event, those rules will apply to any gains on dispositions of pSivida ADSs or ordinary shares
and to any &#147;excess distributions.&#148; It is, however, possible for a U.S. Holder to avoid this &#147;once
a PFIC, always a PFIC&#148; result by electing to treat all of the U.S. Holder&#146;s pSivida ADSs and
ordinary shares as sold for their fair market value as of the last day of the last taxable year we
satisfy the tests to be a PFIC, provided the statute of limitations has not run for that year. If
a gain is recognized on that constructive sale, the rules set forth in the third preceding
paragraph would apply to that gain.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A dividend from a foreign corporation that otherwise would qualify for the 15&nbsp;percent maximum
tax rate does not qualify for that rate if the foreign corporation is a PFIC in either the taxable
year of the dividend or the preceding taxable year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that the IRS would consider it to have been a PFIC in each of its past three fiscal
years. However, we do not know whether it will be classified as a PFIC in the year ending June&nbsp;30,
2006 or thereafter because the tests for determining PFIC status are applied annually, and it is
difficult to make accurate predictions of future income and assets, which are relevant to this
determination. In the event we are classified as a PFIC, it intends to provide U.S. Holders with
sufficient information to enable them to make a QEF election if so desired. U.S. HOLDERS ARE URGED
TO CONSULT THEIR TAX ADVISERS ABOUT THE PFIC RULES, INCLUDING THE CONSEQUENCES TO THEM OF MAKING A
QEF ELECTION OR A MARK-TO-MARKET ELECTION WITH RESPECT TO PSIVIDA&#146;S ORDINARY SHARES IN THE EVENT
THAT WE QUALIFY AS A PFIC.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Backup Withholding Tax and Information Reporting Requirements</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;U.S. backup withholding tax and information reporting requirements generally apply to payments
to non-corporate holders of pSivida ADSs or ordinary shares. Information reporting will apply to
payments of dividends on, and to proceeds form of the disposition of, pSivida ADSs or ordinary
shares by a paying agent within the U.S. to a U.S. Holder, other than an &#147;exempt recipient&#148;,
including a corporation and certain other persons that, when required, demonstrate their exempt
status. A paying agent within the U.S. will be required to backup withhold 28% of any payments of
dividends on, and the proceeds from the disposition of, pSivida ADSs or ordinary shares within the
U.S. to a U.S. Holder, other than an &#147;exempt recipient,&#148; if the holder fails to furnish its correct
taxpayer identification number or otherwise fails to comply with applicable backup withholding
requirements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THE DISCUSSION ABOVE IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX
CONSIDERATIONS APPLICABLE TO AN INVESTMENT IN ADSs OR ORDINARY SHARES. YOU SHOULD CONSULT YOUR TAX
ADVISER CONCERNING THE TAX CONSEQUENCES TO YOU IN YOUR PARTICULAR SITUATION.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>F.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>DIVIDEND AND PAYING AGENTS</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>

<P align="center" style="font-size: 10pt">90
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>G.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>STATEMENT BY EXPERTS</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>H.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>DOCUMENTS ON DISPLAY</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The documents concerning our company which are referred to in this annual report may be
inspected at our offices at Level 12 BGC Centre, 28 The Esplanade, Perth WA 6000, Australia. We
are subject to the information requirements of the U.S. Securities Exchange Act of 1934, as
amended, and, in accordance therewith, are required to file reports, including annual reports on
Form 20-F, and other information with the U.S. Securities and Exchange Commission. These materials,
including this annual report and the exhibits thereto, may be inspected and copied at the
Commission&#146;s public reference room in Washington, D.C. Please call the Commission at 1-800-SEC-0330
for further information on the public reference rooms. As a foreign private issuer, we will be
required to make filings with the Commission by electronic means. Any filings we make
electronically will be available to the public over the Internet at the Commission&#146;s website at
http:/www.sec.gov.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>I.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>SUBSIDIARY INFORMATION</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="112"></A>
</DIV>

<!-- link1 "ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK" -->

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have exposure to changes in foreign currency exchange rates and interest rates. We do not
utilize derivative financial instruments or other financial instruments subject to market risk.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Foreign Currency Exchange Rates</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We conduct operations in two principal currencies, the Pound Sterling and the Australian
dollar. These two currencies operate as the two functional currencies for our United Kingdom and
Australian operations respectively. Cash to fund working capital requirements is managed centrally
within each of the two countries with cash deposits managed in Australia and held in Pounds
Sterling, Australian dollars and U.S. dollars.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the year ended June&nbsp;30, 2005 an unrealized foreign exchange loss on cash held in
currencies other than the reporting currency was recognized of A$1.6&nbsp;million which arose due to
unfavorable movements in the Pound Sterling and U.S. dollar against Australian dollar foreign
exchange rates. Prior to April&nbsp;2004, no material cash deposits were held by us in foreign
currencies other than Australian dollars.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on Pounds Sterling and U.S. dollar account balances at June&nbsp;30, 2005, the following
table shows the sensitivity of our consolidated financial performance as a result of an
appreciation or depreciation in the value of the Australian dollar against the Pounds Sterling and
U.S. dollar.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="23%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Current</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>A$ Depreciation</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Rate</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>A$ Appreciation</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>-15%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>-10%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>-5%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>5%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>10%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>15%</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="27" style="border-bottom: 1px solid #000000"><B>(In thousands of Australian dollars)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&#163;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">703</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">469</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">234</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(234</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(469</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(703</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">US$</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">818</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">546</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">273</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(273</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(546</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(818</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,521</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">507</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(507</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,015</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,521</TD>
    <TD nowrap>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Interest Rates</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash deposits are held in call and deposit accounts and are subject to variable interest
rates. We do not consider our exposure to interest rates to be significant.
</DIV>

<P align="center" style="font-size: 10pt">91
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="113"></A>
</DIV>

<!-- link1 "ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES" -->

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="114"></A>
</DIV>



<!-- link1 "PART II" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART II</B>
</DIV>

<DIV align="left">
<A name="115"></A>
</DIV>


<!-- link1 "ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES" -->

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.
</DIV>
<DIV align="left">
<A name="116"></A>
</DIV>
<!-- link1 "ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS" -->

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.
</DIV>
<DIV align="left">
<A name="117"></A>
</DIV>
<!-- link1 "ITEM 15. CONTROLS AND PROCEDURES" -->

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 15. CONTROLS AND PROCEDURES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June&nbsp;30, 2005, we evaluated the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rule&nbsp;13a-15(e) and 15d-15(e) of the Securities Exchange Act
of 1934. The evaluation was carried out under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer. Based on that
evaluation, we have concluded that, as of such date, our disclosure
controls and procedures were ineffective in that we had insufficient
accounting personnel who have sufficient knowledge and experience in
U.S. GAAP and the Securities and Exchange Commission accounting
requirements. The accounting personnel who prepare our financial
statements will need to be trained on the application of U.S. GAAP
accounting pronouncements and standardized reconciliation templates
will need to be improved to assist in the reconciliation process
between A-IFRS and U.S. GAAP.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are inherent limitations to the effectiveness of any system of disclosure controls and
procedures, including the possibility of human error and the circumvention or overriding of such
controls and procedures. Accordingly, even effective disclosure controls and procedures can only
provide reasonable assurance of achieving their controls objectives. Acknowledging this, we have
designed the disclosure controls and procedures to provide such reasonable assurance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No changes in our internal controls over financial reporting occurred during the period
covered by this annual report that materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.
</DIV>
<DIV align="left">
<A name="118"></A>
</DIV>
<!-- link1 "ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT" -->

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our board of directors has determined that Mr.&nbsp;Michael Rogers, chair of our audit committee,
qualifies as an &#147;audit committee financial expert&#148; and is independent within the meaning of this
Item&nbsp;16A. For more information on Mr.&nbsp;Rogers, see Item&nbsp;6A, &#147;Directors and Senior Management.&#148; For
more information on the audit committee, see Item&nbsp;6C, &#147;Board Practices &#151; Existing Board Committees
- Audit and Compliance Committee&#148;.
</DIV>
<DIV align="left">
<A name="119"></A>
</DIV>
<!-- link1 "ITEM 16B. CODE OF ETHICS" -->

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 16B. CODE OF ETHICS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have adopted a code of ethics as defined in this Item&nbsp;16B. The code of ethics applies to
our chief executive officer, chief financial officer, chief accounting officer and persons
performing similar functions. Our code of ethics is available in the corporate governance section
of our website, <U>www.psivida.com</U>. For a brief description of the code of ethics, see Item
6C, &#147;Board Practices &#151; Conduct and Ethics&#148;.
</DIV>

<P align="center" style="font-size: 10pt">92
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="120"></A>
</DIV>
<!-- link1 "ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES" -->

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Audit and Non-Audit Fees</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
purposes of this Form&nbsp;20-F Annual Report and other SEC filings,
the Company&#146;s independent registered public accounting firm is
Deloitte Touche Tohmatsu. For statutory reporting purposes and
filings with the ASX and ASIC in Australia, the Company&#146;s
auditor was Ernst &amp; Young for the fiscal years ended June&nbsp;30,
2005 and 2004. Deloitte Touche Tohmatsu was also appointed for the
Company&#146;s statutory auditor in November 2005 following the
resignation of Ernst &amp; Young from this position.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth the fees billed to us by our statutory
auditor, Ernst
&#038; Young and its affiliates, during the fiscal years ended June&nbsp;30, 2005 and 2004.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="79%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>As of June 30</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>(In thousands of Australian Dollars)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Fees</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Audit fees(a)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap>A$</TD>
    <TD align="right">24,240</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap>A$</TD>
    <TD align="right">16,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Audit-related fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Tax fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">All other fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,020</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap>A$</TD>
    <TD align="right">25,260</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap>A$</TD>
    <TD align="right">22,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Audit
fees billed by Ernst &amp; Young relate to the statutory audit of our
annual financial statements for ASX and ASIC in Australia.
</div>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth the fees billed to us by our current
independent registered public accounting firm,
Deloitte Touche Tohmatsu and its affiliates, during the fiscal years ended June&nbsp;30, 2005 and 2004.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="79%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>As of June 30</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>(In thousands of Australian Dollars)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Fees</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Audit fees(b)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap>A$</TD>
    <TD align="right">681,191</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap>A$</TD>
    <TD align="right">30,393</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Audit-related fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Tax fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,496</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">All other fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,936</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap>A$</TD>
    <TD align="right">695,623</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap>A$</TD>
    <TD align="right">30,393</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left:15px; text-indent:-15px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Audit
fees billed by Deloitte Touche Tohmatsu relate to the audit of
financial statements and review of SEC filings for the purposes of
the Company&#146;s Registration Statement on Form&nbsp;20-F lodged in
January 2005, as well as the Annual Report on Form&nbsp;20-F for the
year ended June&nbsp;30, 2005, as well as for the audit of subsidiary
companies in the years ended June&nbsp;30, 2005 and 2004.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Audit Committee Pre-Approval Policies and Procedures</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our audit and compliance committee approves all audit and non-audit services provided by
Deloitte Touche Tohmatsu, our current principal accountant, and other external auditors and may not
engage external auditors to perform any non-audit/assurance services that may impair the external
auditor&#146;s judgment or independence. In the fiscal years ending
June&nbsp;30, 2005 and June&nbsp;30, 2004,
all of the fees paid to Ernst &#038; Young, our former principal accountant, were approved by the audit
and compliance committee.
</DIV>
<DIV align="left">
<A name="121"></A>
</DIV>
<!-- link1 "ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES" -->

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>

<P align="center" style="font-size: 10pt">93
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="122"></A>
</DIV>
<!-- link1 "ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS" -->

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.
</DIV>

<P align="center" style="font-size: 10pt">94
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="123"></A>
</DIV>
<!-- link1 "PART III" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART III</B>
</DIV>

<DIV align="left">
<A name="124"></A>
</DIV>
<!-- link1 "ITEM 17. FINANCIAL STATEMENTS" -->

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 17. FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="125"></A>
</DIV>
<!-- link1 "ITEM 18. FINANCIAL STATEMENTS" -->

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 18. FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See
pages F-1 through F-61.
</DIV>
<DIV align="left">
<A name="126"></A>
</DIV>
<!-- link1 "ITEM 19. EXHIBITS" -->

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 19. EXHIBITS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Documents filed as exhibits to this report.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="94%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Exhibit</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Exhibit</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">No.</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Title</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">1.1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Constitution of pSivida Limited, dated April&nbsp;7, 2004 (b)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">2.1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Deposit Agreement, by and among pSivida Limited, Citibank, N.A. and the Holders and
Beneficial Owners of American Depositary Shares Evidenced by American Depositary Receipts
Issued Thereunder (c)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Deed Poll, dated October&nbsp;26, 2004, executed by QinetiQ (b)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Rules of the pSivida Limited Employee Share Option Plan (b)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.2</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Collaboration Agreement among pSiOncology Pte. Ltd., Singapore General Hospital Pte. Ltd.
and SGH Technology Ventures Pte. Ltd., dated July&nbsp;24, 2002 (b) (g)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.3</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Process Development and Manufacturing Agreement between pSiMedica Limited and AEA Technology
QSA GmbH, dated March&nbsp;4, 2004 (b) (g)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.4</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement among Beijing Med-Pharm Corp., pSiMedica Ltd. and pSiOncology Pte. Ltd., dated
October&nbsp;27, 2005, as amended on July 24, 2002 (g) (h)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.5</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Merger Agreement, dated October&nbsp;3, 2005, among pSivida Limited, pSivida Inc., and Control
Delivery Systems Inc. (d)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.6</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Registration Rights Agreement, between pSivida Limited and stockholders of Control
Delivery Systems, Inc., dated as of December&nbsp;30, 2005 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.7</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Securities Purchase Agreement, dated October&nbsp;5, 2005, between pSivida Limited and the
investor listed on the Schedule of Buyers attached thereto (e)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.8</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Subordinated Convertible Note in the principal amount of US$15,000,000, dated as of
November&nbsp;16, 2005 (e)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.9</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Warrant to Purchase ADRs for the purchase of up to 633,803 ADRs, dated as of
November&nbsp;16, 2005 (e)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.10</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Registration Rights Agreement, between Castelrigg Master Investments and pSivida
Limited, dated as of November&nbsp;16, 2005 (e)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.11</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Letter Agreement, dated November&nbsp;15, 2005, relating to the Securities Purchase Agreement,
dated October&nbsp;5, 2005(e)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.12</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated License Agreement, between Control Delivery Systems, Inc. and Bausch &#038;
Lomb Incorporated dated December&nbsp;9, 2003, as amended on
June&nbsp;28, 2005 (a) (i)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.13</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Collaboration Agreement, between Control Delivery Systems, Inc. and Alimera Sciences, Inc.
dated February&nbsp;11, 2005, as amended on February&nbsp;23, 2005
and May&nbsp;11, 2005 (a) (i)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.14</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">License Agreement, between the University of Kentucky Research Foundation and Control
Delivery Systems, Inc., dated as of October&nbsp;20, 1991, including
amendment (f) (i)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.15</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">License Agreement, between the University of Kentucky Research Foundation and Control
Delivery Systems, Inc., dated as of October&nbsp;31, 1995 (f) (i)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.16</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">License Agreement, between the University of Kentucky Research Foundation and Control
Delivery Systems, Inc., dated as of September&nbsp;9, 1997 (f) (i)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.17</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">License Agreement, between the University of Kentucky Research Foundation and Control
Delivery Systems, Inc., dated as of September&nbsp;9, 1997 (f) (i)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.18</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">License Agreement, the University of Kentucky Research Foundation and Control Delivery
Systems, Inc., dated as of September&nbsp;9, 1997 (f) (i)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">95
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="94%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Exhibit</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Exhibit</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">No.</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Title</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.19</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Commercial Sublease, between Exergen Corporation, and Control Delivery Systems, Inc., dated
as of April&nbsp;6, 2005 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.20</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Control
Delivery Systems, Inc. Change of Control Agreement, between CDS and Paul Ashton, dated August&nbsp;17, 2004 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.21</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Control
Delivery Systems, Inc. Change of Control Agreement, between CDS and Michael Soja, dated August&nbsp;17, 2004 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.22</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Control
Delivery Systems, Inc. Change of Control Agreement, between CDS and Lori Freedman, dated August&nbsp;17, 2004 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.23</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Severance Agreement, between CDS and Paul Ashton, dated February&nbsp;20, 2004 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.24</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Severance Agreement, between CDS and Michael Soja, dated February&nbsp;20, 2004 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.25</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Severance Agreement, between CDS and Lori Freedman, dated February&nbsp;20, 2004 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.26</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">First Amendment to Control Delivery
Systems, Inc. Severance Agreement between CDS and Paul Ashton, dated
August&nbsp;17, 2004 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.27</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">First Amendment to Control Delivery
Systems, Inc. Severance Agreement between CDS and Michael Soja, dated
August&nbsp;17, 2004 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.28</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">First Amendment to Severance
Agreement between CDS and Lori Freedman, dated August&nbsp;17, 2004 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.29</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Control Delivery
Systems, Inc. Restricted Stock Award Agreement, between CDS and Paul Ashton, dated August&nbsp;16, 2004 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.30</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Control Delivery
Systems, Inc. Restricted Stock Award Agreement, between CDS and Michael Soja, dated August&nbsp;16, 2004 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Control Delivery
Systems, Inc. Restricted Stock Award Agreement, between CDS and Lori Freedman, dated August&nbsp;16, 2004 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.32</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Retention Agreement, between CDS and Paul Ashton, dated September&nbsp;29, 2005 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.33</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Retention Agreement, between CDS and Michael Soja, dated September&nbsp;29, 2005 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.34</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Retention Agreement, between CDS and Lori Freedman, dated September&nbsp;29, 2005 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.35</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Non-Competition Agreement, between pSivida Limited and Paul Ashton, dated October&nbsp;3, 2005 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.36</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Stock Option Agreements, between CDS and
Paul Ashton, dated July 10, 2002 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">8.1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">List of subsidiaries (a)</TD>
</TR>

<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">12.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Executive Officer pursuant to Rule&nbsp;13a-14(a) and Rule&nbsp;15d-14(a) of the
Securities Exchange Act, as amended (a)</TD>
</TR>

<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">12.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Financial Officer pursuant to Rule&nbsp;13a-14(a) and Rule&nbsp;15d-14(a) of the
Securities Exchange Act, as amended (a)</TD>
</TR>

<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">13.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Executive Officer pursuant to 18 U.S.C. Section&nbsp;1350, as adopted
pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002 (a)</TD>
</TR>

<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">13.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Financial Officer pursuant to 18 U.S.C. Section&nbsp;1350, as adopted
pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002 (a)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">(a)</TD>
    <TD>&nbsp;</TD>
    <TD>Filed herewith.</TD>
</TR>
<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>
<TR valign="top">
    <TD nowrap align="left">(b)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to the registrant&#146;s filing on Form 20-F (Commission file number
000-51122) filed on January&nbsp;20, 2005.</TD>
</TR>
<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>
<TR valign="top">
    <TD nowrap align="left">(c)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to the registrant&#146;s filing on Form F-6 (Commission file number
333-122158) filed on January&nbsp;19, 2005.</TD>
</TR>
<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>
<TR valign="top">
    <TD nowrap align="left">(d)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to the registrant&#146;s later filing on Form F-6 (Commission file number
333-122158) filed on October&nbsp;4, 2005.</TD>
</TR>
<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>
<TR valign="top">
    <TD nowrap align="left">(e)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to the registrant&#146;s earlier filing on Form F-6 (Commission file
number 333-122158) filed on November&nbsp;15, 2005. The final versions of documents denoted as &#147;form
of&#148; have been omitted pursuant to Rule&nbsp;12b-31. Such final versions are substantially identical in
all material respects to the filed versions of such documents provided that the name of the
investor, and the investor&#146;s and/or pSivida&#146;s signature are included in the final versions.</TD>
</TR>
<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>
<TR valign="top">
    <TD nowrap align="left">(f)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Control Delivery Systems&#146; filing on Form S-1 (Commission file
number 333-51954) filed on December&nbsp;15, 2000.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>
<TR valign="top">
    <TD nowrap align="left">(g)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Beijing Med-Pharm corporations's
Filing on Post-Effective Amendment No. 3 to S-1 (Commission file
number 333-121957) filed on November&nbsp;15, 2005.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>
<TR valign="top">
    <TD nowrap align="left">(h)</TD>
    <TD>&nbsp;</TD>
    <TD>Confidential treatment has been granted for portions of this exhibit.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>
<TR valign="top">
    <TD nowrap align="left">(i)</TD>
    <TD>&nbsp;</TD>
    <TD>Confidential treatment has been requested for portions of this exhibit. An unredacted version
of this exhibit has been filed separately with the Commission.</TD>
</TR>
</TABLE>



<P align="center" style="font-size: 10pt">96
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SIGNATURES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The registrants hereby certify that they meet all of the requirements for filing on Form 20-F
and that they have duly caused and authorized the undersigned to sign this annual report on their
behalf.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">                  /s/ Gavin Rezos
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top">Name:&nbsp;&nbsp;</TD>
    <TD align="left">Gavin Rezos&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top">Title:&nbsp;&nbsp;</TD>
    <TD align="left">Managing Director&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">                  /s/ Aaron Finlay
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top">Name:&nbsp;&nbsp;</TD>
    <TD align="left">Aaron Finlay&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top">Title:&nbsp;&nbsp;</TD>
    <TD align="left">Chief Financial Officer and Company Secretary&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Date:
January 18, 2006
</DIV>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>


<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>INDEX TO CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="90%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Page</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Report of Independent Registered Public Accounting Firm</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Consolidated Statements of Financial Position</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Consolidated Statements of Financial Performance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Consolidated Statements of Cash Flows</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Consolidated Statements of Changes in Stockholders&#146; Equity</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Notes to Consolidated Financial Statements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-7</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">F-1
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>To The Board of Directors and Shareholders of pSivida
Limited</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have audited the accompanying consolidated statements of
financial position of pSivida Limited and subsidiaries (a
development stage company) (the&nbsp;&#147;Company&#148;) as at
June&nbsp;30, 2005 and 2004 and the related consolidated
statements of financial performance, cash flows and changes in
stockholders&#146; equity for each of the three years in the
period ended June&nbsp;30, 2005, and for the period from
December&nbsp;1, 2000 (date of inception of development stage)
to June&nbsp;30, 2005. These consolidated financial statements
are the responsibility of the Company&#146;s management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We conducted our audits in accordance with standards of the
Public Company Accounting Oversight Board (United&nbsp;States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits
included consideration of internal control over financial
reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company&#146;s
internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of
pSivida Limited and subsidiaries as at June&nbsp;30, 2005 and
2004, and the results of their operations and their cash flows
for each of the three years in the period ended June&nbsp;30,
2005, and for the period from December&nbsp;1, 2000 (date of
inception of development stage) to June&nbsp;30, 2005, in
conformity with accounting principles generally accepted in
Australia.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Accounting principles generally accepted in Australia vary in
certain significant respects from accounting principles
generally accepted in the United States of America
(&#147;US&nbsp;GAAP&#148;). Information relating to the nature
and effect of such differences is presented in Note&nbsp;27 to
the consolidated financial statements. As discussed in
Note&nbsp;27, the Company has restated its reconciliation of
total equity to US&nbsp;GAAP as of June&nbsp;30, 2004, its
opening total equity under US&nbsp;GAAP as of July&nbsp;1, 2003
and its reconciliation of net loss to US&nbsp;GAAP for the years
ended June&nbsp;30, 2004 and 2003 for certain errors related to
deferred income taxes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 36pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
DELOITTE TOUCHE TOHMATSU
</DIV>

<DIV align="left" style="font-size: 10pt;">
Chartered Accountants
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
Perth, Australia
</DIV>

<DIV align="left" style="font-size: 10pt;">
December&nbsp;14, 2005
</DIV>

<DIV align="left" style="font-size: 10pt;">
(January&nbsp;12, 2006 as to Note 19)</DIV>


<P align="center" style="font-size: 10pt;">F-2

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>CONSOLIDATED STATEMENTS OF FINANCIAL POSITION</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(In Australian Dollars)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="57%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>As at 30&nbsp;June</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Notes</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Current Assets</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17(a)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,892,061</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31,350,656</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Receivables</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>709,418</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>340,482</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>322,933</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38,958</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Total Current Assets</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,924,412</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31,730,096</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Non-Current Assets</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Property, plant and equipment, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,273,663</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>669,699</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Intangible assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>55,927,494</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,934,622</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Goodwill, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,909,744</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,641</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Total Non-Current Assets</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>68,110,901</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,636,962</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Total Assets</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>82,035,313</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40,367,058</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Current Liabilities</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Payables</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,967,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,844,960</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Payables, related party</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>10, 21(f)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,102</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>37,144</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Provisions</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29,879</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>56,011</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Total Current Liabilities</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,047,699</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,938,115</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Total Liabilities</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,047,699</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,938,115</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Net Assets</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>79,987,614</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38,428,943</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Equity</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Parent entity interest</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Contributed equity</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12(a)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>107,883,835</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>49,957,982</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Reserves</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,761</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>78,220</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deficit accumulated prior to development stage</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,813,181</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,813,181</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deficit accumulated during development stage</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(24,103,801</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(9,377,278</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total parent entity interest</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>79,987,614</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36,845,743</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total outside equity interest</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,583,200</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Total Equity</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>79,987,614</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38,428,943</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The consolidated statements of financial position should be read
in conjunction with the
</DIV>

<DIV align="center" style="font-size: 10pt;">
accompanying notes.
</DIV>

<P align="center" style="font-size: 10pt;">F-3

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>CONSOLIDATED STATEMENTS OF FINANCIAL PERFORMANCE</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(In Australian Dollars)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="36%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Period from</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Inception of</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Development Stage</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Years Ended 30&nbsp;June</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(1&nbsp;Dec&nbsp;2000)</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>to 30&nbsp;June</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Notes</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Revenues from ordinary activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>828,976</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>381,679</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>110,675</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,351,075</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,029,382</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(39,360</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(37,835</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,156,849</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Research and development expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(8,287,930</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,011,666</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,586,182</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(23,243,409</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,635</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,635</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Employee benefits expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,040,007</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,238,381</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(522,977</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,281,475</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Foreign currency (loss)/ gain, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,623,484</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,461,368</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,203</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(163,111</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Corporate office expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,973,892</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,066,981</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(318,806</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,350,373</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Loss from ordinary activities before income tax</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(15,125,719</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,518,976</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,356,328</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(32,849,777</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income tax expense relating to ordinary activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Net loss before outside equity interest</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(15,125,719</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,518,976</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,356,328</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(32,849,777</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss attributable to outside equity interest</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>399,196</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,835,771</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,591,175</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,745,976</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Net loss attributable to members of the parent entity</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(14,726,523</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,683,205</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,765,153</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(24,103,801</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    (Decrease)/increase in foreign currency translation reserve
    arising on translation of self-sustaining foreign operations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(350,287</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>77,985</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(31,765</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(301,367</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total revenue, expense and valuation adjustments attributable to
    members of the parent entity recognized directly in equity</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(350,287</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>77,985</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(31,765</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(301,367</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total changes in equity other than those resulting from
    transactions with owners as owners</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(15,076,810</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,605,220</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,796,918</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(24,405,168</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loss per share (basic and diluted)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(0.07</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(0.03</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(0.03</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(N/A</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
The consolidated statements of financial performance should be
read in conjunction with the accompanying notes.
</DIV>

<P align="center" style="font-size: 10pt;">F-4

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>CONSOLIDATED STATEMENTS OF CASH FLOWS</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(In Australian Dollars)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="36%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Period from</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Inception of</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Development Stage</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Years Ended 30&nbsp;June</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(1&nbsp;Dec&nbsp;2000)</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>to 30&nbsp;June</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Notes</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Cash flows from operating activities</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Payments to suppliers and employees</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,815,520</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,044,430</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(787,216</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(8,002,194</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest received</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>667,310</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>326,576</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>110,675</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,357,745</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest paid</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,782</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,782</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Research and development expenditure</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(8,318,054</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,124,304</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,878,326</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(21,126,373</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income tax paid</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other receipts</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>161,666</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>27,474</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>191,269</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash used in operating activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17</TD>
    <TD align="left" valign="bottom" nowrap>(b)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(12,304,598</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,821,466</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,554,867</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(27,586,335</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Cash flows from investing activities</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchase of property, plant and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,410,218</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(527,168</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(52,956</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,837,357</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from sale of property, plant and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>702,554</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash paid for equity increase in controlled entities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,644,964</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(622,656</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,068,020</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash held by subsidiaries on acquisition</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>623,664</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,152,962</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash used in investing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(8,055,182</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(527,168</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(51,948</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(8,049,861</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Cash flows from financing activities</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from issue of ordinary shares</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,666,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36,506,617</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>900,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>46,542,787</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Payment of share issue costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(27,422</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,150,819</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(47,433</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,381,469</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Equity contributions from outside equity interest</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,597,649</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,508,030</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash provided by financing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,639,078</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36,953,447</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>852,567</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>49,669,348</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Net (decrease)/ increase in cash held</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(16,720,702</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,604,813</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,754,248</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,033,152</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Cash at the beginning of the financial period</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31,350,656</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,180,134</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,051,509</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>597,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Effect of exchange rate changes on the balance of cash held in
    foreign currencies</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,737,893</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,565,709</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(117,127</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,738,091</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Cash at the end of the financial period</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17</TD>
    <TD align="left" valign="bottom" nowrap>(a)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,892,061</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31,350,656</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,180,134</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,892,061</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
The consolidated statements of cash flows should be read in
conjunction with the accompanying notes.
</DIV>

<P align="center" style="font-size: 10pt;">F-5

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS&#146;
EQUITY</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(In Australian Dollars except number of shares)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="23%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Deficit</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Accumulated</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Deficit</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Prior to</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Accumulated</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Contributed</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Development</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>During</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Equity</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Stage</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Development Stage</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Reserves</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance at inception of development stage (1&nbsp;December 2000)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>62,329,947</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,060,181</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,813,181</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,247,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Shares issued, net of issue costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,218,535</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,047,668</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,047,668</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(738,501</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(738,501</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Foreign currency translation adjustment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29,300</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance, 30&nbsp;June 2001</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>82,548,482</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,107,849</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,813,181</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(738,501</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,585,467</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Shares issued, net of issue costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,298,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,541,767</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,541,767</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,190,419</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,190,419</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Foreign currency translation adjustment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,700</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance, 30&nbsp;June 2002</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>95,846,982</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,649,616</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,813,181</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,928,920</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,939,515</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Shares issued, net of issue costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,069,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>952,568</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>952,568</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,765,153</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,765,153</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Foreign currency translation adjustment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(31,765</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(31,765</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance, 30&nbsp;June 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>103,916,213</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,602,184</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,813,181</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,694,073</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>235</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,095,165</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Shares issued, net of issue costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,021,572</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>34,355,798</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>34,355,798</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,683,205</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,683,205</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Foreign currency translation adjustment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>77,985</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>77,985</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance, 30&nbsp;June 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>153,937,785</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>49,957,982</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,813,181</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(9,377,278</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>78,220</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36,845,743</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Shares issued for cash, net of issue costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,570,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,666,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,666,500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Shares issued as consideration for acquisition, net of issue
    costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>49,804,381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54,259,353</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54,259,353</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(14,726,523</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(14,726,523</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Foreign currency translation adjustment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(350,287</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(350,287</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Option premium reserve adjustment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>292,828</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>292,828</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance, 30&nbsp;June 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>219,312,166</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>107,883,835</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,813,181</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(24,103,801</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,761</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>79,987,614</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
The consolidated statements of changes in stockholders equity
should be read in conjunction with the accompanying notes.
</DIV>

<P align="center" style="font-size: 10pt;">F-6

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>1.</B></TD>
    <TD>
    <B>Background and Summary of Significant Accounting Policies</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Background</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
pSivida Limited, or pSivida, together with its subsidiaries,
referred to as the &#147;Company&#148;, is incorporated in
Perth, Australia and is committed to biomedical applications of
nano-technology and has as its core focus the development and
commercialization of a modified form of the silicon chip
(porosified or nano-structured silicon) known as
BioSilicon<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">tm</FONT></SUP>.
BioSilicon<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">tm</FONT></SUP>
offers multiple potential applications across the high growth
healthcare sector, including controlled slow release drug
delivery, brachytherapy, tissue engineering and orthopaedics.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On 18 May 2001, the Company re-listed on the Australian Stock
Exchange (ASX Code: PSD). pSivida&#146;s shares are also listed
in Germany on the Frankfurt Stock Exchange on the XETRA system
(German Symbol: PSI. Securities Code (WKN)&nbsp;358705), in the
United Kingdom on the OFEX International Market Service (IMS)
under the ticker symbol PSD and on the NASDAQ National Market
under the ticker symbol PSDV.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Financial Reporting Framework</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The accompanying financial statements have been prepared in
accordance with Australian Accounting Standards and other
mandatory professional reporting requirements. These standards
and reporting requirements form part of generally accepted
accounting principles in Australia (A-GAAP).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A reconciliation of the major differences between these
principles and those applicable in the United States of America
(US GAAP) is included in Note&nbsp;27.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
These financial statements have been prepared on the basis of
historical cost and except where stated, do 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The preparation of consolidated financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect the amounts that are reporting in the
consolidated financial statements and accompanying disclosures.
Although these estimates are based on management&#146;s best
knowledge of current events and actions that the company may
undertake in the future, actual results may be different from
the estimates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The consolidated financial statements are presented in
Australian dollars ($) unless otherwise stated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Development Stage&nbsp;&#151; Risks and Uncertainties</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As a development stage enterprise, the Company&#146;s prospects
are subject to the risks and uncertainties frequently
encountered by companies, which have not yet commercialized any
applications of their technology, particularly in new and
evolving markets. pSivida&#146;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
pSivida 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
</DIV>

<P align="center" style="font-size: 10pt;">F-7

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
pSivida&#146;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 pSivida
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 pSivida&#146;s operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The date of inception of the development stage was
1&nbsp;December 2000, being the date that pSivida (formerly
Sumich Group Limited) was re-listed on the Australian Stock
Exchange following a recapitalization and restructure. It was
after this recapitalization and restructure that the Company
acquired an interest in pSiMedica Limited, or pSiMedica, and
commenced its research and development activities. Balances at
inception of the development stage represent the Company&#146;s
statement of financial position balances post-recapitalization
and restructure.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Significant Accounting Policies</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following significant accounting policies have been adopted
in the preparation of the financial report:
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>(a)&nbsp;</B></TD>
    <TD>
    <B>Principles of consolidation</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The consolidated financial statements are those of the
consolidated entity, comprising pSivida (the parent entity) and
all entities that pSivida controlled from time to time during
the year and at the balance sheet date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Information from the financial statements of subsidiaries is
included from the date the parent company obtains control until
such time as control ceases. Where there is loss of control of a
subsidiary, the consolidated financial statements include the
results for the part of the reporting period during which the
parent company has control.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The financial statements of subsidiaries are prepared for the
same reporting period as the parent entity, using consistent
accounting policies. Adjustments are made to bring into line any
dissimilar accounting policies which may exist.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On 24&nbsp;August 2004, the Company incorporated AION
Diagnostics Limited, or AION Diagnostics, an Australian resident
wholly owned subsidiary of pSivida, to focus on developing the
diagnostic applications of BioSilicon. pSivida funded AION
Diagnostics through an investment of $1,200,000 and intends to
license diagnostic and sensor applications of the BioSilicon
platform technology to AION Diagnostics.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During the year ended 30&nbsp;June 2005 the Company also
incorporated pSivida UK Limited in the United Kingdom
(&#147;UK&#148;) and pSivida Inc in the United States
(&#147;US&#148;). These companies were set up in order to gain
patent protection in the UK and US.
</DIV>

<P align="center" style="font-size: 10pt;">F-8

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All intercompany balances and transactions, including unrealized
profits arising from intra-group transactions, have been
eliminated in full.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>(b)&nbsp;</B></TD>
    <TD>
    <B>Foreign currencies</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B></TD>
    <TD>
    <I>Translation of Foreign Currency Transactions</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Transactions in foreign currencies of entities within the
consolidated entity are converted to local currency at the rate
of exchange ruling at the date of the transaction.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Amounts payable to and by the entities within the consolidated
entity that are outstanding at the balance sheet date and are
denominated in foreign currencies have been converted to local
currency using rates of exchange ruling at the end of the
financial year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All resulting exchange differences arising on settlement or
restatement are brought to account in determining the profit or
loss for the financial year, and transaction costs, premiums and
discounts on forward currency contracts are deferred and
amortized over the life of the contract.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B></TD>
    <TD>
    <I>Translation of Accounts of Overseas Operations</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All overseas operations are deemed to be self-sustaining as each
is financially and operationally independent of pSivida. The
financial reports of overseas operations are translated using
the current rate method and any exchange differences are taken
directly to the foreign currency translation reserve
(Note&nbsp;13a).
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>(c)&nbsp;</B></TD>
    <TD>
    <B>Cash assets</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Cash on hand and in banks and short-term deposits are stated at
nominal value.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
For the purposes of the Statement of Cash Flows, cash assets
include cash on hand, in banks and money market investments
readily convertible to cash within two working days.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>(d)&nbsp;</B></TD>
    <TD>
    <B>Receivables</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Receivables are recognized and carried at original amount less a
provision for any uncollectible debts.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B>(f)&nbsp;</B></TD>
    <TD>
    <B>Recoverable amount</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Non-current assets, including intangible assets, are carried at
the lower of cost and recoverable amount. Non-current assets are
not written up if the recoverable amount exceeds the carrying
value. In determining recoverable amount, expected net cash
flows have not been discounted to their present value.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>(g)&nbsp;</B></TD>
    <TD>
    <B>Property, plant and equipment</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B></TD>
    <TD>
    <I>Cost</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All classes of property, plant and equipment are measured at
cost.
</DIV>

<P align="center" style="font-size: 10pt;">F-9

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B></TD>
    <TD>
    <I>Depreciation</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Depreciation is provided on a straight-line basis on all
property, plant and equipment, over the following estimated
useful lives:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="63%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="17%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Lesser of the lease term and</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Leasehold improvements</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>the useful economic life</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Plant and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3&nbsp;years</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Assets in the course of construction are not depreciated until
such assets are available for use.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>(h)&nbsp;</B></TD>
    <TD>
    <B>Operating leases</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The minimum lease payments of operating leases, where the lessor
effectively retains substantially all of the risks and benefits
of ownership of the leased item, are recognized as an expense on
a straight line basis.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The cost of improvements to or on leasehold property is
capitalized, disclosed as leasehold improvements, and amortized
over the unexpired period of the lease or the estimated useful
lives of the improvements, whichever is the shorter.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B>(i)&nbsp;</B></TD>
    <TD>
    <B>Intangibles</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B></TD>
    <TD>
    <I>Intellectual Property</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Intellectual property represents acquired biotechnology
intellectual property owned by pSiMedica Limited, a subsidiary
of pSivida. pSiMedica owns the world-wide
BioSilicon<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">tm</FONT></SUP>
intellectual property rights royalty free. pSiMedica also owns
the patented rights to
BioSilicon<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">tm</FONT></SUP>,
a porous form of silicon and an enabling platform nanotechnology
in the biomedical industry.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Intellectual property is recorded at the cost of acquisition and
is carried forward as an asset on the expectation that it will
lead to commercialization. The carrying amount of intangibles is
reviewed by the Directors at each reporting date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The directors gave due consideration to the technical and
commercial life of the intellectual property (being patents and
licences) concluding that a 12&nbsp;year estimated useful
economic life, commencing on the date of acquisition, was
appropriate. Amortization will be calculated on a straight-line
basis so as to write off the cost of the asset over its
remaining estimated useful economic life, commencing with
commercial production of products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Costs associated with new patent applications have been expensed
as research and development.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Goodwill</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Goodwill, representing the excess of the cost of acquisition
over the fair value of the identifiable net assets acquired, is
amortized on a straight line basis over a period of nine years.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(j)</B></TD>
    <TD>
    <B>Research and development costs</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Research and development costs are expensed as incurred, except
where future benefits are expected, beyond any reasonable doubt,
to exceed those costs. Where research and development costs are
deferred such costs are amortized over future periods on a basis
related to expected future benefits. To date, no research and
development costs have been capitalized.
</DIV>

<P align="center" style="font-size: 10pt;">F-10

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B>(k)</B></TD>
    <TD>
    <B>Trade and other payables</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
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 consolidated entity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Payables to related parties are carried at the principal amount.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(l)</B></TD>
    <TD>
    <B>Provisions</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Provisions are recognized when the economic entity has a legal,
equitable or constructive obligation to make a future sacrifice
of economic benefits to other entities as a result of past
transactions or other past events, it is probable that a future
sacrifice of economic benefits will be required and a reliable
estimate can be made of the amount of the obligation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A provision for dividends is not recognized as a liability
unless the dividends are declared, determined or publicly
recommended on or before the reporting date.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B>(m)</B></TD>
    <TD>
    <B>Contributed equity</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Ordinary share capital is recognized at the fair value of the
consideration received by the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Any directly attributable transaction costs arising on the issue
of ordinary shares are recognized in equity as a reduction of
the share proceeds received.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(n)</B></TD>
    <TD>
    <B>Revenue recognition</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Revenue is recognized to the extent that it is probable that the
economic benefits will flow to the entity and the revenue can be
reliably measured.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Interest income is recognized as earned where collectibility is
reasonably assured.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(o)</B></TD>
    <TD>
    <B>Taxes</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income Tax</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
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 recognized in the financial statements and when
items are taken into account in determining taxable income or
loss, the net related taxation benefit or liability, calculated
at current rates, is disclosed as a future income tax benefit or
a provision for deferred income tax. The net future income tax
benefit relating to tax losses and timing differences is not
carried forward as an asset unless the benefit is virtually
certain of being realized
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Goods and Services Tax
(GST)</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Revenues, expenses and assets are recognized net of the amount
of GST except:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    where the GST incurred on a purchase of goods and services is
    not recoverable from the taxation authority, in which case the
    GST is recognized as part of the cost of acquisition of the
    asset or as part of the expense item as applicable;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    receivables and payables are stated with the amount of GST
    included.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">F-11

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The net amount of GST recoverable from, or payable to, the
taxation authority is included as part of receivables or
payables in the Statement of Financial Position.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(p)</B></TD>
    <TD>
    <B>Employee entitlements</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
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,
sick leave and long service leave.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Liabilities arising in respect of wages and salaries, annual
leave, sick leave and any other employee entitlements expected
to be settled within twelve months of the reporting date are
measured at their nominal amounts based on remuneration rates
which are expected to be paid when the liability is settled. All
other employee entitlement liabilities are measured at the
present value of the estimated future cash outflow to be made in
respect of services provided by employees up to the reporting
date. In determining the present value of future cash outflows,
the interest rates attaching to government guaranteed securities
which have terms to maturity approximating the terms of the
related liability are used.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Employee entitlements expenses arising in respect of the
following categories:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    wages and salaries, non-monetary benefits, annual leave, long
    service leave, sick leave and other leave entitlements;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    other types of employee entitlements;</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
are charged against profits in their respective categories.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The value of the employee share option plan described in
Note&nbsp;21 is not being charged as an employee entitlement
expense.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Any contributions made to the superannuation fund by entities
within the consolidated entity are charged against operations
when due.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(q)</B></TD>
    <TD>
    <B>Loss per share</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Basic loss per share is calculated as net loss, adjusted to
exclude costs of servicing equity (other than dividends) and
preference share dividends, divided by the weighted average
number of ordinary shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Diluted loss per share is calculated as net loss divided by the
weighted average number of ordinary shares and dilutive
potential ordinary shares.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(r)</B></TD>
    <TD>
    <B>Acquisitions</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Acquisitions are accounted for using the purchase method of
accounting. The consolidated financial statements include the
operating results of acquirees from the date of acquisition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
For acquisitions, including step acquisitions, completed from
1&nbsp;July 2004, the cost of acquisition includes all direct
acquisition costs.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>2.</B></TD>
    <TD>
    <B>Purchase price allocation</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On 4 August 2004, the Company acquired the remaining 55.28%
interest in pSiMedica Limited that it did not already own.
pSivida acquired the remaining interest in pSiMedica in order to
obtain 100% ownership of pSiMedica and therefore own 100% of the
BioSilicon technology. The consideration paid was $59,224,568
which comprised of $4,323,622 in cash, a total of 49,804,381
ordinary shares of pSivida issued
</DIV>

<P align="center" style="font-size: 10pt;">F-12

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
at a value of $1.09 for A-GAAP purposes, 638,537 pSivida options
with an estimated fair value of $292,828, (issued to employees
of pSiMedica in exchange for their rights being waived in
relation to options previously issued by pSiMedica) and direct
acquisition costs totalling $321,342.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The total acquisition price recognized for A-GAAP is an amount
equal to:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="83%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,323,622</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fair value of shares issued</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54,286,776</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fair value of options issued</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>292,828</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Direct acquisition costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>321,342</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total cost of acquisition</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59,224,568</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The results of the operations of pSiMedica were included for the
entire financial year as pSivida held more than 50% of the
voting rights of pSiMedica for the whole of this period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The balance sheet showing the purchase price allocation of net
assets acquired is listed as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="56%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Acquired Interest</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="left" nowrap><B>Item</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total Fair Value</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>55.28%</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>520,173</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>287,552</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Receivables</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>198,239</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>109,587</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Property, plant and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>600,640</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>332,034</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Creditors</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(1,462,721</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(808,592</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Intangible assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    License</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>64,400,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>35,600,320</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Patents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>25,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>13,820,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Total</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>49,340,901</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Consideration</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>59,224,568</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Initial goodwill arising under A-GAAP</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9,883,667</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>3.</B></TD>
    <TD>
    <B>Revenue from ordinary activities</B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="68%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Years Ended 30&nbsp;June</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Revenues from ordinary activities</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest income on bank deposits</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>667,310</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>325,479</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>110,675</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>161,666</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>56,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total revenue from ordinary activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>828,976</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>381,679</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>110,675</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-13

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>4.</B></TD>
    <TD>
    <B>Expenses and (Losses)/ Gains</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(a)</B></TD>
    <TD>
    <B>Expenses</B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="56%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Years Ended 30&nbsp;June</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <I>Depreciation and amortisation of non-current assets</I></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Borrowing costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,520</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,520</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,600</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Goodwill on acquisition</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>973,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Plant and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36,839</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,683</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,502</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Leasehold improvements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,157</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,733</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,029,382</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>39,360</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>37,835</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Included in research and development costs:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Plant and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>569,071</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>287,702</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>258,432</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Leasehold improvements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,717</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other non-current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,130</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,666</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,433</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total depreciation and amortisation of non-current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,635,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>346,728</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>315,700</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Write off of borrowing costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,919</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating lease charges(i)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>97,738</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>95,772</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36,569</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Research and development costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,287,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,011,666</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,586,182</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 18%; border-top: 1.0pt solid solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(i)&nbsp;</TD>
    <TD align="left">
    Excludes operating lease charges classified as &#147;research
    and development.&#148;</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(b)</B></TD>
    <TD>
    <B>(Losses)/ Gains</B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="59%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss on disposal of property, plant and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,910</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Foreign currency (loss)/ gain, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,623,484</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,461,368</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,203</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">F-14
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>5.</B></TD>
    <TD>
    <B>Income tax</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The prima facie tax, using the tax rate applicable in Australia,
on operating loss differs from the income tax provided in the
accounts as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Years Ended 30&nbsp;June</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prima facie income tax benefit calculated at 30% on the loss
    from ordinary activities before income tax</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,537,716</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,255,693</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,606,899</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Tax effect of permanent differences</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Goodwill amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>292,177</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other items (net)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,866</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,637</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>52,782</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income tax benefit attributable to ordinary activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,241,673</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,245,056</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,554,117</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Future income tax benefit not brought to account</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,241,673</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,245,056</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,554,117</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income tax expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Future income tax benefit from tax losses not brought to account
    at balance date as realization of the benefit is not virtually
    certain (at 30%)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,291,377</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,049,704</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,892,095</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This Company has future income tax benefits relating to tax
losses not recognized as assets because recovery is not
virtually certain. Such benefits will only be obtained if:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (a)&nbsp;future assessable income is derived of a nature and of
    an amount sufficient to enable the benefit to be realized;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (b)&nbsp;the conditions for deductibility imposed by tax
    legislation continue to be complied with;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (c)&nbsp;no changes in tax legislation adversely affect the
    consolidated entity in realising the benefit.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company has elected not to consolidate under the tax regime.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company has no franking credits available at year end.
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>6.</B></TD>
    <TD>
    <B>Receivables</B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 3pt; ">

<TR style="font-size: 1pt;">
    <TD width="77%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>As at 30&nbsp;June</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><I>Current</I></B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Indirect tax</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>709,418</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>340,482</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Indirect tax receivables relate to goods and services tax
(GST)&nbsp;and value added tax (VAT). These amounts are
non-interest bearing and have repayment terms applicable under
the relevant government authorities.
</DIV>

<P align="center" style="font-size: 10pt;">F-15

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV style="margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>7.</B></TD>
    <TD>
    <B>Other assets</B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="76%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>As at 30&nbsp;June</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><I>Current</I></B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prepayments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>322,933</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38,958</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><I>Non-current</I></B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loan facility arrangement costs(i)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>34,559</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>34,559</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accumulated amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(34,559</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(21,120</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,439</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other non-current assets(ii)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>53,061</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>58,301</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accumulated amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(53,061</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(39,099</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,202</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,641</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(i)&nbsp;</TD>
    <TD align="left">
    Loan facility arrangement costs were incurred in connection with
    the September 2002 agreement with Global Emerging Markets
    (&#147;GEM&#148;), a New&nbsp;York based private equity group,
    for a fully underwritten US$7.5&nbsp;million equity line of
    credit facility. Such costs were being amortized on a
    straight-line basis over the three-year term of the facility. As
    part of the commitment fee, pSivida issued to GEM 2,000,000
    options to acquire shares in pSivida at 20&nbsp;cents each,
    expiring on 31&nbsp;December 2004. Additionally, a commitment
    fee equivalent to 1.67% of the total value of the facility was
    payable by the Company to GEM on the proceeds of any drawdowns.
    The facility was terminated during the year ended 30&nbsp;June
    2005 with no drawdowns having been made.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>(ii)&nbsp;</TD>
    <TD align="left">
    Other non-current assets comprises the fair value of non-cash
    consideration in pSiOncology made by minority shareholders. This
    amount has been amortized over three years on a straight line
    basis.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">F-16

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>8.</B></TD>
    <TD>
    <B>Property, plant and equipment, net</B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="69%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>As at 30&nbsp;June</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Plant and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    At cost</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,439,455</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,360,533</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accumulated depreciation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,119,916</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(699,938</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,319,539</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>660,595</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Leasehold improvements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    At cost</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>155,799</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,214</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accumulated depreciation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(30,188</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,110</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>125,611</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,104</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Construction in progress(i)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    At cost</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,828,513</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="10">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total property, plant and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    At cost</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,423,767</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,374,747</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accumulated depreciation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,150,104</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(705,048</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,273,663</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>669,699</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(i)&nbsp;</TD>
    <TD align="left">
    Construction in progress for 30&nbsp;June 2005 relates to the
    construction of a new production facility in Germany, which was
    completed subsequent to year end.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">F-17

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(a)</B></TD>
    <TD>
    <B>Reconciliations</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Reconciliations of the carrying amounts for each class of
property, plant and equipment are set out below:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="69%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>As at 30&nbsp;June</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Plant and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Carrying amount at beginning of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>660,595</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>400,549</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Additions</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,358,690</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>549,880</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Disposals</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,910</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(605,910</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(311,385</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net foreign currency movements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(86,926</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,551</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Carrying amount at end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,319,539</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>660,595</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Leasehold improvements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Carrying amount at beginning of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,104</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,736</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Additions</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>146,977</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,525</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(25,817</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,157</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net foreign currency movements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,653</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Carrying amount at end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>125,611</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,104</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Construction in progress</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Carrying amount at beginning of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Additions</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,904,551</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net foreign currency movements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(76,038</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Carrying amount at end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,828,513</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Intangibles</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="72%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Intellectual property&nbsp;&#151; at cost(i)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>55,927,494</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,934,622</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Goodwill on acquisition(ii)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,883,667</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accumulated amortization&nbsp;&#151; goodwill</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(973,923</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>64,837,238</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,934,622</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;(i)&nbsp;</TD>
    <TD align="left">
    The intellectual property comprises the licence to develop
    applications for
    BioSilicon<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">tm</FONT></SUP>
    and the related patents. As described in Note&nbsp;1(i),
    amortization of this asset will commence on commercial
    production of related products, which had not commenced at
    30&nbsp;June 2005.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(ii)&nbsp;</TD>
    <TD align="left">
    Goodwill on acquisition relates to the acquisition of the
    remaining outside equity interest in pSiMedica in August 2004.
    Refer to Note&nbsp;2.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">F-18

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>10.</B></TD>
    <TD>
    <B>Payables</B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="73%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>As at 30&nbsp;June</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><I>Current</I></B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Trade creditors</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>806,047</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,162,281</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accruals</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>994,444</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>565,456</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Payroll taxes payable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>167,227</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>117,223</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Amounts payable to directors and director-related entities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38,253</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29,910</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Amounts payable to other related parties</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,849</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,234</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,017,820</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,882,104</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>11.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provisions</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; ">

<TR style="font-size: 1pt;">
    <TD width="73%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="center" nowrap><B><I>Current</I></B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Provision for employee entitlements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29,879</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>56,011</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="79%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Consolidated</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Number of employees at end of financial year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Superannuation
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under government regulations the Company is legally required to
contribute 9% of employees&#146; gross income to an approved
superannuation fund. Employees are entitled to contribute
additional amounts to the fund at their own discretion. The
Company makes the required contribution to each employee&#146;s
nominated Superannuation fund.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company does not provide employee benefits under defined
benefit arrangements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The United Kingdom subsidiary, pSiMedica Limited, operates a
defined contribution pension scheme. The pension cost charge for
the year under the defined contribution scheme was &#163;79,411
($195,863) (2004: &#163;30,660 ($75,149), 2003: &#163;28,672
($77,740)). An increase in employee numbers for pSiMedica has
caused the increase in the charge in the 2005&nbsp;year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Employee share option plan (ESOP)</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
An employee share option plan has been established where
directors and employees of the consolidated entity Company are
issued with options over the ordinary shares of pSivida Limited.
Shareholders reapproved the plan at the annual general meeting
(&#147;AGM&#148;) held on 17&nbsp;November&nbsp;2004. The
options, issued for nil consideration, are issued in accordance
with performance guidelines established by the directors of
pSivida Limited.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Employee share options carry no rights to dividends and no
voting rights.
</DIV>

<P align="center" style="font-size: 10pt;">F-19

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>12.</B></TD>
    <TD>
    <B>Contributed equity</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(a)</B></TD>
    <TD>
    <B>Contributed equity</B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>As at 30&nbsp;June</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Ordinary shares, fully paid</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>107,883,835</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>49,957,982</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(b)</B></TD>
    <TD>
    <B>Movements in share capital</B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="38%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap><B>Years ended 30&nbsp;June</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance at beginning of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>153,937,785</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>103,916,213</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>49,957,982</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,602,183</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued during the year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Consideration for acquisition</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>49,804,381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54,286,776</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Share placements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>33,946,640</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Share purchase plan</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,891,572</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>933,977</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Options exercised</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,570,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,130,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,666,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,626,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Share issue costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(27,423</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,150,818</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance at end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>219,312,166</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>153,937,785</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>107,883,835</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>49,957,982</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-20

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Details of share issuances are as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="14%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="45%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Issue price</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Date</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Details</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    4&nbsp;Aug 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Share purchase plan, net of $1,679 issue costs</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,891,572</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>932,298</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    20 Aug 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Exercise of options</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>650,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>130,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    27 Aug 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Exercise of options</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>650,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>130,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    28 Aug 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Exercise of options</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,725,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>345,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    8 Sep 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Exercise of options</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    3 Oct 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Exercise of options</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    6 Oct 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Private placement, net of $338,400 issue costs</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,161,600</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    24 Dec 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Exercise of options</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    6 Jan 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Exercise of options</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>475,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>95,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    4 Feb 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Exercise of options</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>400,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    20 Apr 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Private placement, net of $1,523,865 issue costs</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,375,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">US$</TD>
    <TD align="right" valign="bottom" nowrap>0.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,413,109</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    23 Apr 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Private placement, net of $286,875 issue costs</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,625,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">US$</TD>
    <TD align="right" valign="bottom" nowrap>0.85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,222,791</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    3 May 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Exercise of options</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>300,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>60,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    19 May 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Exercise of options</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>300,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>60,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="3" align="left" valign="top">
    Year ended 30&nbsp;June 2004</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,021,572</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>34,355,798</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    14 Jul 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Exercise of options</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    5 Aug 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Shares issued as consideration for acquisition, net of $27,422
    issue costs</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>49,804,381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54,259,353</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    6 Aug 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Exercise of options</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    13 Aug 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Exercise of options</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    17 Aug 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Exercise of options</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    20 Aug 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Exercise of options</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>300,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>60,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    27 Aug 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Exercise of options</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    8 Oct 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Exercise of options</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>450,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>90,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    27 Oct 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Exercise of options</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    11 Nov 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Exercise of options</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>450,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>90,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    14 Dec 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Exercise of options</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,650,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,730,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    14 Dec 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Exercise of options</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,550,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>620,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    14 Dec 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Exercise of options</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>75,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    14 Dec 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Exercise of options</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.65</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>97,500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    31 Dec 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Exercise of options</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,470,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>494,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    31 Dec 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Exercise of options</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>550,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>220,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    Year ended 30&nbsp;June 2005</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>65,374,381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>57,925,853</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-21

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(c)</B></TD>
    <TD>
    <B>Share options</B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="26%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Balance at</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercised</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Forfeited</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>beginning of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Issued during</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>during the</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>during the</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Balance at</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Expiry</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>year</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>the year</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>year</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>year</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>end of year</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unlisted options</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,570,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(12,570,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unlisted options</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(150,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unlisted options</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.65</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(150,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unlisted options *</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,200,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unlisted options *</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(500,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unlisted options *</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,395,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(20,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,375,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unlisted options **</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5/8/08</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,050,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,050,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unlisted options *</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5/8/09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,114,537</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(59,824</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,054,713</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unlisted options *</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.02</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/08</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unlisted options *</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/08</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>115,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>115,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unlisted options *</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/3/10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,202,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(25,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,177,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,965,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,681,537</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(15,570,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(104,824</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,971,713</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD>*&nbsp;</TD>
    <TD align="left">
    Options issued pursuant to the Company&#146;s Employee Share
    Option Plan (ESOP).</TD>
</TR>

</TABLE>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>**&nbsp;</TD>
    <TD align="left">
    2,050,000 options issued as payment of share issue costs to
    consultants not under the ESOP</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The options on issue at 30&nbsp;June 2005 have a weighted
average exercise price of $0.97 and a weighted average remaining
contractual life of 45&nbsp;months. The options on issue and
currently exercisable at 30&nbsp;June 2005 have a weighted
average exercise price of $1.01 and a weighted average remaining
contractual life of 43&nbsp;months.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The options on issue at 30&nbsp;June 2005 have the following
range of exercise prices:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="65%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted Average</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Range of Exercise Price</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise Price</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    $0.00 to $0.10</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    $0.10 to $0.25</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    $0.25 to $0.50</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    $0.50 to $0.70</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,375,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    $0.70 to $0.90</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,292,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.80</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    $0.90 to $1.10</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,250,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.08</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    $1.10 and above</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,054,713</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.18</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,971,713</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.97</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Employee share option plan (ESOP)</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
An employee share option plan has been established where
directors and employees of the Company are issued with options
over the ordinary shares of pSivida Limited. Shareholders
reapproved the plan at the AGM held on 17&nbsp;November 2004.
The options, issued for nil consideration, are issued in
accordance with performance guidelines established by the
directors of pSivida Limited.
</DIV>

<P align="center" style="font-size: 10pt;">F-22

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Employee share options carry no rights to dividends and no
voting rights.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The ESOP is designed to reward directors, executives and
employees of the Company and consultants for their contributions
to the Company. It is also proposed as a method of retaining
personnel that are key to the growth of the Company&#146;s
intellectual property rights.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="57%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance at beginning of financial year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>i</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,095,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,700,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,200,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Granted during financial year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>ii</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,631,537</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,395,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>520,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Exercised during financial year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>iii</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,050,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Transferred and exercised during financial year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>iv</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,650,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Forfeited during financial year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>v</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(104,824</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(20,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance at end of financial year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>vi</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,921,713</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,095,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,700,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<I>(i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Balance at beginning of
financial year</I>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="43%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Grant</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Vesting</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Expiry</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Options&nbsp;&#151; Series 2005</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 31&nbsp;December 2001</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.40</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 1&nbsp;November 2002</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1/11/02</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1/11/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/7/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,345,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/4/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>350,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/1/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>400,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>400,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>400,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,095,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-23

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<I>(ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Granted during financial
year</I>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="43%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Grant</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Vesting</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Expiry</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Options&nbsp;&#151; Series 2005</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 5 August 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>175,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5/8/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5/8/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5/8/09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.18</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 5 August 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5/8/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5/8/05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5/8/09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.18</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 5 August 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,889,537</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5/8/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5/8/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5/8/09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.18</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 22 April 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22/4/05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22/4/05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22/4/10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.02</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 22 April 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>115,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22/4/05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22/4/05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/08</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.80</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 22 April 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22/4/05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22/4/06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/3/10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.80</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 22 April 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>450,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22/4/05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22/4/05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/3/10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.80</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 22 April 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,252,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22/4/05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22/4/06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/3/10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.80</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 22 April 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>450,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22/4/05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22/4/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/3/10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.80</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,631,537</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="43%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Grant</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Vesting</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Expiry</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Options&nbsp;&#151; Series 2004</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/7/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,345,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/4/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>350,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/1/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>400,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>400,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>400,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,395,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="46%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Grant</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Vesting</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Expiry</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Options&nbsp;&#151; Series 2003</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 1&nbsp;November 2002</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>520,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1/11/02</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1/11/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>520,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<I>(iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Exercised during financial
year</I>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="42%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Grant</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Vesting</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Expiry</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Options&nbsp;&#151; Series 2005</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 31&nbsp;December 2001</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(550,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.40</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 1&nbsp;November 2002</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(500,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1/11/02</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1/11/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,050,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-24

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<I>(iv)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Transferred during
financial year</I>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="42%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Grant</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Vesting</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Expiry</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Options&nbsp;&#151; Series 2005</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 31&nbsp;December 2001</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,650,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.40</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,650,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During the 2005 financial year these options were transferred by
Directors to independent third parties for consideration of
$1.18&nbsp;per option less applicable option exercise price,
brokerage commission and fees. All transferred options were
exercised prior to 31&nbsp;December 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<I>(v)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Forfeited during financial
year</I>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Grant</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Vesting</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Expiry</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Options&nbsp;&#151; Series 2005</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(20,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/4/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 5 August 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(59,824</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5/8/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5/8/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5/8/09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.18</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 22 April 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(25,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22/4/05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22/4/06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/3/10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.80</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(104,824</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="46%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Grant</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Vesting</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Expiry</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Options&nbsp;&#151; Series 2003</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 1&nbsp;November 2002</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(20,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1/11/02</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1/11/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(20,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-25

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<I>(vi)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Balance at end of financial
year</I>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="42%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Grant</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Vesting</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Expiry</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Options&nbsp;&#151; Series 2005</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/7/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,325,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/4/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>350,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/1/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>400,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>400,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>400,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 5 August 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>175,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5/8/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5/8/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5/8/09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.18</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 5 August 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5/8/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5/8/05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5/8/09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.18</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 5 August 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,829,713</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5/8/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5/8/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5/8/09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.18</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 22 April 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22/4/05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22/4/05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22/4/10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.02</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 22 April 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>115,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22/4/05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22/4/05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/08</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.80</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 22 April 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22/4/05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22/4/06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/3/10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.80</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 22 April 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>450,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22/4/05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22/4/05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/3/10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.80</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 22 April 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,227,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22/4/05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22/4/06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/3/10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.80</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 22 April 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>450,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22/4/05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22/4/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/3/10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.80</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,921,713</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="43%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Grant</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Vesting</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Expiry</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Options&nbsp;&#151; Series 2004</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 31&nbsp;December 2001</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.40</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 1&nbsp;November 2002</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1/11/02</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1/11/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/7/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,345,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/4/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>350,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/1/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>400,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>400,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 21 October 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>400,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21/10/05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,095,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="43%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Grant</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Vesting</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Expiry</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Options&nbsp;&#151; Series 2003</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 31&nbsp;December 2001</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13/10/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.40</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued 1&nbsp;November 2002</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1/11/02</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1/11/03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31/12/04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,700,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-26

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<I>Year ended 30&nbsp;June 2005</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company issued 8,251,000 unquoted options to directors,
executives and employees and 225,000 unquoted options to
consultants of the Company under the ESOP in lieu of cash
bonuses and/ or increased fees and as a method of providing an
incentive to maximize shareholder value. The options were issued
for no consideration with an exercise price of $1.18, which was
representative of an 8% premium to the market price at the date
of issue. The various tranches of the options granted have
different vesting dates; however all the options expire on 5
August 2009.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company also issued 638,537 unquoted options to directors,
executives and employees of the Company under the ESOP in
consideration for the waiver of their rights under outstanding
options previously issued by pSiMedica. The options were issued
for no consideration with an exercise price of $1.18, which was
representative of an 8% premium to the market price at the date
of issue. The options vest immediately, and expire on 5 August
2009. The options were accounted for as part of the
consideration for the purchase of pSiMedica&nbsp;&#151; see
Note&nbsp;2.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company also issued 3,152,000 unquoted options to directors,
executives and employees and 365,000 unquoted options to
consultants of the Company under the ESOP in lieu of cash
bonuses and/ or increased fees and as a method of providing an
incentive to maximize shareholder value. The options were issued
for no consideration with an exercise price of $0.80, which was
representative of a 7% premium to the market price at the date
of issue. The various tranches of the options granted have
different vesting dates, however all the options expire on
31&nbsp;March 2010.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<I>Year ended 30&nbsp;June 2004</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company granted 3,895,000 unquoted options to directors,
executives and employees and 500,000 unquoted options to
consultants of the Company under the ESOP in lieu of cash
bonuses and/ or increased fees and as a method of providing an
incentive to maximize shareholder value. The options were issued
for no consideration with an exercise price of $0.61, which was
representative of a 25% premium to the 60&nbsp;day volume
weighted average price up to the date of the meeting of
shareholders approving the grant. The various tranches of the
options granted have different vesting dates, however all the
options expire on 31&nbsp;December 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<I>Year ended 30&nbsp;June 2003</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company granted 520,000 unquoted options to employees under
the ESOP in lieu of cash bonuses and as a method of providing an
incentive to maximize shareholder value. The options were issued
for no consideration with an exercise price of $0.20, expiring
on 31&nbsp;December 2004.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(d)</B></TD>
    <TD>
    <B>Terms and conditions of contributed equity</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<I>Ordinary shares</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Ordinary shares entitle their holder 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.
</DIV>

<P align="center" style="font-size: 10pt;">F-27

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(e)</B></TD>
    <TD>
    <B>Shares and options issued after report date</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Details of share issuances are as follows:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company issued 6,650,000 ordinary shares (in the form of
665,000 American Depositary Receipts, or ADRs at a price of
US$6.50&nbsp;per ADR ($8.61) in August 2005, pursuant to a
Private Investment in Public Equity, or PIPE.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Details of option issuances are as follows:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company issued 780,000 options expiring 5 August 2008 and
exercisable at US$1.25 each, pursuant to a PIPE.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>13.</B></TD>
    <TD>
    <B>Reserves</B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="71%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Foreign currency translation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(272,067</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>78,220</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Option premium</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>292,828</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,761</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>78,220</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(a)</B></TD>
    <TD>
    <B>Foreign currency translation reserve</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The foreign currency translation reserve is used to record
exchange differences arising from the translation of the
financial statements of self-sustaining foreign operations.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="71%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance at beginning of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>78,220</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>235</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    (Gain)/loss on translation of foreign controlled entities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(350,287</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>77,985</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance at end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(272,067</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>78,220</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(b)</B></TD>
    <TD>
    <B>Option premium reserve</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The option premium reserve is used to recognize the value of
options issued of a capital nature. The reserve arose during the
year ended 30&nbsp;June 2005 as a result of the issue of options
to replace pSiMedica options previously held by directors and
employees of pSiMedica as part of the acquisition of the
remaining interest in pSiMedica. The amount charged to the
reserve is the value of the options issued using the Black
Scholes Option Pricing Model.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="71%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance at beginning of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Increase on issue of options</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>292,828</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance at end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>292,828</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>14.</B></TD>
    <TD>
    <B>Accumulated deficit</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(a)</B></TD>
    <TD>
    <B>Deficit accumulated prior to development stage</B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance at end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,813,181</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,813,181</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-28

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(b)</B></TD>
    <TD>
    <B>Deficit accumulated during development stage</B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="69%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance at beginning of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(9,377,278</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,694,073</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss attributable to members of the Company</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(14,726,523</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,683,205</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance at end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(24,103,801</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(9,377,278</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>15.</B></TD>
    <TD>
    <B>Outside equity interest</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Reconciliation of outside equity interest in controlled entities
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance at beginning of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,583,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>204,354</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Share of subsidiary acquisition</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,622,319</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Share of current period loss (through the acquisition date)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(399,196</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,835,771</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Share of foreign currency translation reserve</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>79,361</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>90,489</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Effect of change in shareholding</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,263,365</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,501,809</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance at end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,583,200</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>16.</B></TD>
    <TD>
    <B>Investments in controlled entities</B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="62%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Ownership Interest</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Country of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>incorporation</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>%</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>%</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    pSiMedica Limited(i)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>UK</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>44.72</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    pSiOncology Pte Ltd (ii)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Singapore</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>44.72</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    AION Diagnostics Limited (iii)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Australia</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    pSivida UK Limited (iii)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>UK</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    pSivida Inc (iii)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>USA</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR>
    <TD valign="top">
    (i)</TD>
    <TD></TD>
    <TD valign="top">
    Consolidation occurs due to the Company controlling more than
    50% of the voting rights in pSiMedica.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    (ii)</TD>
    <TD></TD>
    <TD valign="top">
    100% owned subsidiary of pSiMedica Limited.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    (iii)</TD>
    <TD></TD>
    <TD valign="top">
    These companies were incorporated during the year ended
    30&nbsp;June 2005 as wholly owned subsidiaries of pSivida.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">F-29

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>17.</B></TD>
    <TD>
    <B>Notes to the statement of cash flows</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(a)</B></TD>
    <TD>
    <B>Reconciliation of cash</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
For the purposes of the statement of cash flows, cash includes
cash on hand and in banks and investments in money market
instruments. Cash at the end of the financial year comprises the
following:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="71%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash on hand</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,637,560</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>665,355</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deposits at call</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,254,501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30,685,301</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,892,061</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31,350,656</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(b)</B></TD>
    <TD>
    <B>Reconciliation of loss from ordinary activities after related
    income tax to net cash flows used in operating activities</B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="54%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Years ended 30&nbsp;June</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loss from ordinary activities after tax</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(15,125,719</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,518,976</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,356,328</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Non-cash items:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,635,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>346,728</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>315,700</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Write off of borrowing costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,919</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loss on disposal of property, plant and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,910</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Shares issued in lieu of cash</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Foreign exchange loss/ (gain)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,623,484</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,461,368</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,203</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Changes in net assets and liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    (Increase)/decrease in assets:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Trade and other receivables</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(408,904</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(238,081</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,511</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prepayments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(290,102</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(12,061</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,172</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(34,559</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Increase/ (decrease) in liabilities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Trade and other creditors</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>222,635</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,062,292</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>401,778</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Provisions</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29,879</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash flows used in operating activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(12,304,598</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,821,466</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,554,867</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(c)</B></TD>
    <TD>
    <B>Non-cash financing and investing activities</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<I>Year ended 30&nbsp;June 2005</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In August 2004 pSivida issued 49,804,381&nbsp;shares at a value
of $1.09 each to former pSiMedica Limited shareholders as part
consideration for the acquisition of the remaining interest in
pSiMedica Limited.
</DIV>

<P align="center" style="font-size: 10pt;">F-30

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<I>Year ended 30&nbsp;June 2004</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On 24 May 2004, pSiMedica issued 56,954 ordinary shares to
acquire the remaining minority interest in pSiOncology.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<I>Year ended 30&nbsp;June 2003</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Acquisition of controlled entity:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In July 2002, pSiMedica subscribed for 90% of the issued share
capital of pSiOncology Pte Ltd., or pSiOncology, for
consideration of &#163;235,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The net assets of pSiOncology as of 30 July 2002 were comprised
as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="85%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>623,664</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other non-current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>63,615</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net assets acquired</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>687,279</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Less minority interests</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(64,623</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net assets acquired</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>622,656</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Goodwill arising</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash effect: Cash consideration paid</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(622,656</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash included in net assets acquired</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>623,664</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash received on purchase of subsidiary</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,008</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During the years ended 30&nbsp;June 2005, 2004, and 2003, the
Company issued shares and options in consideration for services
rendered. See note&nbsp;12(b) and 12(c).
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>18.</B></TD>
    <TD>
    <B>Expenditure commitments</B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="83%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating leases (non-cancellable)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Year ended 30&nbsp;June</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2006</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>325,509</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2007</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>119,424</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2008</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,946</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Thereafter</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>447,879</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Operating leases relate primarily to the lease of office and
laboratory premises in Australia, the UK and Singapore, as well
as some office equipment. Rental payments for leased premises
are subject to annual or biannual rental reviews. The Company
has a three year renewal option on its Australian office
premises.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>19.</B></TD>
    <TD>
    <B>Subsequent events</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On 25&nbsp;July 2005, the Company announced that it had
appointed Dr David Mazzo as a non-executive director of the
Company.
</DIV>

<P align="center" style="font-size: 10pt;">F-31

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On 27&nbsp;July 2005, the Company announced that it had
appointed Mr Michael Rogers as a non-executive director of the
Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On 15&nbsp;August 2005, the Company announced that it was in
negotiations and undertaking due diligence to acquire a US based
specialized drug delivery company through the issue of ADRs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On 23&nbsp;August 2005, the Company announced that it had raised
US$4.3&nbsp;million ($5.7&nbsp;million) before costs via the
private placement of 665,000 ADRs to predominantly US investors
at US$6.50 each ($8.61) pursuant to a PIPE. Each ADR represents
ten ordinary shares. The ADRs have an attached one for ten,
three- year warrant (66,500 warrants) exercisable at
US$12.50&nbsp;per ADR. The Company also issued a further 66,500
warrants as part payment of placing fees in relation to this
transaction. The financial effects of this transaction are not
reflected in the accounts as at 30&nbsp;June 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On 4&nbsp;October 2005, the Company announced that it had
entered into a definitive merger agreement to acquire Control
Delivery Systems, Inc. (CDS), a private drug delivery company
located in the Boston, Massachusetts area.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On 6&nbsp;October 2005, the Company announced that it had signed
an agreement with a New York based institutional accredited
investor, pursuant to which the investor, subject to
satisfaction of closing conditions, agreed to purchase
US$15&nbsp;million of subordinated convertible debentures,
convertible into PSDV ADRs at an initial conversion price of
US$7.10 ($9.50). The proceeds of the issuance are expected to be
used for the expanded development of
BioSilicon<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">tm</FONT></SUP>.
The closing conditions were met and the convertible note was
issued on 16&nbsp;November 2005. The financial effects of this
transaction are not reflected in the accounts as at 30&nbsp;June
2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
30&nbsp;December, 2005, the Company completed its acquisition of 100% of the outstanding
equity of Control Delivery Systems Inc. (&#147;CDS&#148;). CDS has been renamed pSivida Inc.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This acquisition is an integral part of the Company&#146;s on-going US growth strategy. CDS&#146;
portfolio of products and product candidates includes two approved and marketed products, one Phase
III product and other early-stage product candidates. The acquisition of CDS will bring additional
product development and regulatory expertise to the Company&#146;s management team and provide the
Company with an operating base in the Boston biotech hub, enhancing its overall visibility as well
as access to the US scientific and investment communities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
estimated purchase price of CDS of $118,764,446, as determined in accordance with A-IFRS,
consists of:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>$114,170 cash;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>161,047,790 ordinary fully paid shares of the Company, represented by 16,104,779
American Depositary Shares, or ADSs, with an estimated fair value of $114,343,931
($0.71 per share, represented by US$5.169 per ADR);</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>1,724,460 share options in the Company, represented by 172,446 warrants over ADSs
with a Black Scholes estimated fair value of $686,345; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>direct acquisition costs of $3,620,000.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A final determination of required purchase accounting adjustments, including the allocation of
the purchase price, has not yet been made. Accordingly, the purchase accounting adjustments made
in connection with this disclosure is preliminary and has been made solely for the purposes of
developing such disclosure in the consolidated financial statements. The amounts ultimately
recorded will be based on an independent valuation, expected to be finalized during the year ending
June&nbsp;30, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Following is a preliminary estimate of the allocation of the purchase price at December&nbsp;30,
2005:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Total fair value</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(in Australian dollars)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">228,464</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Receivables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78,482</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">280,537</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Patents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">120,000,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">In-Process Research and Development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,741,706</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property, Plant and Equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">622,608</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Payables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,820,060</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred Revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,826,699</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred Tax Liability, Net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(29,100,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88,205,038</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchase price</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">118,764,446</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,559,408</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A preliminary estimate of $120&nbsp;million has been allocated to amortizable intangible assets
consisting of patents with a weighted average useful life of twelve years. Goodwill represents the
excess of the purchase price over the fair value of the net tangible and intangible assets acquired
and is not deductible for tax purposes. A preliminary estimate of
$30.6&nbsp;million has been allocated
to goodwill. The preliminary purchase price allocation for CDS is subject to revision as more
detailed analysis is completed and additional information on the fair values of CDS&#146;s assets and
liabilities becomes available. The amounts ultimately recorded will be based on an independent
valuation, expected to be finalized during the year ending June&nbsp;30, 2006. Any change in the fair
value of the net assets of CDS will change the amount of the purchase
price allocable to goodwill. The financial effects of this
transaction are not reflected in the accounts as at 30&nbsp;June
2005. On 30&nbsp;December 2005, on the close of the CDS acquisition,
Dr&nbsp;Paul Ashton was appointed as a director of the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On 11 January&nbsp;2006, the Company announced that it had appointed Ms.&nbsp;Heather Zampatti as a
non-executive director of the Company. The Company also announced the
resignation of Ms.&nbsp;Alison
Ledger as a director.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>20.</B></TD>
    <TD>
    <B>Loss per share</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following reflects the net loss and share information used
in the calculation of basic and diluted loss per share:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="52%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss before outside equity interest</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(15,125,719</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,518,976</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,356,328</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adjustments:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss attributable to outside equity interest</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>399,196</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,835,771</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,591,175</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loss used in calculating basic and diluted loss per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(14,726,523</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,683,205</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,765,153</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-32

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 18pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="52%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average number of ordinary shares used in calculating
    basic loss per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>207,802,540</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>126,990,066</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>101,281,292</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Effect of dilutive securities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Share options</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adjusted weighted average number of ordinary shares used in
    calculating basic and diluted loss per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>207,802,540</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>126,990,066</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>101,281,292</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following potential ordinary shares are not dilutive and are
therefore excluded from the weighted average number of ordinary
shares and potential ordinary shares used in the calculation of
diluted earnings per share:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Share options</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,971,713</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,965,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,700,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Since the end of the financial year the Company has issued
665,000 ADRs (representing 6,650,000 ordinary shares) at a price
of US$6.50&nbsp;per ADR and 78,000 warrants over ADRs
(representing 780,000 options over ordinary shares) expiring 5
August 2008, exercisable at US$12.50&nbsp;per warrant, pursuant
to a PIPE.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
There have been no other conversions to, calls of, or
subscriptions for ordinary shares or issues of potential
ordinary shares since the reporting date and before the
completion of this annual report.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>21.</B></TD>
    <TD>
    <B>Director and executive disclosures</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(a)</B></TD>
    <TD>
    <B>Details of specified directors and specified executives</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The specified directors of pSivida Limited during the year were:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Dr Roger Brimblecombe&nbsp;&#151; Non-Executive Chairman</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Mr Gavin Rezos&nbsp;&#151; Managing Director</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Dr Roger Aston&nbsp;&#151; Director, Strategy</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Mr Stephen Lake&nbsp;&#151; Non-Executive Director (appointed 30
    July 2004)</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Ms Alison Ledger&nbsp;&#151; Non-Executive Director (appointed
    30 July 2004)</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Mrs Nadine Donovan&nbsp;&#151; Former Finance Director (resigned
    30 July 2004)</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The specified executives of the consolidated entity during the
year were:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Prof Leigh Canham&nbsp;&#151; Chief Scientific Officer,
    pSiMedica Limited</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Mr Aaron Finlay&nbsp;&#151; Company Secretary, Chief Financial
    Officer</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Dr Anna Kluczewska&nbsp;&#151; Managing Director, AION
    Diagnostics Limited</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Mr Steve Connor&nbsp;&#151; Operations Director, pSiMedica
    Limited</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Dr Jill Ogden&nbsp;&#151; Commercialization Director, pSiMedica
    Limited</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">F-33

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(b)</B></TD>
    <TD>
    <B>Remuneration of specified directors and specified
    executives</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(i)</B></TD>
    <TD>
    <B>Remuneration policy</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Remuneration Committee of the Board of Directors of pSivida
Limited is responsible for determining and reviewing
compensation arrangements for the directors, the managing
director and the executive team. The Remuneration Committee
assesses the appropriateness of the nature and amount of the
emoluments of such officers on a periodic basis by reference to
relevant employment market conditions with the overall objective
of ensuring maximum stakeholder benefit from the retention of a
high quality Board and executive team.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>(ii)&nbsp;Remuneration of specified directors and specified
executives</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<I>Specified directors</I>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="29%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Post</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Primary</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Employment</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Equity</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Salary</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Super-</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Other</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Options*</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Cash-based</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>and Fees</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Bonus</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>annuation</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Benefits</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(ii)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Remuneration</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <I>2005</I></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dr R Brimblecombe</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>224,459</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>229,296</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>478,755</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>249,459</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mr G Rezos</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>348,062</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>75,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,905</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,361,127</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,795,094</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>433,967</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dr R Aston</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>315,683</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,438</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,189</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>558,592</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>908,902</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>350,310</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mr S Lake</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22,917</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>91,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>114,635</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>22,917</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Ms A Ledger</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>27,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,475</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>91,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>121,693</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>29,975</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mrs N Donovan</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,083</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>188</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,271</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2,271</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>940,704</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>125,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22,006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,189</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,332,451</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,421,350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,088,899</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <I>2004</I></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dr R Brimblecombe</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>152,992</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>145,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>298,192</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>152,992</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mr G Rezos</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>363,881</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>27,320</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>435,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,076,801</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>641,201</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dr R Aston</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>302,822</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40,711</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>181,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>565,033</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>383,533</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mrs N Donovan</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>90,325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>127,050</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>219,625</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>92,575</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>910,020</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>290,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>70,281</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>889,350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,159,651</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,270,301</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD>*&nbsp;</TD>
    <TD align="left">
    These options had no taxable value at the date of issue.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">F-34

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Specified executives</I>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="29%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Post</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Primary</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Employment</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Equity</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Salary</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Super-</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Other</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Options*</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Cash-based</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>and Fees</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Bonus</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>annuation</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Benefits</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(ii)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Remuneration</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <I>2005</I></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prof L Canham</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>193,780</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22,553</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,056</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>353,524</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>575,913</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>222,389</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mr A Finlay</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>144,572</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,135</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>370,396</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>560,603</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>190,207</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dr A Kluczewska</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>208,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>299,808</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>518,141</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>218,333</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mr S Connor</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>181,146</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,738</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,612</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>143,751</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>357,247</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>213,496</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dr J Ogden</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>169,816</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,378</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,060</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>143,751</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>340,005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>196,254</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>897,647</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>42,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>77,804</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22,728</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,311,230</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,351,909</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,040,679</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <I>2004</I></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dr A Kluczewska</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>143,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>295,572</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>464,172</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>168,600</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prof L Canham</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>180,537</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>35,410</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,832</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>219,779</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>219,779</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mr S Connor</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>176,773</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,683</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,941</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>207,397</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>207,397</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dr R Saffie</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>130,742</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,441</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,307</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>148,490</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>148,490</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dr J Ogden</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>102,873</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,581</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,072</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>117,526</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>117,526</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>734,525</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>86,115</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>295,572</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,157,364</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>861,792</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR>
    <TD valign="top">
    &nbsp;&nbsp;*</TD>
    <TD></TD>
    <TD valign="top">
    These options had no taxable value at the date of issue.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    &nbsp;(i)</TD>
    <TD></TD>
    <TD valign="top">
    Bonuses were paid in cash on 17 March 2005 as part of an annual
    staff review. Bonuses were determined based on a review of staff
    performance conducted by the remuneration committee.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    (ii)</TD>
    <TD></TD>
    <TD valign="top">
    During the year options were granted to directors and specified
    executives in August 2004 in respect of the pSiMedica
    acquisition and April 2005 in respect of annual performance
    reviews, pursuant to the Company&#146;s Employee Share Option
    Plan, which have been included as equity options remuneration
    above. These options have been valued using the Black Scholes
    Option Valuation Model, which takes into account time value and
    the volatility of the stock price.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="top">
    A total of 8,251,000 options were issued to directors and
    employees in August 2004. The options are exercisable at $1.18,
    being an 8% premium to the share price at the time of the grant,
    and may be exercised between the date of grant and expiry on 5
    August 2009.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="top">
    A total of 3,152,000 options were issued to employees in April
    2005. The options are exercisable at $0.80, being a 7% premium
    to the share price at the time of the grant. The options are
    subject to varying vesting and performance conditions and expire
    on 31&nbsp;March 2010.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following directors and executives were under contract at
30&nbsp;June 2005:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Mr Gavin Rezos has a contract dated December&nbsp;12, 2000,
amended in April 2005, which provides for directors fees of
$126,000 plus superannuation at a rate of 9% and bonus payments
and options to be awarded on a discretionary basis. The contract
will continue until termination by either party on one months
notice. Accrued entitlements are payable upon termination. In
addition Mr Gavin Rezos has a consultancy agreement which
provides for an annual fee of $204,750 which will similarly
continue until termination by either party.
</DIV>

<P align="center" style="font-size: 10pt;">F-35

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Dr Roger Aston had a consultancy contract dated
December&nbsp;12, 2000, amended in April 2005, which provides
for an annual fee of $250,000 with bonus payments and options to
be awarded on a discretionary basis. The contract will continue
until termination by either party on one months notice. Accrued
entitlements are payable upon termination.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Mr A Finlay has a contract dated May&nbsp;17, 2004, amended in
April 2005, which provides for a base annual salary of $200,000
plus superannuation at a rate of 9% and bonus payments and
options to be awarded on a discretionary basis. The employment
contract will continue until termination by either party on one
months notice. Accrued entitlements are payable upon termination.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Prof L Canham has a contract dated December&nbsp;12, 2000,
amended in January 2005, which provides for a base annual salary
of &#163;77,327 (A$183,110) plus superannuation at a rate of 12%
and bonus payments and options to be awarded on a discretionary
basis. The employment contract will continue until termination
by either party on six months notice. Accrued entitlements are
payable upon termination.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Dr A Kluczewska has a consultancy contract dated April&nbsp;7,
2004, amended in April 2005, which provides for an annual fee of
$250,000, 1.2&nbsp;million options vesting over a three year
period based on the achievement of performance milestones and
bonus payments and any additional options to be awarded on a
discretionary basis. The contract will continue until
termination by either party on one months notice.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Mr&nbsp;S&nbsp;Connor has a contract dated November&nbsp;1,
2001, amended in January 2005, which provides for a base annual
salary of &#163;74,884 (A$177,325) plus superannuation at a rate
of 12% and bonus payments and options to be awarded on a
discretionary basis. The employment contract will continue until
termination by either party on six months notice. Accrued
entitlements are payable upon termination.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Dr&nbsp;J&nbsp;Ogden has a contract dated November&nbsp;17,
2003, amended in January 2005, which provides for a base annual
salary of &#163;70,200 (A$166,2334) plus superannuation at a
rate of 12% and bonus payments and options to be awarded on a
discretionary basis. The employment contract will continue until
termination by either party on six months notice. Accrued
entitlements are payable upon termination.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Dr&nbsp;M&nbsp;Parry-Billings has a contract dated
January&nbsp;6, 2005, which provides for a base annual salary of
&#163;125,000 (A$296,000) plus superannuation at a rate of 12%,
1.2&nbsp;million options vesting over a three year period based
on the achievement of performance milestones and bonus payments
and any additional options to be awarded on a discretionary
basis. The employment contract will continue until termination
by either party on six months notice. Accrued entitlements are
payable upon termination.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>(c)&nbsp;</B></TD>
    <TD>
    <B>Remuneration options granted and vested during the year</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During the financial year options were granted as equity
compensation benefits to certain specified directors and
specified executives as disclosed below. The options were issued
free of charge. Each option entitles the holder to subscribe for
one fully paid ordinary share in the entity at the exercise
price stated below. The options may only be exercised after the
vesting date stated below, and expire on the dates shown below.
Vesting of the options is dependent on the achievement of
certain key performance criteria where indicated. The key
performance criteria to be met are in respect of certain
employee performance targets.
</DIV>

<P align="center" style="font-size: 10pt;">F-36

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B></TD>
    <TD>
    <B><I>Share options issued by pSivida Limited</I></B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="21%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="center" nowrap><B>Terms and Conditions for Each Grant</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Value of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Value Per</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Underlying</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Option at</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Share at</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price Per</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Vested</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Granted</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Grant Date**</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Grant Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Share</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Vesting</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Grant Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Expiry Date</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Specified directors</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dr R Brimblecombe</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 09</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mr G Rezos</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,750,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,750,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 09</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dr R Aston</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 09</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mr S Lake</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 09</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Ms A Ledger</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 09</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,650,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,650,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Specified executives</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prof L Canham</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>700,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>700,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 09</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>125,000</TD>
    <TD align="left" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22 Apr 05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.26</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22 Apr 06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31 Mar 10</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mr A Finlay</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>700,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>700,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 09</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22 Apr 05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.26</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22 Apr 06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31 Mar 10</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dr A Kluczewska</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 09</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>125,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22 Apr 05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.26</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22 Apr 06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31 Mar 10</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>400,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mr S Connor</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>300,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>300,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 09</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>125,000</TD>
    <TD align="left" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22 Apr 05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.26</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22 Apr 06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31 Mar 10</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dr J Ogden</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>300,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>300,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5 Aug 09</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>125,000</TD>
    <TD align="left" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22 Apr 05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.26</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22 Apr 06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31 Mar 10</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,800,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B></TD>
    <TD>
    <B><I>Share options issued by AION Diagnostics Limited</I></B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="32%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Terms and Conditions for Each Grant</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Value of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Value Per</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Underlying</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Option at</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Share at</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price Per</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Vested</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Granted</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Grant Date**</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Grant Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Share</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Expiry</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Grant Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Specified directors</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mr G Rezos</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250,000</TD>
    <TD align="left" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3 Feb 05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Nil</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3 Feb 08</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dr R Aston</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250,000</TD>
    <TD align="left" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3 Feb 05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Nil</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3 Feb 08</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Specified executives</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prof L Canham</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>65,840</TD>
    <TD align="left" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3 Feb 05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Nil</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3 Feb 08</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mr A Finlay</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>98,760</TD>
    <TD align="left" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3 Feb 05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Nil</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3 Feb 08</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dr A Kluczewska</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>395,040</TD>
    <TD align="left" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3 Feb 05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Nil</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3 Feb 08</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>559,640</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-37

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 3pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="2%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>*&nbsp;</TD>
    <TD align="left">
    Vesting of these options is subject to performance conditions.
    Performance conditions for executive staff and directors include
    specific criteria relating to the employee&#146;s role within
    the Company. Performance conditions for other staff require the
    satisfactory performance of their role.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>**&nbsp;</TD>
    <TD align="left">
    Options have been valued using the Black Scholes Option
    Valuation Model, which takes into account time value and the
    volatility of the stock price.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>(d)&nbsp;</B></TD>
    <TD>
    <B>Shares issued on exercise of remuneration options</B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="51%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount Paid</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount Unpaid</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares Issued</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Per Share</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Per Share</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Specified directors</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mrs N Donovan</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>400,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(e)</B></TD>
    <TD>
    <B>Specified directors&#146; and specified executives&#146;
    equity holdings</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Fully paid ordinary shares of pSivida Limited</I></B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="46%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Balance at</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Granted as</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Net Other</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Balance at</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>1&nbsp;July 2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Remuneration</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Change</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>30&nbsp;Jun 2005</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Specified directors</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dr R Brimblecombe</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>320,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>124,234</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>445,067</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mr G Rezos</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,895,657</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>423,625</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,319,282</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dr R Aston</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,090,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,002,753</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,093,586</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mr S Lake*</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Ms A Ledger*</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(100,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,900,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mrs N Donovan**</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54,333</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,361,656</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,450,612</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,812,268</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Specified executives</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prof L Canham</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,909,579</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,909,579</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mr A Finlay</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dr A Kluczewska</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mr S Connor</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>189,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>189,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dr J Ogden</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,098,579</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,098,579</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="2%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>*&nbsp;</TD>
    <TD align="left">
    Opening balance at date of appointment</TD>
</TR>

</TABLE>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>**&nbsp;</TD>
    <TD align="left">
    Closing balance at date of resignation</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">F-38

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Share options issued by pSivida Limited</I></B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="43%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Balance at</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Granted As</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Net Other</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Balance at</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>1&nbsp;July 2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Remuneration</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Change</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>30 Jun 2005</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Specified directors</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dr R Brimblecombe</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(550,889</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>949,111</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mr G Rezos</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,450,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,750,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,228,970</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,971,030</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dr R Aston</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,950,889</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,549,111</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mr S Lake*</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>42,061</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>242,061</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Ms A Ledger*</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mrs N Donovan**</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>850,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>850,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,800,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,650,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(8,688,687</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,761,313</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Specified executives</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prof L Canham</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>825,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>39,289</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>864,289</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mr A Finlay</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>900,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>900,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dr A Kluczewska</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>225,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,425,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mr S Connor</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>425,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,645</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>444,645</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dr J Ogden</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>425,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>129,708</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>554,708</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,800,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>188,642</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,188,642</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="2%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>*&nbsp;</TD>
    <TD align="left">
    Opening balance at date of appointment</TD>
</TR>

</TABLE>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>**&nbsp;</TD>
    <TD align="left">
    Closing balance at date of resignation</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">F-39

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B></TD>
    <TD>
    <B><I>Share options issued by AION Diagnostics Limited</I></B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="47%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Balance at</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Granted As</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Net Other</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Balance at</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>1&nbsp;July 2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Remuneration</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Change</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>30 Jun 2005</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Specified directors</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dr R Brimblecombe</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mr G Rezos</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dr R Aston</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mr S Lake*</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Ms A Ledger*</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mrs N Donovan**</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>500,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Specified executives</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prof L Canham</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>65,840</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>65,840</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mr A Finlay</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>98,760</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>98,760</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dr A Kluczewska</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>395,040</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>395,040</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mr S Connor</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dr J Ogden</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>559,640</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>559,640</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="2%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>*&nbsp;</TD>
    <TD align="left">
    Opening balance at date of appointment</TD>
</TR>

</TABLE>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>**&nbsp;</TD>
    <TD align="left">
    Closing balance at date of resignation</TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B>(f)&nbsp;</B></TD>
    <TD>
    <B>Other transactions with specified directors</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All transactions with related parties are made on normal
commercial terms and conditions except where indicated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Consultancy fees and other payments of Nil (2004: $341,362;
2003: $173,333) were paid to Aymon Pacific Pty Ltd, a company
controlled by Mr G Rezos, and have been included in
directors&#146; remuneration above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Consultancy fees and other payments of $319,941 (2004: $44,000;
2003: Nil) were paid to Newtonmore Biosciences Pty Ltd, a
company controlled by Dr&nbsp;R&nbsp;Aston. The portion of this
amount relating to services performed by Dr&nbsp;Aston has been
included in directors&#146; remuneration above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Consultancy fees of $2,083 (2004: $71,858; 2003: $45,000) were
paid to Blackwood Pty Ltd, a company controlled by Mrs N
Donovan, and have been included in directors&#146; remuneration
above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
An amount of &#163;220,689 ($544,320) (2004 &#163;186,682
($457,567)) (2003: &#163;207,492 ($564,033)) was paid or payable
to QinetiQ Limited, a shareholder of pSivida Limited and former
shareholder of pSiMedica Limited, for the use of laboratory
facilities and for patent filing and administration.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During the year $114,732 (2004: $78,068; 2003: $22,622) was paid
to Blake Dawson Waldron (BDW)&nbsp;for various routine
arm&#146;s length legal services. BDW is a national Australian
firm with over 180 partners. One of those partners is a relative
of a pSivida director.
</DIV>

<P align="center" style="font-size: 10pt;">F-40

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
An amount of Nil (2004: $12,637; 2003: $52,187) was paid to
Viaticus Capital Pty Ltd, a company controlled by Mr G Rezos, for
sublease of BGC Centre office space. A further amount of
$332,085 (2004: Nil; 2003: Nil) was paid to Viaticus Capital Pty Ltd
for consultancy fees and other payments, and has been included
in directors&#146; remuneration above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
An amount of $125,982 (2004: $149,489; 2003: Nil) was paid to
Albion Capital Partners, of which Mr G Rezos is a partner, for
sublease of BGC Centre office space. A further amount of $63,360
(2004: Nil; 2003: Nil) was paid to Albion Capital Partners for
financial analyst services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Amounts owing to directors, director-related parties and other
related parties at 30&nbsp;June 2005 were $50,102 (2004:
$37,144; 2003: $31,182).
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B>22.&nbsp;</B></TD>
    <TD>
    <B>Auditor&#146;s remuneration</B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <I>Amounts received or receivable for:</I></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    An audit or review of the statutory financial report of the
    Company</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24,240</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other services in relation to the Company</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,020</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,628</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25,260</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,628</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <I>Amounts received or due and receivable by the auditors other
    than the statutory auditors of pSivida for:</I></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    An audit or review of the financial statements of subsidiary
    entities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>42,423</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30,393</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38,600</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Audit services in relation to US SEC and NASDAQ requirements on
    listing and annual lodgements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>638,768</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other services in relation to the Company</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,432</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>695,623</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30,393</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38,600</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-41

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>23.</B></TD>
    <TD>
    <B>Segment information</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>(a)&nbsp;</B></TD>
    <TD>
    <B>Business segment&nbsp;&#151; primary segment</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company operates in only one business segment, being the
biotechnology sector.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>(b)&nbsp;</B></TD>
    <TD>
    <B>Geographic segment&nbsp;&#151; secondary segment</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Segment revenues are attributed to countries based on the
location of where the revenue is earned.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="26%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>United</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Australia</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Kingdom</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Singapore</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Unallocated</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Eliminations</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Consolidated</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Segment revenues from external customers</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Year ended 30&nbsp;June</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>161,666</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>667,310</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>828,976</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>888</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>55,312</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>325,479</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>381,679</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25,065</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>72,729</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,881</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>110,675</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Segment assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    As at 30&nbsp;June</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,429,117</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>68,660,341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,934,243</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(21,135</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>82,002,566</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29,733,723</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,145,493</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,299,932</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(812,090</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40,367,058</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Acquisition of segment assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Year ended 30&nbsp;June</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>56,920</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>61,176,255</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,836</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>61,254,011</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,901,489</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,696,463</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,501,723</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,096,229</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Goodwill, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    As at 30&nbsp;June</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,909,744</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,909,744</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Long lived assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    As at 30&nbsp;June</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>82,292</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,171,902</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,469</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,273,663</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>69,313</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>600,386</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>669,699</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>24.</B></TD>
    <TD>
    <B>Financial instruments</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(a)</B></TD>
    <TD>
    <B>Significant accounting policies</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Details of the significant accounting policies and methods
adopted, including criteria for recognition, the basis of
measurement and the basis on which revenues and expenses are
recognized, in respect of each class of financial asset,
financial liability, and equity instrument are disclosed in
Note&nbsp;1.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(b)</B></TD>
    <TD>
    <B>Interest rate risk</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Deposits or withdrawals from term deposits may be made at any
time without prior notice or penalty. Receivables and payables
are non-interest bearing.
</DIV>

<P align="center" style="font-size: 10pt;">F-42

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s exposure to interest rates and the effective
weighted average interest rate for classes of financial assets
and liabilities is set out below:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="26%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Floating</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Fixed</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Interest</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Interest</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Non-Interest</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Interest</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Rate</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Rate</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Bearing</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Rate</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Notes</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>%</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>2005</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <I>Financial assets</I></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17(a)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,528,926</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>163,135</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,892,061</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.87</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Receivables</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>709,418</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>709,418</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>n/a</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,528,926</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>872,553</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,601,479</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <I>Financial liabilities</I></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Payables</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,017,820</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,017,820</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>2004</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <I>Financial assets</I></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17(a)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31,350,656</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31,350,656</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Receivables</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>340,482</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>340,482</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>n/a</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31,350,656</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>340,482</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31,691,138</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <I>Financial liabilities</I></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Payables</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,882,104</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,882,104</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(c)</B></TD>
    <TD>
    <B>Fair values</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The fair values of the financial assets and liabilities at the
balance sheet date approximate the carrying amounts in the
financial statements, except where specifically stated and
determined in accordance with the accounting policies disclosed
in Note&nbsp;1.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(d)</B></TD>
    <TD>
    <B>Credit risk exposure</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s maximum exposure to credit risk to each class
of recognized financial asset is the carrying amount, net of any
provisions for doubtful debts, of those assets as indicated in
the balance sheet. The directors believe the Company has no
significant concentration of credit risk.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>25.</B></TD>
    <TD>
    <B>Additional Company information</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
pSivida Limited is a listed public company, incorporated and
operating in Australia.
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Level&nbsp;12, BGC Centre</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    28 The Esplanade</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Perth WA 6000</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Australia</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Tel: 61 8 9226 5099</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">F-43

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>26.</B></TD>
    <TD>
    <B>Impacts of adopting Australian equivalents to International
    Financial Reporting Standards (unaudited)</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(a)</B></TD>
    <TD>
    <B>Management of the transition to AIFRS</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
pSivida Limited will be required to prepare financial statements
that comply with the Australian equivalents of International
Financial Reporting Standards (&#147;AIFRS&#148;) as adopted by
the Australian Accounting Standards Board (&#147;AASB&#148;) for
annual reporting periods beginning on or after 1&nbsp;January
2005. Accordingly, pSivida&#146;s first half-year report
prepared under AIFRS will be for the half-year reporting period
ending 31&nbsp;December 2005, and its first annual financial
report prepared under AIFRS will be for the year ending
30&nbsp;June 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The transitional rules for first time adoption of AIFRS require
that the Company restate its comparative financial statements
using AIFRS, except for AASB 132: &#147;Financial Instruments:
Disclosure and Presentation&#148; (&#147;AASB 132&#148;) and
AASB 139: &#147;Financial Instruments: Recognition and
Measurement&#148; (&#147;AASB 139&#148;) where comparative
information is not required to be restated. Currently, the
Company provides two years of comparative financial information
in its financial statements to comply with applicable US
Securities and Exchange Commission (&#147;SEC&#148;)
requirements. The SEC has granted a one-time relief from this
requirement for foreign registered companies preparing their
first set of financial statements in compliance with
International Financial Reporting Standards. The Company has
elected to apply this relief and will only provide one year of
comparative information in the 30&nbsp;June 2006 financial
statements. For reporting in the 2006 fiscal year, comparatives
will be remeasured and restated for the half-year ended
31&nbsp;December 2004 and the financial year ended 30&nbsp;June
2005. Most of the adjustments on transition are required to be
made to opening retained profits at the beginning of the first
comparative period (i.e. at 1&nbsp;July 2004).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In 2004 the Company commenced a review of accounting policies in
preparation for managing the transition to AIFRS. Priority has
been given to considering the preparation of an opening balance
sheet in accordance with AIFRS as at 1&nbsp;July 2004, the
Company&#146;s transition date to AIFRS. This will form the
basis of accounting for AIFRS in the future and is required when
the Company prepares its first fully AIFRS compliant financial
report for the year ended 30&nbsp;June 2006.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>(b)&nbsp;</B></TD>
    <TD>
    <B>The likely impacts of AIFRS on the results and financial
    position of the Company</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Set out below are the known key differences in accounting policy
and our known estimable transitional differences identified as
of 30&nbsp;June 2005, where accounting policies are expected to
change on adoption of AIFRS and the likely impacts on the
current year operating results and financial position of the
Company, had the financial statements been prepared using AIFRS,
based on the directors&#146; accounting policy decisions current
at the date of this financial report. The adjustments included
are based on the AIFRS standards released as at June&nbsp;30,
2005. These are subject to ongoing review and any amendments by
the AASB, or by interpretative guidance from the International
Accounting Standards Board or AASB, could change the adjustments
included. The AIFRS standards and interpretations that will
apply to the Company will be those released as at
December&nbsp;31, 2005 being the date of the first half year
financial statements that the Company has to publish under
AIFRS. The disclosures below represent the Company&#146;s
current best estimate of the quantitative impact of the AIFRS
implementation at the date of this report and accordingly they
remain subject to change.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
There are certain items that still require resolution and
additional differences in accounting policy that may be
identified. The directors may, at any time until the completion
of the Company&#146;s first AIFRS
</DIV>

<P align="center" style="font-size: 10pt;">F-44

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
compliant financial report, elect to revisit, and where
considered necessary, revise the accounting policies applied in
preparing the disclosures below.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>(c)&nbsp;</B></TD>
    <TD>
    <B>Adjustments to balance sheet items under AIFRS (net of
    tax)</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(i)&nbsp;Intangibles</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under AASB&nbsp;3, &#147;Business Combinations&#148; (&#147;AASB
3&#148;) goodwill would not be permitted to be amortized but
instead is subject to impairment testing on an annual basis or
upon triggers which may indicate a potential impairment. As a
result accumulated goodwill amortization of $973,923 (all
expensed during the year ended 30&nbsp;June 2005) would be added
back to the value of intangibles as at 30&nbsp;June 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(ii)&nbsp;Share-based
payments</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under AASB 2: &#147;Share-Based Payment&#148; (&#147;AASB
2&#148;) equity-settled share-based payments in respect of
equity instruments issued after 7 November 2002 that were
unvested as at 1&nbsp;January 2005 are measured at fair value at
grant date. The fair value determined at grant date of
equity-settled share-based payments is expensed on a
straight-line basis over the vesting period, based on the
estimated number of equity instruments that will vest. As a
consequence, contributed equity will increase by $591,900 as at
30&nbsp;June 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(iii)&nbsp;Foreign currency
translation reserve</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The directors have elected to set the translation reserve to
zero as at AIFRS transition as permitted under AASB 1
&#147;First-Time Adoption of Australian Equivalents to
International Financial Reporting Standards&#148; (&#147;AASB
1&#148;). This results in the transfer of $78,220 from the
foreign currency translation reserve to retained earnings as at
AIFRS transition on 1&nbsp;July 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(iv)&nbsp;Accumulated
losses</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
With limited exceptions, adjustments required on first-time
adoption of AIFRS are recognized directly in accumulated losses
at the date of transition to AIFRS. The cumulative effect of
these adjustments for the Company will be a decrease in opening
accumulated losses of $78,220 as of 1&nbsp;July 2004.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>(d)&nbsp;</B></TD>
    <TD>
    <B>Adjustments to current year loss under AIFRS (net of tax)</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(i)&nbsp;Intangibles</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under AASB&nbsp;3, goodwill would not be permitted to be
amortized but instead is subject to impairment testing on an
annual basis or upon triggers which may indicate a potential
impairment. As a result goodwill amortization expense of
$973,923 recorded in the year ended 30&nbsp;June 2005 would be
added back to the net loss for the year. There is no goodwill
amortization required to be added back to the net loss upon the
transition date of 1&nbsp;July 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(ii)&nbsp;Share-based
payments</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under AASB&nbsp;2, equity-settled share-based payments in
respect of equity instruments issued after 7 November 2002 that
were unvested as at 1&nbsp;January 2005 are measured at fair
value at grant date. The fair value determined at grant date of
equity-settled share-based payments is expensed on a
straight-line basis over the vesting period, based on the
estimated number of equity instruments that will vest. As a
</DIV>

<P align="center" style="font-size: 10pt;">F-45

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
consequence, an additional employee benefit expense of $508,613
and consultancy fees expense of $83,287 will be recognized in
the profit and loss for the year ended 30&nbsp;June 2005.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>(e)&nbsp;</B></TD>
    <TD>
    <B>Other impacts</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(i)&nbsp;Management is yet to determine whether to apply the exemption provided
in AASB&nbsp;1, which permits entities not to restate business
combinations that occurred prior to the date of transition to
AIFRS. Business combinations occurring after the date of
transition (i.e., 1&nbsp;July 2004) will be subject to the
provisions of AASB 3<I>.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(ii)&nbsp;Management has decided to apply the exemption provided
in AASB 1 which permits entities not to apply the requirements
of AASB 132 and AASB 139<I>,</I>for the year ended 30&nbsp;June
2005. The standards will be applied from 1&nbsp;July 2005.
Management is in the process of determining the impact that
adopting the standards would have on the financial statements of
the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(iii)&nbsp;Under AASB 136: &#147;Impairment of Assets,&#148; the
Company&#146;s assets, including goodwill would be tested for
impairment as part of the cash generating unit to which they
belong, and any impairment losses recognized in the statement of
financial performance. At this stage in the Company&#146;s
review process the Company is not aware of any impairment issues
that would result in a material adjustment to the financial
statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(iv)&nbsp;No material impacts are expected to the cash flows as
presented under current A-GAAP on adoption of AIFRS.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B>(f)&nbsp;</B></TD>
    <TD>
    <B>Acquisition of minority interest</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During the year ended 30&nbsp;June 2005, the Company purchased
minority interests in controlled entity pSiMedica Limited. Under
current A-GAAP this acquisition has been accounted for
separately from other acquisitions (that is, as a step
acquisition, which involved the separate determination and
recognition of the fair values of the net assets of the
subsidiary and any goodwill arising on the acquisition).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
AASB 127: &#147;Consolidated and Separate Financial
Statements&#148; requires minority interests to be classified as
equity. Consequently, the acquisition by the Company of
additional ownership interests in pSiMedica Limited represents
an equity transaction. As such, accounting for the transaction
as a step acquisition may not be appropriate. The financial
effect of the adjustment required on the restatement of the
30&nbsp;June 2005 accounts is yet to be determined.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B>27.&nbsp;</B></TD>
    <TD>
    <B>Reconciliation to US GAAP</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The financial statements have been prepared in accordance with
A-GAAP, which differ in certain respects from US GAAP. The
following is a summary of the 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 differences between A-GAAP and US
GAAP.
</DIV>

<P align="center" style="font-size: 10pt;">F-46

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Restatement of US&nbsp;GAAP amounts</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Subsequent to the issuance of the June&nbsp;30, 2004
consolidated financial statements, the Company changed the
amounts previously reported in the US&nbsp;GAAP reconciliation
for the accounting for deferred income taxes as follows:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Deferred tax liability for acquired intangible
    assets&nbsp;&#151; Previously, deferred taxes were not recorded
    on the intangible assets acquired in connection with the step
    acquisition of pSiMedica as the book to tax basis differences
    were deemed to be permanent as the amortization of the related
    intangibles is not deductible for income tax purposes. The
    Company has subsequently concluded that, although under tax law,
    it will not receive a tax deduction in the future for recovery
    of the intangible assets, recognition of a deferred tax
    liability on the acquired intangibles is nevertheless required
    under US&nbsp;GAAP because it is assumed for financial reporting
    purposes that the Company will generate future revenues at least
    equal to the recorded amount of the investment, and recovery
    will result in future taxable amounts.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Valuation allowance for deferred income tax assets&nbsp;&#151;
    Previously in establishing a valuation allowance, the Company
    fully reserved the total balance of the deferred income tax
    assets related to tax loss carryforwards as it was deemed more
    likely than not that the deferred tax assets would not be
    realized. As a result of the recognition of the US&nbsp;GAAP
    deferred tax liabilities in connection with the step acquisition
    of pSiMedica as per the above, the Company has reevaluated the
    recoverability of the deferred income tax assets, taking into
    consideration the reversal of taxable temporary differences
    under US&nbsp;GAAP.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Amortization of intangible assets&nbsp;&#151; Where the
    recognition of a deferred tax liability for acquired intangible
    assets as per the above resulted in additional basis of the
    related intangible, the additional basis is being amortized over
    the remaining estimated useful life of the intangible asset for
    US&nbsp;GAAP purposes.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The effect of the adjustments on previously reported
US&nbsp;GAAP net loss and total equity is as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Years Ended 30&nbsp;June</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    US&nbsp;GAAP net loss, as previously reported</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,059,011</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,288,418</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Correction to deferred income taxes, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,318,950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,216,235</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Correction to intangible amortization expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(279,913</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(196,420</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    US&nbsp;GAAP net loss, as restated</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,019,974</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,268,603</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    US&nbsp;GAAP basic and diluted loss per share, as previously
    reported</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.05</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.03</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    US&nbsp;GAAP basic and diluted loss per share, as restated</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.04</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.02</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="72%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>30&nbsp;June</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>1&nbsp;July</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    US&nbsp;GAAP total equity, as previously reported</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>34,819,468</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,204,116</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Correction to deferred income taxes, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,674,230</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,355,280</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Correction to intangible amortization expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(698,993</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(419,080</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    US&nbsp;GAAP total equity, as restated</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>37,794,705</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,140,316</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">F-47

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Reconciliation of net loss</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following is a reconciliation of net loss as reported in the
consolidated statements of financial performance under A-GAAP to
net loss as adjusted for the effects of the application of US
GAAP for the years ended 30&nbsp;June 2005, 2004 and 2003:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="43%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Years Ended 30&nbsp;June</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(As restated)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(As restated)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss in accordance with A-GAAP</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(14,726,523</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,683,205</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,765,153</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <I>US GAAP adjustments:</I></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Share-based compensation expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(a)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Options issued to consultants</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(156,204</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(250,933</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(54,951</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Options issued to directors, executives and employees</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(125,018</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(448,920</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(10,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Intangible assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fair value of shares issued as consideration&nbsp;&#151;
    amortization expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(b)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(18,198</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(18,198</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(18,198</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Direct acquisition costs&nbsp;&#151; amortization expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(c)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(9,357</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(9,357</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(9,357</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Amortization of intangible assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(d)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,749,870</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(650,140</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(451,606</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Sales of stock by subsidiaries&nbsp;&#151; amortization expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(f)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(39,232</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,840</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,847</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    In-process research and development</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(g)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,035,018</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gross-up attributable to deferred tax liability&nbsp;&#151;
    amortization expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(h)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(335,617</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(279,913</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(196,420</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Reversal of goodwill amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(e)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>973,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(h)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,645,504</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,318,950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,216,235</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Outside equity interest&nbsp;&#151; US GAAP adjustments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(i)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(20,920</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,920</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss in accordance with US GAAP</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(16,561,512</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,019,974</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,268,603</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loss per share in accordance with US GAAP:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic and diluted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>$(0.08</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>$(0.04</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>$(0.02</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average shares&nbsp;&#151; basic and diluted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>207,802,540</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>126,990,066</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>101,281,292</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">F-48

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Reconciliation of total equity</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following is a reconciliation of total equity as reported in
the consolidated statements of financial position under A-GAAP
to total equity as adjusted for the effects of the application
of US GAAP as of 30&nbsp;June 2005 and 2004:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="62%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>30&nbsp;June</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(As</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>restated)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total equity in accordance with A-GAAP</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>79,987,614</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38,428,943</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <I>US GAAP adjustments:</I></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Intangible assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fair value of shares issued as consideration</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(b)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>142,546</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>160,744</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Direct acquisition costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(c)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>73,292</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>82,648</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Amortization of intangible assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(d)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,357,007</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,607,137</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Sales of stock by subsidiaries</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(f)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>312,335</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>351,568</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    In-process research and development</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(g)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,035,018</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,035,018</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gross-up attributable to deferred tax liability</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(h)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,034,610</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(698,993</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Goodwill</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fair value of shares issued as consideration</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(b)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,267,528</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Reversal of amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(e)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>973,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(h)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,319,734</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,674,230</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Outside equity interest</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(i)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Consolidated statement of financial position classification</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,583,200</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    US GAAP adjustments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,920</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total equity in accordance with US GAAP</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>87,650,337</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>37,794,705</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">F-49

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Roll forward analysis of total equity under US GAAP</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="65%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Years Ended 30&nbsp;June</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(As</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Restated)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance in accordance with US GAAP, beginning of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>37,794,705</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,140,316</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issuance of shares in connection with acquisition, net of issue
    costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>62,526,881</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issuance of shares in connection with private placements, net of
    issue costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31,797,500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issuance of shares in connection with share purchase plan, net
    of issue costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>932,298</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issuance of shares in connection with exercise of options</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,666,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,626,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issuance of options in connection with acquisition</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>292,828</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issuance of options to consultants for services rendered</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">
    (a)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>156,204</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250,933</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issuance of options to directors, executives and employees</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">
    (a)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>125,018</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>448,920</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gain on sales of stock by subsidiaries</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">
    (f)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>540,727</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Foreign currency translation adjustment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(350,287</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>77,985</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss in accordance with US GAAP</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(16,561,512</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,019,974</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance in accordance with US GAAP, end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>87,650,337</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>37,794,705</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Note: The above rollforward does not include the
2,050,000&nbsp;options issued by pSivida in August 2004 as
settlement of share issue costs through the issuance of options
does not have an impact on net loss or total equity.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(a)</B></TD>
    <TD>
    <B>Share-based compensation</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Options issued to consultants</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under A-GAAP, the Company did not recognize any compensation
expense in connection with the issuance of share options to
consultants disclosed in Note&nbsp;12(c). Under US GAAP, such
options are accounted for under Statement of Financial
Accounting Standards (&#147;SFAS&#148;) No.&nbsp;123,
&#147;Accounting for Stock-Based Compensation&#148;
(&#147;SFAS&nbsp;123&#148;) and Emerging Issues Task Force Issue
No.&nbsp;96-18, &#147;Accounting for Equity Instruments that are
Issued to Other than Employees for Acquiring, or in Conjunction
with Selling, Goods or Services&#148;
(&#147;EITF&nbsp;96-18&#148;). 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 (the &#147;measurement
date&#148;), using the Black-Scholes option pricing model. For
those options issued prior to reaching a measurement date,
interim measures of compensation cost are recorded based on the
estimated fair value of the options as of each reporting date.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Following is a summary of the options issued to consultants
accounted for under SFAS&nbsp;123:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    The Company issued 2,640,000&nbsp;share options to outside
    consultants during the year ended 30&nbsp;June 2005, consisting
    of 2,275,000&nbsp;options in August 2004 and
    365,000&nbsp;options in April 2005. Of the options issued in
    August 2004, 2,050,000 were issued as payment of share issue
    costs, and therefore, have no impact on net loss or total equity
    as the fair value was accounted for as a reduction of the
    proceeds of the share issuance.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">F-50

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV style="margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    The Company issued 500,000&nbsp;share options to an outside
    consultant during the year ended 30&nbsp;June 2004 as an
    incentive for future performance.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    The Company issued 2,000,000&nbsp;share options to GEM during
    the year ended 30&nbsp;June 2003, pursuant to an agreement for a
    fully underwritten $7.5&nbsp;million equity line of credit.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following weighted-average assumptions were used in
calculating the estimated fair value:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    risk-free interest rate of 5.36% for fiscal 2005, 5.55% for
    fiscal 2004 and 5.31% for fiscal 2003;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    no dividends;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    expected volatility of 57% for fiscal 2005 and 70% for fiscal
    2004 and 2003;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    expected life of 2&nbsp;years for 2005, 2.5&nbsp;years for 2004
    and 1.6&nbsp;years for 2003.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The resulting compensation cost is charged to earnings ratably
over the estimated vesting period.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table summarizes the activity of share options
issued to consultants during the years ended 30&nbsp;June 2005,
2004 and 2003:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="34%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="22" align="center" nowrap><B>Years Ended 30&nbsp;June</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="22" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Outstanding at beginning of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Granted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,640,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Exercised</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,000,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Forfeited</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(10,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Expired</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Outstanding at end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,130,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Exercisable at end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,055,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average grant date fair value</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Exercise price exceeds market price</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>$0.38</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>$0.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>$0.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Exercise price equals market price</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>$0.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Options issued to directors, executives and
    employees</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under US GAAP, the Company has elected to account for the
issuance of share options to the directors, executives and
employees in accordance with Accounting Principles Board
(&#147;APB&#148;) Opinion No.&nbsp;25, &#147;Accounting for
Stock Issued to Employees&#148; and related interpretations
(collectively, &#147;APB&nbsp;25&#148;). Under APB&nbsp;25,
compensation cost is recognized to the extent that the fair
value of the stock exceeds the
</DIV>

<P align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">F-51

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
exercise price of the options at the measurement date, and is
charged to earnings ratably over the vesting period. Following
is a summary of the share options accounted for under
APB&nbsp;25:
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>pSivida</U>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    pSivida issued 12,041,537&nbsp;share options under the ESOP to
    directors, executives and employees during the year ended
    30&nbsp;June 2005, consisting of 8,889,537 options in August
    2004 and 3,152,000&nbsp;options in April 2005.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="5%"></TD>
    <TD width="1%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Of the options issued in August 2004, 638,537&nbsp;options were
    issued to directors, executives and employees in consideration
    for the waiver of their rights under outstanding options
    previously issued by pSiMedica, and were accounted for as part
    consideration for the acquisition of pSiMedica.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    No compensation cost was recognized for the remaining
    8,251,000&nbsp;options issued in August 2004 because the
    exercise price exceeded the quoted market price on the
    measurement date, corresponding to the date of grant.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    The vesting of 2,032,000 of the options issued in April 2005 is
    conditional upon the achievement of performance conditions.
    Under US GAAP, these options are considered variable plan
    options as the number of shares the individuals are entitled to
    receive is not known at the date of grant. Compensation cost is
    computed on the date of grant based on management&#146;s
    estimate of the number of shares that will eventually be issued
    upon the achievement of the specific performance criteria and
    adjusted at each statement of financial position date (up to the
    vesting date) for changes in the estimate of the number of the
    shares and the quoted market price of the shares. No
    compensation cost was recognized for these options during the
    year because the exercise price exceeded the quoted market price
    as of 30&nbsp;June 2005.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    No compensation cost was recognized for the remaining 1,120,000
    options issued in April 2005 because the exercise price exceeded
    the quoted market price on the measurement date, corresponding
    to the date of grant</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    pSivida issued 3,895,000&nbsp;share options under the ESOP to
    directors, executives and employees during the year ended
    30&nbsp;June 2004. No compensation cost was recognized for such
    options because the exercise price exceeded the quoted market
    price on the measurement date, corresponding to the date of
    grant.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    pSivida issued 520,000&nbsp;share options under the ESOP to
    employees during the year ended 30&nbsp;June 2003. The share
    options vested one&nbsp;year from the date of grant subject to
    the option holders having satisfied defined performance
    criteria. Under US GAAP, these options are considered variable
    plan options as the number of shares the individuals are
    entitled to receive is not known at the date of grant.
    Compensation cost is computed on the date of grant based on
    management&#146;s estimate of the number of shares that will
    eventually be issued upon the achievement of the specific
    performance criteria and adjusted at each statement of financial
    position date (up to the vesting date) for changes in the
    estimate of the number of the shares and the quoted market price
    of the shares. 500,000 of the share options vested during the
    year ended 30&nbsp;June 2004.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    pSivida issued 2,200,000&nbsp;share options under the ESOP to
    directors, executives and employees during the year ended
    30&nbsp;June 2002. The vesting of these share options is
    conditional upon a share performance measure. Under US GAAP,
    these options are considered variable plan options as the number
    of shares the individuals are entitled to receive are not known
    at the date of grant. As the share performance measure is beyond
    the control of the Company, any resulting compensation</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">F-52

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    expense is recognized under APB&nbsp;25 when the target is
    achieved. During the year ended 30&nbsp;June 2004, all options
    vested as the share performance target was met, and accordingly,
    the Company recognized compensation expense under APB&nbsp;25
    based on the excess of the quoted market price on the vesting
    date over the exercise price of the share options.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table summarizes the activity of share options
issued to directors, executives and employees of pSivida during
the years ended 30&nbsp;June 2005, 2004 and 2003:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="21%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="22" align="center" nowrap><B>Years Ended 30&nbsp;June</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="22" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted Average</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted Average</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted Average</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise Price</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise Price</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise Price</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Outstanding at beginning of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,595,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.52</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,700,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.40</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Granted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,041,537</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.08</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,895,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.61</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>520,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Exercised</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,050,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Transferred</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,650,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Forfeited</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(104,824</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.98</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(20,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Expired</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Outstanding at end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,831,713</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.97</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,595,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.52</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,700,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.36</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Exercisable at end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,754,713</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,795,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average grant date fair value</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Exercise price exceeds market price</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.37</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Exercise price less than market price</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.45</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>pSiMedica</B>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    pSiMedica issued 30,300 and 12,000&nbsp;share options to
    directors, executives and employees during the years ended
    30&nbsp;June 2004 and 2003, respectively. The Company recognized
    compensation expense for 3,375 options issued during the year
    ended 30&nbsp;June 2004 based on the excess of the estimated
    fair value of stock over the exercise price on the date of
    grant. No compensation cost was recognized for the remaining
    26,925 options issued during the year ended 30&nbsp;June 2004
    and all 12,000 options issued during the year ended 30&nbsp;June
    2003 because the exercise price exceeded the estimated fair
    value on the date of grant for these options.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    pSiMedica issued 29,900 and 26,600&nbsp;share options to
    directors, executives and employees during the years ended
    30&nbsp;June 2004 and 2003, respectively. The share options vest
    three years from the date of grant subject to the option holders
    having satisfied defined performance criteria. Under US GAAP,
    these options are considered variable plan options as the number
    of shares the individuals are entitled to receive are not known
    at the date of grant. Compensation cost is computed on the date
    of grant based on management&#146;s estimate of the number of
    shares that will eventually be</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">F-53

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    issued upon the achievement of the specific performance criteria
    and adjusted at each statement of financial position date (up to
    the vesting date) for changes in the estimate of the number of
    the shares and the estimated fair value of the shares.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table summarizes the activity of share options
issued to directors, executives and employees of pSiMedica
during the years ended 30&nbsp;June 2005, 2004 and 2003:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="34%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="22" align="center" nowrap><B>Years Ended 30&nbsp;June</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="22" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>&#163;</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>&#163;</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>&#163;</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Outstanding at beginning of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>98,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9.66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Granted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>60,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11.84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6.25</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Exchanged for pSivida options</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(98,800</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9.66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Outstanding at end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>98,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9.66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6.25</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Exercisable at end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="68%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average grant date fair value</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Exercise price exceeds market price</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9.79</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Exercise price equals market price</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>10.32</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Exercise price less than market price</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>13.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>AION Diagnostics</B>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    AION Diagnostics issued 1,200,000&nbsp;share options to
    directors, executives and employees during the year ended
    30&nbsp;June 2005. The options vest subject to various
    milestone-based vesting conditions. Under US GAAP, these options
    are considered variable plan options as the number of shares the
    individuals are entitled to receive are not known at the date of
    grant. Compensation cost is computed on the date of grant based
    on management&#146;s estimate of the number of shares that will
    eventually be issued upon the achievement of the specific
    performance criteria and adjusted at each statement of financial
    position date (up to the vesting date) for changes in the
    estimate of the number of the shares and the estimated fair
    value of the shares. For those options with performance
    conditions beyond the control of AION Diagnostics, any resulting
    compensation expense is recognized under APB&nbsp;25 when the
    target is achieved.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">F-54

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table summarizes the activity of share options
issued to directors, executives and employees of AION during the
year ended 30&nbsp;June 2005:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="72%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>30&nbsp;June 2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Outstanding at beginning of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Granted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.00</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Outstanding at end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.00</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Exercisable at end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="90%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average grant date fair value</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Exercise price less than market price</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.29</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Fair value</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Had compensation cost related to the issuance of options to
directors and employees been recorded at fair value on the date
of grant in accordance with SFAS&nbsp;123, the Company&#146;s
net loss and loss per share amounts (calculated in accordance
with US GAAP) would have been increased to the pro forma amounts
indicated below:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Year Ended 30&nbsp;June</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(As restated)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(As restated)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    US GAAP net loss, as reported</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(16,561,512</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,019,974</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,268,603</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Add: Stock-based employee compensation expense included in US
    GAAP reported net loss, net of related tax effects</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>125,018</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>448,920</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards, net of
    related tax effect</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,537,993</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(975,468</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(190,003</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    US GAAP pro forma net loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(20,974,487</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,546,522</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,448,606</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    US GAAP loss per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic and diluted&nbsp;&#151; as reported</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.08</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.04</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.02</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic and diluted&nbsp;&#151; pro forma</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.10</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.04</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.02</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following weighted-average assumptions were made in
calculating the estimated fair value:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    risk-free interest rate of 5.36% for fiscal 2005, 5.55% for
    fiscal 2004, and 5.31% for fiscal 2003 ;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    no dividends;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    expected volatility of 57% for fiscal 2005 and 70% for fiscal
    2004 and 2003;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">F-55

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV style="margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    expected life of 2.5&nbsp;years for 2005, 2.5&nbsp;years for
    2004 and 1.6&nbsp;years for 2003.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>(b)&nbsp;</B></TD>
    <TD>
    <B>Fair value of shares issued as consideration</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On 10 May 2001, the Company acquired the controlling economic
interest in pSiMedica and issued shares for a portion of the
consideration. Under A-GAAP, the fair value of the share
consideration was calculated based on the price in the
shareholder&#146;s agreement (which was derived from an
independent valuation report). Under US GAAP, the fair value of
the shares issued to affect the acquisition is the average
quoted market price for a period of two days period before and
two days after the date the terms of the acquisition is agreed
to and announced. Accordingly, for US&nbsp;GAAP purposes, the
Company has recorded an increase to the value of identifiable
intangible assets equal to the difference. Such difference is
amortized over the estimated useful life of 12&nbsp;years.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(c)</B></TD>
    <TD>
    <B>Direct acquisition costs</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under <FONT style="white-space: nowrap">A-GAAP</FONT> until
30&nbsp;June 2004 the Company&#146;s accounting policy was to
expense direct acquisition costs as incurred. Since 1&nbsp;July
2004 the Company&#146;s accounting policy has been to capitalize
direct acquisition costs as part of the purchase price. Under
US&nbsp;GAAP, the direct acquisition costs are also capitalized
as part of the purchase price. Accordingly, for all acquisitions
prior to 1&nbsp;July 2004, the Company has recorded an increase
to the value of identifiable intangible assets equal to the
amount of the direct acquisition costs for US&nbsp;GAAP
purposes. The difference is amortized from the date of
acquisition over the estimated useful life of 12&nbsp;years
under US&nbsp;GAAP.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(d)</B></TD>
    <TD>
    <B>Amortization of intangible assets</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In connection with the acquisition of pSiMedica (acquired in
steps from 18 December 2000 to 4&nbsp;August 2004), the Company
acquired identifiable intangible assets classified as core
intellectual property under
<FONT style="white-space: nowrap">A-GAAP.</FONT> Under
<FONT style="white-space: nowrap">A-GAAP,</FONT> the core
intellectual property is currently not amortized. Rather,
amortization will commence on commercial production of related
products over the remaining estimated useful life. Under
US&nbsp;GAAP, the intangible assets are classified as licenses
and patents and amortized from the date of acquisition on a
straight-line basis over the estimated useful life of
12&nbsp;years. The aggregate US&nbsp;GAAP amortization expense
for the next five succeeding years is estimated to be
$6,274,253&nbsp;per year.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(e)</B></TD>
    <TD>
    <B>Goodwill</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under <FONT style="white-space: nowrap">A-GAAP,</FONT> the
Company amortizes goodwill attributable to the 4&nbsp;August
2004 acquisition of the remaining 55.28% interest in pSiMedica
on a straight line basis over the estimated period of benefit of
nine years. Under US&nbsp;GAAP, goodwill is not amortized but
instead is tested for impairment at least annually as further
discussed below. Accordingly, goodwill amortization under
<FONT style="white-space: nowrap">A-GAAP</FONT> has been added
back in the US&nbsp;GAAP reconciliation.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
For US&nbsp;GAAP purposes, SFAS&nbsp;No.&nbsp;142,
&#147;Goodwill and Intangible Assets&#148; requires goodwill to
be tested for impairment at least annually at the reporting unit
level. Goodwill attributable to the August 2004 acquisition of
the minority interest in pSiMedica was tested for impairment at
the reporting unit level in May 2005 and no impairment of
goodwill was identified.
</DIV>

<P align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">F-56

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(f)</B></TD>
    <TD>
    <B>Sales of stock by subsidiaries</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During the years ended 30&nbsp;June 2004 and 2002, pSiMedica and
pSiOncology issued additional shares which resulted in a change
in pSivida&#146;s proportionate interest in the respective
subsidiaries. Details are as follows:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    On 7 March 2002, pSiMedica issued a total of
    400,000&nbsp;ordinary shares (as adjusted for a 100 to
    1&nbsp;share split) to pSivida and another shareholder at
    &#163;5 ($13.61) per share, resulting in a total of
    &#163;2,000,000 ($5,443,658) cash consideration. This issuance
    increased pSivida&#146;s direct ownership interest in pSiMedica
    from 40.05% to 42.85%.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    On 13 October 2003, pSiMedica issued a total of 237,342
    preference shares to pSivida and another shareholder at
    &#163;12.64 ($30.47) per share, resulting in a total of
    &#163;3,000,000 ($7,232,401) cash consideration. This issuance
    increased pSivida&#146;s direct ownership interest in pSiMedica
    from 42.85% to 46.25%.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    On 1&nbsp;March 2004, pSiOncology issued a total of
    2,769&nbsp;shares to pSiMedica and other minority shareholders
    at SGD$1,000 ($761.61) per share, resulting in a total of
    SGD$2,769,000 ($2,108,911). This issuance increased
    pSivida&#146;s direct ownership interest in pSiOncology from
    38.56% to 42.26%.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    On 24 May 2004, pSiMedica issued 56,954 ordinary shares to the
    minority shareholders of pSiOncology at &#163;12.64 ($32.29) per
    share in consideration for the minority interest in pSiOncology,
    resulting in a total of &#163;719,899 ($1,838,822) non-cash
    consideration. This issuance decreased pSivida&#146;s direct
    ownership interest in pSiMedica from 46.25% to 44.72%.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under <FONT style="white-space: nowrap">A-GAAP,</FONT> the
change in pSivida&#146;s proportionate interest in the
respective subsidiaries due to the above share issuances is
eliminated on consolidation and therefore is not recognized in
the consolidated financial statements. Under US&nbsp;GAAP, the
issuance of ordinary shares by a subsidiary is accounted for in
accordance with Staff Accounting Bulletin No.&nbsp;51,
&#147;Accounting For Sales Of Stock By A Subsidiary&#148;
(&#147;SAB&nbsp;51&#148;) which requires the difference between
the carrying amount of the parent&#146;s investment in a
subsidiary and the underlying net book value of the subsidiary
after issuance of ordinary shares by the subsidiary be reflected
as either a gain or loss in the statement of operations or
reflected as an equity transaction. The Company has elected to
account for SAB&nbsp;51 gains and losses resulting from the sale
of a subsidiary&#146;s ordinary shares as equity transactions.
Accordingly, for US&nbsp;GAAP purposes, the Company has recorded
an adjustment to the value of identifiable intangible assets and
additional <FONT style="white-space: nowrap">paid-in</FONT>
capital for the resulting SAB&nbsp;51 gains and losses. Such
difference is amortized over the estimated useful life of
12&nbsp;years.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Deferred taxes have not been provided on the SAB&nbsp;51 gains
given that pSiMedica is a foreign subsidiary and pSivida intends
to permanently reinvest the undistributed earnings and thereby
take advantage of the exemption allowed under APB Opinion
No.&nbsp;23, &#147;Accounting for Income Taxes&nbsp;&#151;
Special Areas.&#148;
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(g)</B></TD>
    <TD>
    <FONT style="white-space: nowrap"><B>In-process</FONT> research
    and development</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In connection with the acquisition of the remaining minority
interest in pSiOncology during the year ended 30&nbsp;June 2004,
the Company acquired intangible assets classified as core
intellectual property under
<FONT style="white-space: nowrap">A-GAAP.</FONT> Under
<FONT style="white-space: nowrap">A-GAAP,</FONT> the core
intellectual property is currently not amortized. Rather,
amortization will commence on commercial production of related
products. For US&nbsp;GAAP purposes, the directors considered
the guidance contained in the AICPA Practice Aid &#147;Assets
Acquired in a Business Combination to be Used in Research and
Development Activities: A Focus on Software, Electronic
</DIV>

<P align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">F-57

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Devices, and Pharmaceutical Industries&#148; and determined that
the acquired intangible assets were
<FONT style="white-space: nowrap">in-process</FONT> research and
development (&#147;IPR&#38;D&#148;) in nature and did not have
an alternative future use. Therefore, under US&nbsp;GAAP, the
IPR&#38;D is written off to earnings at the date of acquisition.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(h)</B></TD>
    <TD>
    <B>Deferred income taxes</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT style="white-space: nowrap">A-GAAP</FONT> does not require
the recognition of deferred taxes arising from fair value
adjustments attributable to a purchase business combination.
US&nbsp;GAAP requires deferred taxes to be provided for the tax
effects of differences between the fair values and the tax bases
of identifiable assets acquired and liabilities assumed.
Deferred taxes are only provided on goodwill when the
amortization of goodwill is deductible for tax purposes in the
respective tax jurisdiction. Accordingly, for US&nbsp;GAAP
purposes, the Company recorded a deferred tax liability for the
difference in the fair value and tax basis of the acquired
intangibles attributable to the step acquisition of pSiMedica.
Where the recognition of the deferred tax liability resulted in
additional basis of the related intangible asset, such
additional basis is being amortized over the remaining estimated
useful life of the related intangible asset for US&nbsp;GAAP
purposes.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under US&nbsp;GAAP, the existence of sufficient taxable
temporary differences will enable utilization of the tax benefit
of operating loss carryforwards. Accordingly, for US&nbsp;GAAP
purposes, the Company recorded a deferred tax benefit
attributable to the pSiMedica operating loss carryforwards
expected to be utilized by the reversal of the deferred tax
liabilities recognized in connection with the step acquisition
of pSiMedica as per the above. Such deferred tax benefit was not
recognized under <FONT style="white-space: nowrap">A-GAAP</FONT>
as sufficient taxable temporary differences are not available
under <FONT style="white-space: nowrap">A-GAAP.
</FONT>
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(i)</B></TD>
    <TD>
    <B>Outside equity interest</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Certain of the <FONT style="white-space: nowrap">A-GAAP</FONT>
to US&nbsp;GAAP adjustments relate to subsidiaries in which
there exists an outside equity interest. Such adjustments are
attributed to the outside equity interest accordingly.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under <FONT style="white-space: nowrap">A-GAAP,</FONT> the
outside equity interest in controlled entities is classified as
a component of total equity. Under US&nbsp;GAAP, the outside
equity interest (also referred to as &#147;minority
interest&#148;) is classified between liabilities and
stockholders&#146; equity in the consolidated statements of
financial position. The effect of this adjustment has been
disclosed in the reconciliation of total equity to US&nbsp;GAAP.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(j)</B></TD>
    <TD>
    <B>Loss per share</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under <FONT style="white-space: nowrap">A-GAAP,</FONT> loss per
share is calculated by dividing operating profit (loss) after
tax and minority shareholders interest by the weighted average
number of shares on issue for the year. Methods of computing
loss per share in accordance with US&nbsp;GAAP are documented in
SFAS&nbsp;No.&nbsp;128, &#147;Earnings per Share&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
For each of the years ended in the period ended 30&nbsp;June
2005, there were no differences in the calculation methodology
of loss per share under
<FONT style="white-space: nowrap">A-GAAP</FONT> and US&nbsp;GAAP.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B>(k)</B></TD>
    <TD>
    <B>Consolidated statement of financial performance
    classification differences</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under <FONT style="white-space: nowrap">A-GAAP,</FONT> interest
income is reported as a component of revenue from ordinary
activities. Under US&nbsp;GAAP, interest income is reported as a
component of non-operating income/(loss).
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under <FONT style="white-space: nowrap">A-GAAP,</FONT> proceeds
from the disposal of property, plant and equipment is reported
as a component of revenue from ordinary activities. Under
US&nbsp;GAAP, only the net gain/(loss) is reported in operating
income/(loss).
</DIV>

<P align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">F-58

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under <FONT style="white-space: nowrap">A-GAAP,</FONT> interest
expense is reported as a component of loss from ordinary
activities. Under US&nbsp;GAAP, interest expense is reported as
a component of non-operating income/(loss).
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(l)</B></TD>
    <TD>
    <B>Consolidated statement of comprehensive loss</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Set out below is an analysis of comprehensive income/(loss)
under <FONT style="white-space: nowrap">A-GAAP</FONT> for the
years ended 30&nbsp;June 2005, 2004 and 2003:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="57%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Years Ended 30&nbsp;June</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss in accordance with A-GAAP</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(14,726,523</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,683,205</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,765,153</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other comprehensive (loss)/income:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Foreign currency translation adjustment, net of tax of $0</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(350,287</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>77,985</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(31,765</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Comprehensive loss in accordance with A-GAAP</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(15,076,810</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,605,220</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,796,918</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B>(m)</B></TD>
    <TD>
    <B>Income tax</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company has adopted SFAS&nbsp;No.&nbsp;109 &#147;Accounting
for Income Taxes&#148; (&#147;SFAS&nbsp;109&#148;) for
US&nbsp;GAAP purposes. SFAS&nbsp;109 requires a &#147;liability
approach&#148; to accounting for income taxes, which as it
applies to the Company, is very similar to that adopted under
<FONT style="white-space: nowrap">A-GAAP.</FONT> Under
<FONT style="white-space: nowrap">A-GAAP,</FONT> the deferred
tax asset in respect of income tax losses carried forward
disclosed in Note&nbsp;5 is not recognized unless the benefit is
virtually certain of realization. Under US&nbsp;GAAP, the
benefit is not recognized unless realization is more likely than
not.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The components of
<FONT style="white-space: nowrap">A-GAAP</FONT> loss from
ordinary activities before income tax expense consisted of the
following for the years ended 30&nbsp;June 2005, 2004 and 2003:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="57%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Years Ended 30&nbsp;June</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Australia</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,590,833</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(637,675</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(855,756</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    United Kingdom</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,076,779</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,736,347</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,054,871</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Singapore</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,458,107</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,144,954</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(445,701</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(15,125,719</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,518,976</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,356,328</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">F-59

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The components of deferred tax assets and liabilities in
accordance with <FONT style="white-space: nowrap">A-GAAP</FONT>
as of 30&nbsp;June 2005 and 2004 are as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Years Ended 30&nbsp;June</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>$</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred tax assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net operating loss carryforwards</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,291,377</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,049,704</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Provision accruals</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,964</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,147</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,189</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total gross deferred tax assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,304,488</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,051,893</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred tax liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prepayments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>96,880</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,687</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net deferred tax asset</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,207,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,043,206</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Valuation allowance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(9,207,608</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,043,206</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net recorded deferred taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As at 30&nbsp;June 2005, the Company has operating loss carry
forwards of $31,945,180. Carryforwards of net operating losses
do not expire on a time basis in any of the jurisdictions in
which the Company incurs such losses. Expiration will depend on
the legislation of the countries in which losses are incurred,
and will generally be triggered by a change in control or
business activity.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>28.</B></TD>
    <TD>
    <B>Recently issued but not yet adopted US Pronouncements</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In December 2004, the Financial Accounting Standards Board
(&#147;FASB&#148;) issued SFAS&nbsp;No.&nbsp;123 (revised 2004):
&#147;Share-Based Payments&#148; (&#147;SFAS&nbsp;123R&#148;).
This statement eliminates the option to apply the intrinsic
value measurement provisions of APB&nbsp;25 to stock
compensation awards issued to directors and employees. Rather,
SFAS&nbsp;123R requires companies to measure the cost of
director, executive and employee services received in exchange
for an award of equity instruments based on the grant date fair
value of the award. That cost will be recognized over the period
during which the director, executive or employee is required to
provide services in exchange for the award&nbsp;&#151; the
requisite service period (usually the vesting period).
SFAS&nbsp;123R applies to all awards granted after the required
effective date (July&nbsp;1, 2005 for pSivida) and to awards
modified, repurchased, or cancelled after that date. As
permitted by SFAS&nbsp;123, the Company currently accounts for
share-based payments to directors, executives and employees
using APB&nbsp;25, the intrinsic value method. Accordingly, the
adoption of the SFAS&nbsp;123R fair value method may have a
significant impact on the Company&#146;s results of operations,
although it will have no impact on its overall financial
position. The full impact of the adoption of SFAS&nbsp;123R
cannot be predicted at this time, as it depends on levels of
share-based payments for future grants. However, had the Company
adopted SFAS&nbsp;123R for director, executive and employee
options in prior periods, the impact of that standard would have
approximated the pro forma impact of SFAS&nbsp;123, as disclosed
in Note&nbsp;27(a), Share-based compensation&nbsp;&#151;
<I>Options issued to directors, executives and employees.</I>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In December 2004, the FASB issued SFAS&nbsp;No.&nbsp;153:
&#147;Exchanges of Nonmonetary Assets&#148; (&#147;SFAS&nbsp;153&#148;),
which amends APB Opinion No.&nbsp;29: &#147;Accounting for
Nonmonetary Transactions&#148; to eliminate the exception for
nonmonetary exchanges of similar productive assets and replaces
it with a general exception for exchanges of nonmonetary assets
that do not
</DIV>

<P align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">F-60

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>PSIVIDA LIMITED AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>(A Development Stage Enterprise)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">
<B>In Australian Dollars (except as otherwise stated)</B>
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
have commercial substance. SFAS&nbsp;153 is effective for
nonmonetary assets exchanges occurring in fiscal periods
beginning after June&nbsp;15, 2005 (fiscal 2006 for pSivida). At
this time, management reasonably believes that the adoption of
SFAS&nbsp;153 will not have a material effect on the
consolidated entity&#146;s financial position or results of
operations.
</DIV>

<DIV align="left" style="font-size: 10pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In May 2005, the FASB issued SFAS&nbsp;No.&nbsp;154:
&#147;Accounting Changes and Error Corrections&nbsp;
(&#147;SFAS&nbsp;154&#148;), which replaces APB Opinion No. 20:
&#147;Accounting Changes&#148; and SFAS No. 3: &#147;Reporting
Accounting Changes in Interim Financial Statements&#148;. The
standard is effective for fiscal
years beginning after December&nbsp;15, 2005 (fiscal 2007 for
pSivida). SFAS&nbsp;154 changes the requirements for the
accounting for and reporting of a voluntary change in accounting
principle as well as the changes required by an accounting
pronouncement which does not include specific transition
provisions. At this time management reasonably believes that the
adoption of SFAS&nbsp;154 will not have a material effect on the
Company&#146;s financial position or results of operations.
</DIV>

<P align="center" style="font-size: 10pt;color: #000000; background: #ffffff;">F-61
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>EXHIBIT INDEX</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="94%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Exhibit</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Exhibit</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">No.</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Title</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">1.1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Constitution of pSivida Limited, dated April&nbsp;7, 2004 (b)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">2.1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Deposit Agreement, by and among pSivida Limited, Citibank, N.A. and the Holders and
Beneficial Owners of American Depositary Shares Evidenced by American Depositary Receipts
Issued Thereunder (c)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Deed Poll, dated October&nbsp;26, 2004, executed by QinetiQ (b)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Rules of the pSivida Limited Employee Share Option Plan (b)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.2</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Collaboration Agreement among pSiOncology Pte. Ltd., Singapore General Hospital Pte. Ltd.
and SGH Technology Ventures Pte. Ltd., dated July&nbsp;24, 2002 (b) (g)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.3</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Process Development and Manufacturing Agreement between pSiMedica Limited and AEA Technology
QSA GmbH, dated March&nbsp;4, 2004 (b) (g)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.4</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement among Beijing Med-Pharm Corp., pSiMedica Ltd. and pSiOncology Pte. Ltd., dated
October&nbsp;27, 2005, as amended on July 24, 2002 (g) (h)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.5</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Merger Agreement, dated October&nbsp;3, 2005, among pSivida Limited, pSivida Inc., and Control
Delivery Systems Inc. (d)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.6</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Registration Rights Agreement, between pSivida Limited and stockholders of Control
Delivery Systems, Inc., dated as of December&nbsp;30, 2005 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.7</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Securities Purchase Agreement, dated October&nbsp;5, 2005, between pSivida Limited and the
investor listed on the Schedule of Buyers attached thereto (e)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.8</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Subordinated Convertible Note in the principal amount of US$15,000,000, dated as of
November&nbsp;16, 2005 (e)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.9</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Warrant to Purchase ADRs for the purchase of up to 633,803 ADRs, dated as of
November&nbsp;16, 2005 (e)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.10</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Registration Rights Agreement, between Castelrigg Master Investments and pSivida
Limited, dated as of November&nbsp;16, 2005 (e)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.11</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Letter Agreement, dated November&nbsp;15, 2005, relating to the Securities Purchase Agreement,
dated October&nbsp;5, 2005(e)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.12</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated License Agreement, between Control Delivery Systems, Inc. and Bausch &#038;
Lomb Incorporated dated December&nbsp;9, 2003, as amended on
June&nbsp;28, 2005 (a) (i)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.13</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Collaboration Agreement, between Control Delivery Systems, Inc. and Alimera Sciences, Inc.
dated February&nbsp;11, 2005, as amended on February&nbsp;23, 2005
and May&nbsp;11, 2005 (a) (i)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.14</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">License Agreement, between the University of Kentucky Research Foundation and Control
Delivery Systems, Inc., dated as of October&nbsp;20, 1991, including
amendment (f) (i)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.15</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">License Agreement, between the University of Kentucky Research Foundation and Control
Delivery Systems, Inc., dated as of October&nbsp;31, 1995 (f) (i)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.16</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">License Agreement, between the University of Kentucky Research Foundation and Control
Delivery Systems, Inc., dated as of September&nbsp;9, 1997 (f) (i)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.17</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">License Agreement, between the University of Kentucky Research Foundation and Control
Delivery Systems, Inc., dated as of September&nbsp;9, 1997 (f) (i)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.18</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">License Agreement, the University of Kentucky Research Foundation and Control Delivery
Systems, Inc., dated as of September&nbsp;9, 1997 (f) (i)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.19</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Commercial Sublease, between Exergen Corporation, and Control Delivery Systems, Inc., dated
as of April&nbsp;6, 2005 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.20</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Control
Delivery Systems, Inc. Change of Control Agreement, between CDS and Paul Ashton, dated August&nbsp;17, 2004 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.21</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Control
Delivery Systems, Inc. Change of Control Agreement, between CDS and Michael Soja, dated August&nbsp;17, 2004 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.22</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Control
Delivery Systems, Inc. Change of Control Agreement, between CDS and Lori Freedman, dated August&nbsp;17, 2004 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.23</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Severance Agreement, between CDS and Paul Ashton, dated February&nbsp;20, 2004 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.24</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Severance Agreement, between CDS and Michael Soja, dated February&nbsp;20, 2004 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.25</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Severance Agreement, between CDS and Lori Freedman, dated February&nbsp;20, 2004 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.26</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">First Amendment to Control Delivery
Systems, Inc. Severance Agreement between CDS and Paul Ashton, dated
August&nbsp;17, 2004 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.27</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">First Amendment to Control Delivery
Systems, Inc. Severance Agreement between CDS and Michael Soja, dated
August&nbsp;17, 2004 (a)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="94%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Exhibit</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Exhibit</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">No.</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Title</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.28</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">First Amendment to Severance
Agreement between CDS and Lori Freedman, dated August&nbsp;17, 2004 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.29</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Control Delivery
Systems, Inc. Restricted Stock Award Agreement, between CDS and Paul Ashton, dated August&nbsp;16, 2004 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.30</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Control Delivery
Systems, Inc. Restricted Stock Award Agreement, between CDS and Michael Soja, dated August&nbsp;16, 2004 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Control Delivery
Systems, Inc. Restricted Stock Award Agreement, between CDS and Lori Freedman, dated August&nbsp;16, 2004 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.32</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Retention Agreement, between CDS and Paul Ashton, dated September&nbsp;29, 2005 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.33</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Retention Agreement, between CDS and Michael Soja, dated September&nbsp;29, 2005 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.34</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Retention Agreement, between CDS and Lori Freedman, dated September&nbsp;29, 2005 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.35</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Non-Competition Agreement, between pSivida Limited and Paul Ashton, dated October&nbsp;3, 2005 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.36</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Stock Option Agreements, between CDS and
Paul Ashton, dated July 10, 2002 (a)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">8.1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">List of subsidiaries (a)</TD>
</TR>

<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">12.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Executive Officer pursuant to Rule&nbsp;13a-14(a) and Rule&nbsp;15d-14(a) of the
Securities Exchange Act, as amended (a)</TD>
</TR>

<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">12.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Financial Officer pursuant to Rule&nbsp;13a-14(a) and Rule&nbsp;15d-14(a) of the
Securities Exchange Act, as amended (a)</TD>
</TR>

<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">13.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Executive Officer pursuant to 18 U.S.C. Section&nbsp;1350, as adopted
pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002 (a)</TD>
</TR>

<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">13.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Financial Officer pursuant to 18 U.S.C. Section&nbsp;1350, as adopted
pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002 (a)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">(a)</TD>
    <TD>&nbsp;</TD>
    <TD>Filed herewith.</TD>
</TR>
<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>
<TR valign="top">
    <TD nowrap align="left">(b)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to the registrant&#146;s filing on Form 20-F (Commission file number
000-51122) filed on January&nbsp;20, 2005.</TD>
</TR>
<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>
<TR valign="top">
    <TD nowrap align="left">(c)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to the registrant&#146;s filing on Form F-6 (Commission file number
333-122158) filed on January&nbsp;19, 2005.</TD>
</TR>
<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>
<TR valign="top">
    <TD nowrap align="left">(d)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to the registrant&#146;s later filing on Form F-6 (Commission file number
333-122158) filed on October&nbsp;4, 2005.</TD>
</TR>
<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>
<TR valign="top">
    <TD nowrap align="left">(e)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to the registrant&#146;s earlier filing on Form F-6 (Commission file
number 333-122158) filed on November&nbsp;15, 2005. The final versions of documents denoted as &#147;form
of&#148; have been omitted pursuant to Rule&nbsp;12b-31. Such final versions are substantially identical in
all material respects to the filed versions of such documents provided that the name of the
investor, and the investor&#146;s and/or pSivida&#146;s signature are included in the final versions.</TD>
</TR>
<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>
<TR valign="top">
    <TD nowrap align="left">(f)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Control Delivery Systems&#146; filing on Form S-1 (Commission file
number 333-51954) filed on December&nbsp;15, 2000.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>
<TR valign="top">
    <TD nowrap align="left">(g)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Beijing Med-Pharm corporations's
Filing on Post-Effective Amendment No. 3 to S-1 (Commission file
number 333-121957) filed on November&nbsp;15, 2005.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>
<TR valign="top">
    <TD nowrap align="left">(h)</TD>
    <TD>&nbsp;</TD>
    <TD>Confidential treatment has been granted for portions of this exhibit.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>
<TR valign="top">
    <TD nowrap align="left">(i)</TD>
    <TD>&nbsp;</TD>
    <TD>Confidential treatment has been requested for portions of this exhibit. An unredacted version
of this exhibit has been filed separately with the Commission.</TD>
</TR>
</TABLE>

<P align="center" style="font-size: 10pt">&nbsp;</DIV>
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.6
<SEQUENCE>2
<FILENAME>y16393exv4w6.txt
<DESCRIPTION>EX-4.6: FORM OF REGISTRATION RIGHTS AGREEMENT
<TEXT>
<PAGE>

                                                                    Exhibit 4.6
                                    FORM OF
                          REGISTRATION RIGHTS AGREEMENT

     This Registration Rights Agreement, dated as of December 30, 2005, (this
"Agreement"), is entered into by and among pSivida Limited, an Australian
corporation ("Issuer"), and the securityholders of Control Delivery Systems,
Inc., a Delaware corporation (the "Company"), named on the signature pages
hereto (each a "Holder" and collectively, the "Holders").

                                    RECITALS

     A. WHEREAS, Issuer is a party to that certain Agreement and Plan of Merger,
dated as of October 3, 2005 (the "Merger Agreement") that provides, among other
things, that (i) pSivida Inc., a Delaware corporation and a wholly-owned
subsidiary of Issuer ("Merger Subsidiary"), will be merged with and into the
Company (the "Merger") with the Company continuing as the surviving corporation
(the "Surviving Corporation"), and (ii) immediately after the Merger, Issuer
will own all of the issued and outstanding equity interests of the Surviving
Corporation.

     B. WHEREAS, subject to the terms and conditions of the Merger Agreement, at
the effective time of the Merger (the "Closing"), the Holders shall receive or
become entitled to receive American Depositary Shares of Issuer ("ADSs").

     C. WHEREAS, as a condition precedent to the consummation of the
transactions contemplated by the Merger Agreement, Issuer has agreed to grant
the Holders certain registration rights, as set forth herein, with respect to
the Registrable Securities (as defined herein).

                                    AGREEMENT

     NOW, THEREFORE, in consideration of the premises, and the mutual
representations, warranties, covenants, and agreements hereinafter set forth,
the parties hereto agree as follows:

          1. Definitions.

          (a) Each capitalized term used but not defined herein shall have the
meaning ascribed to such term in the Merger Agreement.

          (b) "Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.

          (c) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.

          (d) "Registrable Securities" means all of the ADSs issued to a Holder
pursuant to the Merger Agreement, such number and type of securities to be
equitably adjusted in the event of a stock split, stock dividend, combination,
reclassification, merger or reincorporation.

<PAGE>

          (e) "Registration Expenses" means all expenses incident to Issuer's
performance of, or compliance with, this Agreement, including, without
limitation, all registration, filing, listing and NASD fees, all fees and
expenses of complying with securities or blue sky laws, all word processing,
duplicating and printing expenses, messenger and delivery expenses, the fees and
expenses of counsel for Issuer and of its independent public accountants,
including the expenses of any special audits or "cold comfort" letters required
by or incident to such performance and compliance, but excluding underwriting
discounts and commissions, and transfer taxes, if any.

          (f) "Rule 144" shall mean Rule 144 as promulgated by the Commission
under the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.

          (g) "Rule 415" shall mean Rule 415 as promulgated by the Commission
under the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.

          (h) "Transfer" shall mean any sale, assignment, conveyance, exchange,
pledge, hypothecation, gift, disposal of or other parting with any indicia or
aspect of title, ownership or possession, including without limitation, the
withdrawal from the depositary of the underlying ordinary shares of pSivida
Limited represented by one or more ADSs.

          2. Shelf Registration Statement for Holders. Issuer shall use its
commercially reasonable efforts to prepare and file with the Commission a
"shelf" registration statement under the Securities Act for an offering to be
made on a continuous basis pursuant to Rule 415 covering, along with any other
securities that Issuer shall choose to include, all of the Registrable
Securities held by a Holder or permitted transferee or assignee pursuant to
Section 8 (the "Shelf Registration Statement"). Issuer shall use its
commercially reasonable efforts to cause the Shelf Registration Statement (a) to
become effective on or prior to one hundred eighty (180) days following the
closing of the Merger (the "Required Registration Date") and (b) to remain
effective for a period ending on the earliest to occur of (i) two (2) years from
the date of effectiveness (subject to extension for any "black-out" period
permitted by Section 6(a) or suspensions permitted by Section 3(f) hereof), or
(ii) the first date (x) on which each Holder of Registrable Securities would be
eligible to sell publicly, pursuant to Rule 144 within the volume limitations
contained in subsection (e)(1)(i) of Rule 144, 110% of the Registrable
Securities then held by such Holder, or (y) on which all Registrable Shares have
been sold (the "Registration Rights Period"). The Shelf Registration Statement
when declared effective (including the documents incorporated therein by
reference) will comply as to form with all applicable requirements of the
Securities Act and the Exchange Act. Notwithstanding the foregoing, Issuer shall
have no obligation to include any of the Registrable Securities of any Holder in
any Shelf Registration Statement pursuant to this Agreement when such Holder
would be eligible to sell publicly, pursuant to Rule 144 within the volume
limitations contained in subsection (e)(1)(i) of Rule 144, 110% of the
Registrable Securities then held by such Holder.

<PAGE>

          3. Registration Procedures - Issuer. In connection with its
obligations contained in Section 2 hereof, Issuer will, subject to the terms and
conditions of this Agreement:

          (a) subject to any "black-out" period permitted by Section 6(a),
prepare and file with the Commission such amendments and supplements to the
Shelf Registration Statement and any prospectus used in connection therewith as
may be necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement until the end of the
Registration Rights Period;

          (b) furnish to each Holder of Registrable Securities covered by the
Shelf Registration Statement such number of conformed copies of such
registration statement and of each such amendment and supplement thereto (in
each case including all exhibits), such number of copies of the prospectus
contained in such registration statement (including each preliminary prospectus
and any summary prospectus) and any other prospectus filed under Rule 424 under
the Securities Act, in conformity with the requirements of the Securities Act,
and such other documents, in each case, as such Holder may reasonably request;

          (c) use its commercially reasonable efforts to register or qualify,
prior to the effective date of such registration, all Registrable Securities
covered by the Shelf Registration Statement under such securities or blue sky
laws of such jurisdictions as each Holder thereof shall reasonably request, to
keep such registration or qualification in effect for so long as such
registration statement remains in effect, and take any other action which may be
reasonably necessary or advisable to enable such Holder to consummate the
disposition in such jurisdictions of the securities owned by such Holder, except
that Issuer shall not for any such purpose be required to: (i) qualify generally
to do business as a foreign corporation in any jurisdiction wherein it would not
but for the requirements of this Section 3(c) be obligated to be so qualified,
(ii) subject itself to taxation in any such jurisdiction, or (iii) consent to
general service of process in any such jurisdiction;

          (d) use its commercially reasonable efforts to obtain all legal
opinions and auditors' consents as may be required by applicable law.

          (e) use its commercially reasonable efforts to cause, prior to the
effective date of the Shelf Registration Statement, all Registrable Securities
covered by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
Holder or Holders thereof to consummate the disposition of such Registrable
Securities;

          (f) (i) immediately notify each Holder of Registrable Securities
covered by the Shelf Registration Statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event or the existence of any condition as a result of which
the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which they were made, or,
if in the opinion of counsel for Issuer, it is necessary to supplement or amend
such prospectus to comply with law and, after such notice,

<PAGE>

(ii) except for periods described in Section 6 hereof or the time period for
filing with the Commission information referred to in Section 3(a) hereof has
not expired, promptly prepare and furnish to each Holder a supplement or
amendment to such prospectus or otherwise update such prospectus so that such
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading. The Issuer will extend the Registration
Rights Period by the number of days during the period from and including the
date of giving such notice to and including the date when the Holders shall have
received copies of the revised prospectus;

          (g) use its best efforts to list or admit all Registrable Securities
covered by such registration statement on any securities exchange on which any
of the Registrable Securities are then listed or any other trading market on
which any of the Registrable Securities are then admitted for trading; and
provide and cause to be maintained a depositary for all Registrable Securities;
and

          (h) pay all Registration Expenses relating to any such registration.

          4. Failure to Register. In addition to any other remedies available to
Holders under this Agreement or at law or equity, if no Shelf Registration
Statement has been declared effective by the Required Registration Date or such
Shelf Registration Statement is not available with respect to all Registrable
Securities at any time on or after the Required Registration Date and during the
Registration Rights Period (except during any "black-out" period permitted by
Section 6(a) or any suspension permitted by Section 3(f) hereof) the Issuer
shall cause to be wire transferred to an account specified by each Holder on the
last business day of each month an amount, in immediately available United
States funds, equal to:

               1/30% x ND x MV

               Where:

               ND = the number of days in such month that the Shelf Registration
                    Statement has not been declared effective by the Required
                    Registration Date or the Shelf Registration Statement is not
                    available with respect to Registrable Securities that Issuer
                    is then required to register pursuant to Section 2 or that
                    may not otherwise be sold by such Holder immediately
                    pursuant to Rule 144 without compliance with the
                    registration requirements of the Securities Act ("Non-Rule
                    144 Stock"); and

               MV = the average of the closing price of Parent ADSs on The
                    Nasdaq National Market for each of the ten (10) trading days
                    ending on the trading day that is four (4) full trading days
                    prior to the Closing Date of the Merger multiplied by the
                    average number of shares of Non-Rule 144 Stock held by
                    Holders on each of the days included in "ND" above.

<PAGE>

          5. Registration Procedures - Holders. Each Holder of Registrable
Securities agrees as follows:

          (a) that upon receipt of any notice from Issuer of the happening of
any event of the kind described in Section 3(f), such Holder will forthwith
discontinue such Holder's disposition of Registrable Securities pursuant to the
registration statement relating to such Registrable Securities until such
Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 3(f) and, if so directed by Issuer, will deliver to
Issuer all copies, other than permanent file copies, then in such Holder's
possession of the prospectus relating to such Registrable Securities current at
the time of receipt of such notice, and

          (b) that it will immediately notify Issuer, at any time when a
prospectus relating to the registration of such Registrable Securities is
required to be delivered under the Securities Act, of the happening of any event
as a result of which information previously furnished by such Holder to Issuer
in writing for inclusion in such prospectus contains an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances under which they were made.

          6. Black-Out Periods for Holders; Standstill.

          (a) No Holder shall offer to sell or sell any Registrable Securities
pursuant to the Shelf Registration Statement, and Issuer shall not be required
to supplement or amend any Registration Statement or otherwise facilitate the
sale of Registrable Securities pursuant thereto, during the 30-day period (or
such lesser number of days until Issuer makes a relevant public disclosure or
otherwise gives Holders notice of the termination of such period) immediately
following the receipt by each Holder of a certificate of an authorized officer
of Issuer to the effect that Issuer has determined in good faith that such
offer, sale, supplement or amendment is likely to (i) interfere with or have a
detrimental effect on the negotiation or completion of any material transaction
that is being contemplated by Issuer (whether or not a final decision has been
made to undertake such transaction) at the time the right to delay is exercised,
or (ii) involve initial or continuing disclosure obligations that are likely to
have a detrimental effect on the Issuer or its stockholders. Any period
described in this Section 6(a) during which Holders are not able to sell shares
of Registrable Securities pursuant to the Shelf Registration Statement is herein
referred to as a "black-out" period. Issuer shall notify each Holder of the
expiration or earlier termination of any "black-out" period (the nature and
pendency of which need not be disclosed during such "black-out" period). The
Issuer may exercise the rights provided by this Section 6(a) with respect to no
more than an aggregate of sixty (60) days within any 365-day period; provided,
(x) that no "black-out" period shall exceed thirty (30) consecutive days and (y)
that the Issuer may not exercise the rights provided by this Section 6(a) for
more than an aggregate of thirty (30) days within the first six months following
the effectiveness of the Shelf Registration Statement.

          (b) No Holder shall offer to sell or Transfer any Registrable
Securities, pursuant to the Shelf Registration Statement or otherwise, during
the six (6) month period immediately following the Closing. Notwithstanding the
foregoing, a Holder may transfer Registrable Securities during such period (i)
as a bona fide gift or gifts, provided that the donee or donees

<PAGE>

thereof agree to be bound in writing by the restrictions set forth herein, (ii)
to any trust for the direct or indirect benefit of the Holder or the immediate
family of Holder, provided that the trustee of the trust agrees to be bound in
writing by the restrictions set forth herein, and provided further that any such
transfer shall not involve a disposition for value, or (iii) to an Affiliate,
partner, member or stockholder of the Holder or, with respect to any Holder that
is an institutional investor, to another institutional investor under common
management with such Holder, provided that the transferee agrees to be bound in
writing by the restrictions set forth herein, or (iv) with the prior written
consent of Issuer.

          (c) No Holder shall offer to sell or Transfer any of any of the
ordinary shares underlying the Registrable Securities (other than to an
Affiliate, partner, member or stockholder of the Holder or to an institutional
investor under common management with such Holder in compliance with the terms
of Section 8 herein), including through trading on the Australian Stock
Exchange, at any time prior to the earlier of: (a) the Issuer's subsequent
lodgement with the Australian Securities and Investments Commission of a
prospectus under the Corporations Act for fully paid ordinary shares of the
Issuer (such prospectus incorporating the Shelf Registration Statement or
extracts of the Shelf Registration Statement as deemed appropriate by the
Issuer); or (b) the date which is 12 months after the closing of the Merger. The
Issuer shall, on or prior to the Required Registration Date lodge such
prospectus.

          (d) Each Holder hereby agrees that, at the request of and for the
benefit of the underwriter or underwriters of any underwritten public offering
of ADSs or other securities of the Issuer for the account of the Issuer, for a
period beginning seven days immediately preceding and ending not more than
ninety (90) days following the effective date of the registration statement used
in such offering, such Holder will not offer, sell, contract to sell, pledge, or
otherwise dispose of, directly or indirectly, any ADSs or securities convertible
into or exchangeable or exercisable for any ADSs (other than any transfers of a
Holder to any Affiliate, partner, member or stockholder of such Holder (each of
whom shall have furnished to the Issuer and the underwriters its written consent
to be bound by the terms of this Agreement pursuant to Section 8)), enter into a
transaction which would have the same effect, or enter into any swap, hedge or
other arrangement that transfers, in whole or in part, any of the economic
consequences of ownership of the ADSs, whether any such aforementioned
transaction is to be settled by delivery of the ADSs or such other securities,
in cash or otherwise, or publicly disclose the intention to make any such offer,
sale, pledge or disposition, or to enter into any such transaction, swap, hedge
or other arrangement, without, in each case, the prior written consent of such
underwriter or underwriters; provided, however, that such Holder is at the time
of such public offering an officer or director of the Issuer or is the holder of
more than 5% of the outstanding capital stock of Issuer and that all officers
and directors and all holders of more than 5% of the outstanding capital stock
of the Issuer enter into lock-up agreements with such underwriter or
underwriters for the same period and on the same terms.

          7. Indemnification.

          (a) Indemnification by Issuer. Issuer will, and hereby does, to the
full extent permitted by law indemnify and hold harmless each participating
Holder of any Registrable Securities covered by any registration statement filed
pursuant to Section 2 hereof, from and against any losses, claims, damages or
liabilities, joint or several (or actions or proceedings,

<PAGE>

whether commenced or threatened, in respect thereof, whether or not such Holder
is a party thereto, and including reasonable costs of investigation and legal
expenses) (collectively, "Claims"), to which such Holder may become subject
under the Securities Act or otherwise, insofar as such Claims arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto (if used during the period Issuer is required to keep the
registration statement current) or any documents incorporated therein
(collectively, "Registration Documents"), or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading (in the case of a prospectus or
preliminary prospectus, in light of the circumstances in which they were made),
and Issuer will reimburse such Holder for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such Claim; provided, however, that Issuer shall not be liable in any such case
to the extent that any such Claim or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in any such Registration Document in reliance upon and in conformity with
written information furnished to Issuer by such Holder for use in the
preparation thereof. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Holder and shall
survive the Transfer of such securities by such Holder.

          (b) Indemnification by the Holders. Each Holder will, if Registrable
Securities held by such Holder are included in any registration statement filed
pursuant to Section 2 hereof, indemnify the Issuer, each of its directors,
officers, legal counsel, and accountants, each Holder and each of their
officers, directors and partners, and each person controlling such Holder (to
the extent such Holder's Registrable Securities were included in such
registration), against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Issuer, its directors, officers, partners, legal counsel, and accountants,
the Holders, or control persons, for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability, or action, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement, prospectus, offering
circular or other document in reliance upon and in conformity with written
information furnished to the Issuer by such Holder and stated to be specifically
for use therein; provided, however, that the obligations of such Holder
hereunder will be limited to an amount equal to the net proceeds to such Holder
(after deducting any underwriter's discounts and commissions and all other
expenses paid by such Holder in connection with the registration in question)
and shall not apply to amounts paid in settlement of any such claims, losses,
damages or liabilities (or actions in respect thereof) if such settlement is
effected without the consent of such Holder (which consent shall not be
unreasonably withheld).

          (c) Notices of Claims, etc. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
Claim referred to in the preceding subdivisions of this Section 7, such
indemnified party will, if a claim in respect thereof

<PAGE>

is to be made against an indemnifying party, give written notice to the latter
of the commencement of such action; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding subdivisions of this
Section 7, except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such action is brought
against an indemnified party, the indemnifying party shall be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall consent to entry of any judgment or
enter into any settlement of any pending or threatened proceeding in respect of
which an indemnified party is or could have been a party and indemnity could
have been sought under Section 7(a) without the consent of the indemnified party
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect to such claim or litigation.

          8. Transfer or Assignment of Registration Rights. The rights and
obligations provided by this Agreement may be transferred or assigned by any
Holder in connection with the transfer of such Holder's Registrable Securities
to an Affiliate, partner, member or stockholder of such Holder or, with respect
to any Holder that is an institutional investor, to another institutional
investor under common management with such Holder, and any such transferee shall
be deemed a Holder hereunder; provided that no Holder may assign its rights
hereunder unless (i) its proposed assignee assumes all of the obligations of
such Holder hereunder and (ii) Issuer is given written notice prior to any said
transfer or assignment, containing the name and address of any such transferee.

          9. Sales Pursuant to Rule 144. Each of the parties hereto acknowledges
that the registration benefits provided in this Agreement will not affect the
ability of the Holders to sell Registrable Securities pursuant to Rule 144
rather than pursuant to the Shelf Registration Statement.

          10. Reports under the Exchange Act. With a view to making available to
the Holders the benefits of Rule 144 promulgated under the Securities Act and
any other rule or regulation of the Commission that may at any time permit such
Holder to sell securities of the Issuer to the public without registration and
with a view to making it possible for Holders to register the Registrable
Securities pursuant to a registration statement on Form S-3 or Form F-3, as
applicable, the Issuer agrees to use its commercially reasonable efforts to:

          (a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;

          (b) file with the Commission in a timely manner all reports and other
documents required of the Issuer under the Securities Act and the Exchange Act;
and

          (c) furnish to any Holder promptly upon request, to the extent
necessary in order to enable such Holder to avail itself of any rule or
regulation of the Commission that permits the

<PAGE>

selling of any such securities without registration, a written statement by the
Issuer as to its compliance with the reporting requirements of Rule 144 (at any
time after the termination of the trading restrictions contained in Section
6(b)), the Securities Act and the Exchange Act (at any time after it has become
subject to such reporting requirements), or as to its qualification as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies).

          11. Termination of Registration Obligation. Any and all other
provisions of this Agreement notwithstanding, in the event that the Issuer
becomes a domestic U.S. issuer and as part of such transaction issues to all
Holders securities in consideration of the Registrable Securities (the
"Equivalent Securities") in a transaction that is registered under the
Securities Act such that the Equivalent Securities are freely tradable under the
Securities Act, then this Agreement will terminate upon the issuance of such
registered Equivalent Securities and the rights and obligations of all parties
hereunder shall cease, provided that any payment obligations then owing under
Sections 3(h), 4 or 7 of this Agreement shall not be affected by such
termination and such provisions shall remain in full force and effect with
respect to such accrued obligations.

          12. Notices. All notices, requests, demands, claims and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given (a) if
personally delivered, when so delivered, (b) if mailed, three (3) business days
after having been sent by registered or certified mail, return receipt
requested, postage prepaid and addressed to the intended recipient as set forth
below, (c) if given by telex or telecopier, once such notice or other
communication is transmitted to the telex or telecopier number specified below
and the appropriate answer back or telephonic confirmation is received, provided
that such notice or other communication is promptly thereafter mailed in
accordance with the provisions of clause (b) above, or (d) if sent through an
overnight delivery service in circumstances in which such service guarantees
next day delivery, the day following being so sent:

               (i) If to Issuer:

               pSivida Limited
               Level 12, BGC Centre
               28 The Esplanade, Perth
               WA 6000 Australia
               GPO Box 2535
               Perth, WA 6831
               Attention: Gavin Rezos
               Facsimile No.: +61 8 9226 5499

               with a copy (which shall not constitute notice) to Parent's
               Counsel:
               Curtis, Mallet-Prevost, Colt & Mosle LLP
               101 Park Avenue
               New York, NY 10178
               Attention: Lawrence Goodman, Esq.
               Facsimile No.: (212) 697-1559

<PAGE>

               (ii) If to Holders:

               To the address set forth on the signature pages hereto.

     In the event that any of the Holders identified in this Agreement transfers
Registrable Securities to a new Holder in accordance with Section 8 above,
Issuer may provide notice to such Holder through notifying the original Holder
identified herein. Any party may give any notice, request, demand, claim or
other communication hereunder using any other means (including ordinary mail or
electronic mail), but no such notice, request, demand, claim or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any party may
change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other parties notice
in the manner herein set forth.

          13. Amendments. No change or modification of this Agreement or waiver
of any provision hereof shall be valid, binding or enforceable as against (a)
Issuer, unless the same shall be in writing and signed by Issuer, and (b) any
Holder, unless the same shall be in writing and signed by Holders who own, in
the aggregate, at least fifty per cent (50%) of the total number of Registrable
Securities that Issuer is then required to register pursuant to Section 2 hereof
at the time of such amendment; provided, however, that any such amendment or
waiver that affects one Holder in a way that is materially adverse to such
Holder relative to all other Holders cannot be effected without the written
consent of such Holder and no additional or expanded obligations may be imposed
on any Holder without the consent of such Holder.

          14. No Waivers. No waiver by a party of any default, misrepresentation
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent occurrence. No failure or delay by a party
in exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law.

          15. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns, provided that no registration rights will be transferred
other than in accordance with Section 8 hereof.

          16. Governing Law. This Agreement shall be construed in accordance
with and governed by the internal laws of the State of New York.

          17. Counterparts. This Agreement may be signed in any number of
counterparts and the signatures delivered by telecopy, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument.

          18. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements, understandings and negotiations, both written and oral,
between the parties with respect to the

<PAGE>

subject matter of this Agreement. Neither this Agreement nor any provision
hereof is intended to confer upon any person other than the parties hereto any
rights or remedies hereunder.

          19. Captions. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof. All references to an Article or Section include all subparts thereof.

          20. Severability. If any provision of this Agreement, or the
application thereof to any person, place or circumstance, shall be held by a
court of competent jurisdiction to be invalid, unenforceable or void, the
remainder of this Agreement and such provisions as applied to other persons,
places and circumstances shall remain in full force and effect only if, after
excluding the portion deemed to be unenforceable, the remaining terms shall
provide for the consummation of the transactions contemplated hereby in
substantially the same manner as originally set forth at the later of the date
this Agreement was executed or last amended.

          21. Third Party Beneficiaries. No provision of this Agreement shall
create any third party beneficiary rights in any person.

                            [Signature pages follow.]

<PAGE>

          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.

                                        ISSUER

                                        PSIVIDA LIMITED


                                        By: /s/ Gavin Rezos
                                            ------------------------------------
                                        Name: Gavin Rezos
                                        Title: Chief Executive Officer and
                                               Managing Director


                                        By: /s/ Aaron Finlay
                                            ------------------------------------
                                        Name: Aaron Finlay
                                        Title: Chief Financial Officer and
                                               Company Secretary

<PAGE>

                             HOLDERS' SIGNATURE PAGE

                                     TO THE

                          REGISTRATION RIGHTS AGREEMENT

     EXECUTED this _______ day of ____________, 2006


SIGN HERE: X
             ------------------------   ----------------------------------------
                                        Exact Number of Registrable Securities

-------------------------------------   ----------------------------------------
Print name exactly as it should         Enter number of ADSs of pSivida Limited
appear in the Shelf Registration        (other than Registrable Securities) that
Statement                               you own.

IF AN ENTITY, ADD:

                                        Have you or your organization had any
By:                                     position, office or other material
    ---------------------------------   relationship within the past three (3)
Title:                                  years with pSivida Limited or its
       ------------------------------   affiliates? Check one:

                                        [ ] Yes

ALL HOLDERS:                            [ ] No

Address: ____________________________   If "Yes" please describe: ______________

_____________________________________   ________________________________________

_____________________________________   ________________________________________

Fax: ________________________________
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.12
<SEQUENCE>3
<FILENAME>y16393exv4w12.txt
<DESCRIPTION>EX-4.12: AMENDED AND RESTATED LICENSE AGREEMENT
<TEXT>
<PAGE>

                                                                    EXHIBIT 4.12

                                                                  EXECUTION COPY


[*] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                              AMENDED AND RESTATED

                                LICENSE AGREEMENT

                                     BETWEEN

                         CONTROL DELIVERY SYSTEMS, INC.

                                       AND

                           BAUSCH & LOMB INCORPORATED

  THIS AGREEMENT IS CONFIDENTIAL AND SHALL NOT BE DISCLOSED TO ANY THIRD PARTY
    EXCEPT IN ACCORDANCE WITH THE PROCEDURES SPECIFIED IN ARTICLE 32 HEREOF.

                         Dated as of December 9th, 2003

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                             Page
                                                                                                             ----
<S>                                                                                                          <C>
Article 1. Definitions:..................................................................................       1

        1.1     Active Commercialization or Actively Commercializing.....................................       1
        1.2     Affiliate................................................................................       1
        1.3     Amendment Date...........................................................................       2
        1.4     ANDA.....................................................................................       2
        1.5     ARMD.....................................................................................       2
        1.6     Base Royalty.............................................................................       2
        1.7     Clinical IP..............................................................................       2
        1.8     Commercialize, Commercializing or Commercialization......................................       2
        1.8A    Co-Owned Patents.........................................................................       2
        1.9     Confidential Information.................................................................       2
        1.10    Develop, Developing or Development.......................................................       2
        1.11    DME......................................................................................       2
        1.12    DR.......................................................................................       2
        1.13    Eligible Licensed Product................................................................       3
        1.14    First Generation Exclusive Licensed Product..............................................       3
        1.15    FDA......................................................................................       3
        1.16    Generic Product..........................................................................       3
        1.17    Improvement..............................................................................       3
        1.18    IND......................................................................................       3
        1.19    Invention................................................................................       3
        1.20    Issued Patent Claim......................................................................       3
        1.21    Know-how.................................................................................       3
        1.22    Licensed Field...........................................................................       3
        1.23    Licensed Patents.........................................................................       3
        1.24    Licensed Product.........................................................................       4
        1.25    Licensed Territory.......................................................................       4
        1.26    Licensee Improvement.....................................................................       4
        1.27    Licensee Improvement Application.........................................................       4
        1.28    Licensee Improvement Patent..............................................................       4
        1.29    Licensor Improvement Product.............................................................       4
        1.29A   Licensor Improvement.....................................................................       4
        1.29B   Licensor Improvement Patents.............................................................       5
        1.30    Milestone Payment........................................................................       5
        1.31    NDA......................................................................................       5
        1.32    Net Sales................................................................................       5
        1.33    Non-Exclusive Licensed Product...........................................................       5
        1.34    Original Effective Date..................................................................       6
        1.35    Other Technology.........................................................................       6
        1.36    Patent Rights............................................................................       6
        1.37    Person...................................................................................       6
        1.38    Regulatory Approval......................................................................       6
        1.39    Right of Access to Clinical IP...........................................................       6
</TABLE>

<PAGE>

<TABLE>
<S>                                                                                                           <C>
        1.40    Sublicense...............................................................................       6
        1.41    Sublicensee..............................................................................       6
        1.42    Target Market............................................................................       6
        1.43    Term of this Agreement...................................................................       6
        1.44    Third Party Licensed Product.............................................................       7
        1.45    Total Relevant Sales.....................................................................       7
        1.46    UKRF.....................................................................................       7
        1.47    UKRF Licenses............................................................................       7
        1.48    Uveitis Base Royalty Product.............................................................       7
        1.49    Uveitis Product..........................................................................       7
        1.50    Valid Claim..............................................................................       7
        1.51    Vitrasert Licensed Product...............................................................       7

Article 2. Granting Clause:..............................................................................       8

        2.1     License Grant............................................................................       8
        2.2     Sublicensing.............................................................................       8
        2.3     Non-suit.................................................................................       9
        2.4     Non-assert of Know-how...................................................................      10
        2.5     Non-Compete..............................................................................      10
         (a)    Non-Compete for Uveitis Product..........................................................      10
         (b)    Non-Compete for First Generation Exclusive License Product...............................     101
        2.6     Licensor Disclosure of Inventions........................................................      12
        2.7     Licensee Disclosure of Inventions........................................................      12
        2.8     Co-Owned Patents.........................................................................      13
        2.9     Licensee Non-suit........................................................................      13
        2.10    Licensee Covenant Not to File............................................................      13
        2.11    Frustration Regarding Vitrasert Product..................................................      13

Article 3. Royalties and Repayment Obligations...........................................................      13

        3.1     Running Royalties........................................................................      13
        3.2     Royalty Step-Down for Generic Competition................................................      15
        3.3     Royalties Payable Only Once..............................................................      16
        3.4     Timing of Royalty Payments...............................................................      16
        3.5     Withholding Taxes........................................................................      16
        3.6     Intentionally Omitted....................................................................      16
        3.7     Repayment of Advanced Amount.............................................................      16
        3.8     Royalty Calculation......................................................................      18

Article 4. License and Maintenance Fees..................................................................      18

        4.1     License and Maintenance Fees.............................................................      18

Article 5. Development of Licensed Products..............................................................      18

        5.1     Joint Diligence Obligation...............................................................      18
        5.2     Licensee's General Diligence Obligations.................................................      18
        5.3     (a) Licensee's Specific Diligence Obligations - Uveitis..................................      18
        5.3     (b) Licensee's Specific Diligence Obligations - Other First Generation
                Exclusive Licensed Product...............................................................      18
</TABLE>

<PAGE>

<TABLE>
<S>                                                                                                            <C>
        5.4     Licensee's Specific Diligence Obligations - Non-Exclusive Licensed Products..............      19
        5.5     Failure to Comply with Diligence Obligations.............................................      19

Article 6. Marketing Obligations.........................................................................      19

Article 7. Reporting and Accounting Provisions:..........................................................      20

        7.1     Royalty Report...........................................................................      20
        7.2     Record Keeping by Licensee...............................................................      20
        7.3     Termination Report.......................................................................      20

Article 8. Ownership:....................................................................................      21

        8.1     Ownership................................................................................      21
        8.2     Inventorship.............................................................................      21
        8.3     Licensee Improvements....................................................................      21

Article 9. Filing and Maintenance of Patents:............................................................      23

Article 10. Enforcement of Intellectual Property Rights:.................................................      24

        10.1    Notice to Licensor.......................................................................      24
        10.2    Right to Bring Suit - Licensor; Settlement...............................................      24
        10.3    Right to Bring Suit - Licensee...........................................................      24
        10.4    UKRF.....................................................................................      25
        10.5    Expense..................................................................................      25

Article 11. Term; Termination:...........................................................................      27

        11.1    Expiration of Royalty Obligations........................................................      27
        11.2    Term.....................................................................................      27
        11.3    Termination by Licensor..................................................................      27
        11.4    Termination by Licensee..................................................................      28
        11.5    Bankruptcy...............................................................................      29
        11.6    Effect of Termination....................................................................      29
        11.7    Grant Back...............................................................................      29

Article 12. Ownership of Clinical IP:....................................................................      30

        12.1    Clinical IP Outside Licensees License Rights.............................................      30
        12.2    Clinical IP-Cooperation..................................................................      30

Article 13. University of Kentucky Research Foundation Licenses:.........................................      30

Article 14. Indemnification:.............................................................................      31

        14.1    Indemnification of Licensee..............................................................      31
        14.2    Indemnification of Licensor..............................................................      31
        14.3    Limitation of Liability..................................................................      32
        14.4    Procedure for Indemnification............................................................      32
        14.5    Insurance................................................................................      32

Article 15. Trademarks:..................................................................................      32

Article 16. Representations and Warranties:..............................................................      33

        16.1    Representations and Warranties of Both Parties...........................................      33
</TABLE>

<PAGE>

<TABLE>
<S>                                                                                                            <C>
        16.2    Representations and Warranties of Licensor...............................................      33

Article 17. Warranty Disclaimer:.........................................................................      34

Article 18. Operations in Compliance with Law:...........................................................      35

Article 19. Infringement of Third Party's Patents:.......................................................      35

Article 20. Force Majeure:...............................................................................      37

Article 21. Choice of Law/Forum:.........................................................................      37

Article 22. Dispute Resolution:..........................................................................      37

Article 23. Notices:.....................................................................................      38

Article 24. Merger Clause:...............................................................................      39

Article 25. Integration Clause:..........................................................................      39

Article 26. Severability Clause:.........................................................................      39

Article 27. No Waiver:...................................................................................      40

Article 28. Transferability of Rights and Obligations:...................................................      40

Article 29. Patent Marking:..............................................................................      40

Article 30. Publicity:...................................................................................      40

Article 31. Independent Contractors:.....................................................................      40

Article 32. Confidentiality:.............................................................................      40

        32.1    Confidentiality..........................................................................      40
        32.2    External Disclosure......................................................................      41

Article 33. Relinquishment:..............................................................................      42

        33.1    UKRF Letter Agreement....................................................................      42
        33.2    Covenant Not to Compete..................................................................      42

Article 34. No Limit to Remedies:........................................................................      42

Article 35. Counterparts:................................................................................      42

Article 36. Transition Obligations:......................................................................      42

        36.1    Clinical/Trial Agreements................................................................      42
        36.2    Clinical Activities Data.................................................................      43
        36.3    Transition Space.........................................................................      43
        36.4    Insurance................................................................................      43
</TABLE>

<PAGE>

EXHIBITS
--------
Exhibit 1.14         -    First Generation Exclusive Licensed Product
                          Specifications/Drawings
Exhibit 1.23(a)      -    Licensed Patents, Patent Applications and IDFs
Exhibit 1.23(b)      -    Excluded Patents, Patent Applications and IDFs
Exhibit 1.33         -    Non-Exclusive Licensed Product
Exhibit 1.47         -    UKRF Licenses
Exhibit 2.3          -    Non-Suit Excluded Patents, Patent Applications and
                          IDFs
Exhibit 2.8          -    Licensee Patents
Exhibit 2.9          -    Licensee Non-suit
Exhibit 2.10         -    Licensee IDFs; Covenant Not to File
Exhibit 3.7.3        -    Form of Option
Exhibit 3.7.4        -    Form of Promissory Note
Exhibit 4.1          -    Milestone Payments
Exhibit 5.3          -    Due Diligence Obligations for First Generation
                          Exclusive Licensed Products (Non-Uveitis Indications)
Exhibit 5.4          -    Due Diligence Obligations for Non-Exclusive Licensed
                          Products
Exhibit 16.1(vi)     -    Litigation, Proceedings, Governmental Investigations
Exhibit 16.2(iii)    -    Exceptions to Ownership of Licensed Patents
Exhibit 16.2(v)      -    Licensor Disclosees
Exhibit 36.1A        -    Clinical Agreements
Exhibit 36.1B        -    Trial Agreements
<PAGE>

                     AMENDED AND RESTATED LICENSE AGREEMENT

THIS AMENDED AND RESTATED LICENSE AGREEMENT ("Agreement"), effective as of the
9th day of December, 2003 (the "Amendment Date"), is made between Control
Delivery Systems, Inc., a corporation organized and existing under the laws of
the State of Delaware and having its principal place of business at 400 Pleasant
Street, Watertown, Massachusetts 02472-2234 ("Licensor") and Bausch & Lomb
Incorporated, a corporation organized and existing under the laws of the State
of New York and having its principal place of business at One Bausch & Lomb
Place, Rochester, New York 14604 ("Licensee"). Collectively, Licensor and
Licensee are "Parties" and, individually, a "Party."

                                    RECITALS

WHEREAS, the Parties have entered into, and performed in part under, the License
Agreement between Licensor and Licensee, dated June 9, 1999, as amended January
1, 2001, December 31, 2001, and April 14, 2003 (the "1999 Agreement"), and the
License and Development Agreement dated December 31, 1992, between Licensor and
Licensee, as the assignee of ChironVision Corporation (formerly Chiron
IntraOptics, Inc.) ("Chiron"), as amended August 16, 1993, March 30, 1995, June
23, 1995, and December 31, 1997 (the "Vitrasert Agreement"); and

WHEREAS, the Parties have determined to change, in part, the nature of their
relationship with respect to the development, manufacturing and licensing of
products under the 1999 Agreement and with respect to intellectual property
rights and other matters reflected in this Agreement; and

WHEREAS, the Parties wish to amend and restate their intentions into a single
agreement, all to effect the foregoing changes.

NOW THEREFORE, in consideration of the mutual promises set forth below, the
Parties agree as follows:

ARTICLE 1. DEFINITIONS:

In addition to the terms defined elsewhere in this Agreement, the following
terms shall have their associated meanings.

   1.1 Active Commercialization or Actively Commercializing. "Active
   Commercialization" and "Actively Commercializing" means: (a) Licensee
   diligently conducting clinical trials for Uveitis Base Royalty Product; or
   (b) with respect to a Uveitis Base Royalty Product for which clinical trials
   are complete, Licensee diligently obtaining Regulatory Approval; or (c) with
   respect to a Uveitis Base Royalty Product that has received Regulatory
   Approval in one or more markets, Licensee diligently Commercializing such
   product in such markets; all in active furtherance of Licensee's diligence
   obligations pursuant to Articles 5 and 6 of this Agreement.

   1.2 Affiliate. "Affiliate" of any Party means any Person that is controlled
   by, controls, or is under common control with such Party, for so long as such
   control relationship continues to exist. "Control" as used in this definition
   means the possession, directly or indirectly, of the

<PAGE>

   power to direct or cause the direction of the management of a Person, whether
   through ownership of voting securities, by contract, or otherwise.

   1.3 Amendment Date. "Amendment Date" shall mean December 9th, 2003.

   1.4 ANDA. "ANDA" means an Abbreviated New Drug Application and all associated
   documents and components thereof, required to be filed with the FDA in order
   to obtain approval to market a particular product in the United States.

   1.5 ARMD. "ARMD" means age-related macular degeneration.

   1.6 Base Royalty. "Base Royalty" means a running royalty rate of [*] of Net
   Sales, provided that, as set forth in Section 3.8, the  amount of royalties
   due and owing pursuant to Section 3 shall be subject to Licensee's right of
   recoupment as follows: if the Advanced Amount has not been fully repaid by
   Licensor to Licensee as required hereunder, the amount of any royalties that
   might otherwise be due and owing from Licensee to Licensor under this
   Agreement shall in all instances be the amount determined in accordance with
   Article 3, less the Unpaid Advanced Amount at the time of such determination.

   1.7 Clinical IP. "Clinical IP" means (i) all pre-clinical and clinical
   protocols, studies, data and results and study-related forms, materials and
   reports (e.g., investigator brochures, informed consent forms, data safety
   monitoring board related documents, patient recruitment related materials,
   biocompatibility studies, animal studies, safety studies, and chemistry,
   manufacturing and control data) used in or resulting from any pre-clinical or
   clinical study or trial and any audits of any pre-clinical or clinical study
   or trial of any First Generation Exclusive Licensed Product or the Vitrasert
   Licensed Product in the Licensed Field, and (ii) all INDs, NDAs, any unfiled
   applications, components or materials normally associated with an IND or NDA,
   regulatory filings or applications comparable to INDs or NDAs in any foreign
   jurisdictions, and other regulatory applications and approvals regarding any
   First Generation Exclusive Licensed Product or the Vitrasert Licensed Product
   in the Licensed Field.

   1.8 Commercialize, Commercializing or Commercialization. "Commercialize",
   "Commercializing" or "Commercialization" means the sale, offering for sale,
   distribution, or marketing, of a product.

   1.8A Co-Owned Patents. "Co-Owned Patents" is defined in Section 2.8 of this
   Agreement.

   1.9 Confidential Information. "Confidential Information" is defined in
   Article 32 of this Agreement.

   1.10 Develop, Developing or Development. "Develop", "Developing" or
   "Development" means performance of human clinical trials for a product.

   1.11 DME. "DME" means diabetic macular edema.

   1.12 DR. "DR" means diabetic retinopathy.

   [*] - INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
   TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH
   THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND
   EXCHANGE ACT OF 1934, AS AMENDED.

                                      -2-

<PAGE>

   1.13 Eligible Licensed Product. "Eligible Licensed Product" is defined in
   Section 3.2 of this Agreement.

   1.14 First Generation Exclusive Licensed Product. "First Generation Exclusive
   Licensed Product" shall mean a product, other than the Vitrasert Licensed
   Product, that is an implant that is required to be surgically inserted
   through an incision of at least 2 mm (and which cannot be inserted through an
   incision of less than 2 mm) in the scelera into the vitreous, is secured in
   the posterior of the eye, cannot be injected, and uses a reservoir design
   that generally conforms to the drawings and specifications (and any prior
   iterations thereof in whole or in part) shown in Exhibit 1.14. An example of
   such a design is that which is currently used in clinical trial #005 and #002
   for DME and clinical trial #001 for Uveitis.

   1.15 FDA. "FDA" means the United States Food and Drug Administration.

   1.16 Generic Product. "Generic Product" is defined in Section 3.2 of this
   Agreement.

   1.17 Improvement. "Improvement" means any Invention which is a development,
   enhancement, improvement, invention, modification, derivative or new use of a
   Licensed Product, [*].

   1.18 IND. "IND" means an Investigational New Drug Application and associated
   documents, components thereof, or corresponding applications and associated
   documents for devices or combination products, required to be filed with the
   FDA in order to obtain approval to commence human clinical trials of product
   in the United States.

   1.19 Invention. "Invention" shall mean any invention or discovery.

   1.20 Issued Patent Claim. "Issued Patent Claim" is defined in Section 1.50 of
   this Agreement.

   1.21 Know-how. "Know-how" means unpatented information, whether or not
   patentable, including, without limitation, technical information, processes,
   formulae, trade secrets, materials, designs, drawings and data.

   1.22 Licensed Field. "Licensed Field" means with respect to: (a) the First
   Generation Exclusive Licensed Products, any and all use for the treatment,
   prevention and/or diagnosis of any disease, disorder and/or condition of the
   human eye; (b) Non-Exclusive Licensed Products, any and all use for the
   treatment, prevention and/or diagnosis in humans of [*] (c) Vitrasert
   Licensed Product, any and all use for the prevention and treatment of
   cytomegalovirus retinitis in humans; and (d) all Licensed Products, any and
   all research in non-human eyes.

   1.23 Licensed Patents. "Licensed Patents" shall mean all: (1) patents issued
   to or licensed by Licensor on or before June 18, 2003, as set forth in
   Exhibit 1.23(a), other than those specific patents listed on Exhibit 1.23(b);
   (2) patent applications filed by Licensor on or before June 18,

   [*] - INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
   TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH
   THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND
   EXCHANGE ACT OF 1934, AS AMENDED.

                                      -3-

<PAGE>

   2003, as set forth in Exhibit 1.23(a), other than those specific patent
   applications listed on Exhibit 1.23(b); (3) patent applications filed by
   Licensor after June 18, 2003, to the extent directed to the specific
   inventions made before June 18, 2003, and disclosed in the invention
   disclosure forms set forth in Exhibit 1.23(a), other than those specific
   invention disclosure forms listed on Exhibit 1.23(b); and (4) all patents and
   patent applications claiming priority to the patents or patent applications
   set forth in (1) - (3) above, including (i) any continuation,
   continuation-in-part (to the extent the claims are specifically directed to
   the subject matter in the patent or patent application to which it claims
   priority), divisional, reissue, reexamination, or renewal with respect to any
   of the foregoing, and (ii) any corresponding patent, utility model, inventor
   certificate, registration or the like in any country of the world with
   respect to the foregoing; provided, however, that notwithstanding anything to
   the contrary in this Section 1.23 or elsewhere in this Agreement, Licensed
   Patents shall not include any patent or patent application, or any claim
   thereof, that is directed to inventions made by Licensor after June 18, 2003.
   Exhibit 1.23(a) shall be updated from time to time by Licensor to incorporate
   the patent application serial numbers for the patent applications referenced
   in subsection (3) above. For the purposes of this Section 1.23, patents,
   patent applications, Patent Rights and Inventions shall only mean patents,
   patent applications, Patent Rights and Inventions of Control Delivery
   Systems, Inc., and shall not include patents, patent applications, Patent
   Rights and Inventions of a third party acquiree or transferor, or a third
   party merger or consolidation partner, of or with Control Delivery Systems,
   Inc., or a third party acquiror or transferee of substantially all of the
   assets or stock of Control Delivery Systems, Inc.'s opthalmics business.

   1.24 Licensed Product. "Licensed Product" means First Generation Exclusive
   Licensed Product, Vitrasert Licensed Product, and Non-Exclusive Licensed
   Product.

   1.25 Licensed Territory. "Licensed Territory" means the world.

   1.26 Licensee Improvement. "Licensee Improvement" is defined in Section
   8.3(a) of this Agreement.

   1.27 Licensee Improvement Application. "Licensee Improvement Application" is
   defined in Section 8.3(a) of this Agreement.

   1.28 Licensee Improvement Patent. "Licensee Improvement Patent" is defined in
   Section 8.3(b) of this Agreement.

   1.29 Licensor Improvement Product. "Licensee Improvement Product" is defined
   in Section 8.3(b) of this Agreement.

1.29A Licensor Improvement. "Licensor Improvement" means any Improvement
created, invented or discovered by Licensor, after June 18, 2003 and before
[*], provided, however, that in the event of (i) any transfer by
Licensee of substantially all of the assets or stock of Licensee's proprietary
(branded and/or generic) ophthalmic pharmaceutical business; or (ii) any
transfer by Licensor of substantially all of the assets or stock of Licensor's
ophthalmics business, "Licensor Improvement" shall only include Improvements
created, invented or discovered by Licensor after June 18, 2003 and before the
earlier of (x) the effective date of such transfer or (y) [*]. For
the purposes of this Section 1.29A,

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                      -4-

<PAGE>

Improvements shall only mean Improvements of Control Delivery Systems, Inc., and
shall not include Improvements of a third party acquiree or transferor, or a
third party merger or consolidation partner, of or with Control Delivery
Systems, Inc., or a third party acquiror or transferee of substantially all of
the assets or stock of Control Delivery Systems, Inc.'s opthalmics business.

1.29B Licensor Improvement Patents. Any patent application filed by Licensor to
the extent it claims a Licensor Improvement, and any issued patents or patent
applications to the extent they claim priority thereto.

   1.30 Milestone Payment. "Milestone Payment" is defined in Article 4 of this
   Agreement.

   1.31 NDA. "NDA" means a New Drug Application and all associated documents,
   components thereof, or corresponding applications and associated documents
   for devices or combination products, required to be filed with the FDA in
   order to obtain approval to market a particular product in the United States.

   1.32 Net Sales. "Net Sales" means, in any case where a Licensed Product is
   sold or commercially disposed of for value by Licensee or any Sublicensee in
   an arm's length transaction with a third party (other than an Affiliate of,
   respectively, Licensee or Sublicensee), the gross invoice price for such
   Licensed Product, less the following: (i) discounts, chargebacks, Medicare or
   other government rebates, and rebates to purchasers actually taken or
   allowed; (ii) credits or allowances given or made for rejections or return of
   any previously sold Products actually taken or allowed; (iii) to the extent
   included in such gross invoice price any tax or government charge imposed on
   the production, import, export, sale, delivery or use of such Products,
   including, without limitation, any value added or similar tax or government
   charge, but not including any tax levied with respect to income; and (iv) to
   the extent included in such gross invoice price any reasonable and documented
   packaging and distribution charges. Net Sales shall also include and be
   deemed to have been made with respect to (a) any Licensed Product not sold or
   otherwise transferred to any third party but rather used by Licensee or any
   Sublicensee to provide a commercial service and (b) any other transfer of a
   Licensed Product for less than arm's length value other than intercompany
   transfers where the transferee is not the end user. The amount of any Net
   Sale as defined in the preceding sentence shall be imputed using the price or
   prices at which the Licensed Product at issue is then being sold in
   transactions covered by the first sentence of this Section or, if no such
   transactions have occurred, on a reasonable basis to be determined at the
   time by the Parties. Notwithstanding any other provision of this Section, Net
   Sales shall not include the transfer without consideration of any Licensed
   Product by Licensee or any Sublicensee (x) for use in any clinical trial or
   in any preclinical or other research, (y) as detailing samples or other use
   to promote additional Net Sales in amounts consistent with the normal
   business practices of Licensee or any Sublicensee, or (z) for compassionate
   use.

   1.33 Non-Exclusive Licensed Product. "Non-Exclusive Licensed Product" means a
   product (a) that meets the following criteria: (i) uses as its active
   ingredient only one or more of the active ingredients set forth in column A
   of Exhibit 1.33, and no others, and (ii) uses one of the delivery systems in
   column B of Exhibit 1.33, and (iii) uses one of the methods of delivery set
   forth in column C of Exhibit 1.33; and (iv) uses one of the anchoring methods
   set forth in

                                      -5-

<PAGE>

   column D of Exhibit 1.33; and (v) is applied in one of the locations set
   forth in column E of Exhibit 1.33; and (vi) is approved, or is designed to be
   approved, for the treatment of one or more of the indications set forth in
   Column F of Exhibit 1.33, and no others; and (b) the manufacture, use, sale,
   offering for sale or importing of which, absent the license granted by
   Licensor to Licensee herein, would infringe any Valid Claim included in any
   Licensed Patent or Licensor Improvement Patent. Notwithstanding the
   foregoing, Non-Exclusive Licensed Product shall exclude First Generation
   Exclusive Licensed Product.

   1.34 Original Effective Date. "Original Effective Date" means December 31,
   1992, for rights and obligations hereunder related to Vitrasert Licensed
   Product and June 9, 1999, for all other rights and obligations hereunder.

   1.35 Other Technology. "Other Technology" means Patent Rights owned or
   controlled by Licensor and not included as a Licensed Patent or Licensor
   Improvement Patent.

   1.36 Patent Rights. "Patent Rights" means any and all forms of patents issued
   or granted anywhere in the world, including, without limitation, utility,
   model and design patents, patents of addition, patents of importation or
   innovation, improvement patents, reissued and reexamined patents, all
   renewals and extensions thereof, and all applications for such patents
   (including original, divisional, continuation and continuation-in-part
   applications) pending before any national Patent Office and which have not
   been abandoned or expired.

   1.37 Person. "Person" means any individual, partnership, association,
   corporation, trust, or other legal person or entity.

   1.38 Regulatory Approval. "Regulatory Approval" means (a) approval by the FDA
   of an NDA and satisfaction of any related applicable FDA requirements (if
   any) or (b) in any country other than the United States, approval by
   regulatory authorities having jurisdiction over such country of a single
   application or set of applications comparable to an IND, NDA, and
   satisfaction of any related applicable regulatory and notification
   requirements, if any, together with any other approvals necessary to make and
   sell pharmaceuticals or delivery systems in such country.

   1.39 Right of Access to Clinical IP. "Right of Access to Clinical IP" means
   the right to reference, cross-reference, review, have access to, incorporate
   and use Clinical IP in any regulatory, applications or filings or for any
   research or development purpose.

   1.40 Sublicense. "Sublicense" means any sublicense of, or other agreement
   permitting the commercial exploitation of, some or all of the rights granted
   to Licensee under this Agreement.

   1.41 Sublicensee. "Sublicensee" means any Person to whom Licensee grants a
   Sublicense.

   1.42 Target Market. "Target Market" means each of the [*].

   1.43 Term of this Agreement. "Term of this Agreement", "term of this
   Agreement", or "Term" shall mean the period beginning on the Original
   Effective Date and continuing only for so long as (a) Licensee has any right
   to exercise any of its rights with respect to any Licensed Patent or Licensor
   Improvement Patent in the Licensed Territory, or (b) royalty payments are


[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                      -6-

<PAGE>

   due under this Agreement, unless earlier terminated by Licensor or Licensee
   as provided herein.

   1.44 Third Party Licensed Product. "Third Party Licensed Product" means a
   First Generation Exclusive Licensed Product or a Non-Exclusive Licensed
   Product, the therapeutic effect of which is derived in part from any
   proprietary product, compound, method or process in-licensed or acquired by
   Licensee from an unaffiliated third party on an arm's length basis; provided
   that such First Generation Exclusive Licensed Product or Non-Exclusive
   Licensed Product is subject to a running royalty equal to the Base Royalty.

1.44A Third Party Licensor Improvement Product. "Third Party Licensor
Improvement Product" is defined in Section 8.3(d) of this Agreement.

   1.45 Total Relevant Sales. "Total Relevant Sales" is defined in Section 3.2
   of this Agreement.

   1.46 UKRF. "UKRF" means University of Kentucky Research Foundation.

   1.47 UKRF Licenses. "UKRF Licenses" mean the licenses set forth in Exhibit
   1.47.

   1.48 Uveitis Base Royalty Product. "Uveitis Base Royalty Product" means a
   Uveitis Product the Net Sales of which bear, or for a product that has not
   yet received Regulatory Approval, will bear, the Base Royalty payable to
   Licensor that is not subject to any royalty reduction or offset under this
   Agreement.

   1.49 Uveitis Product. "Uveitis Product" means any product which has received
   or is designed to receive Regulatory Approval to treat Uveitis.

   1.50 Valid Claim. "Valid Claim" means (i) a claim of an issued and unexpired
   patent which has not been held permanently revoked, unenforceable or invalid
   by a decision of a court or other governmental agency of competent
   jurisdiction, unappealed or unappealable within the time allowed for appeal,
   and which has not been admitted to be invalid or unenforceable through
   reissue or disclaimer or otherwise (an "Issued Patent Claim"), and/or (ii) a
   pending claim of any pending patent application which has been filed and
   continues to be prosecuted in good faith and is not abandoned or finally
   disallowed without the possibility of appeal or refiling (a "Pending Claim");
   provided, however, that, with respect to any Licensed Product or Licensor
   Improvement Product, no Pending Claim which has not become an Issued Patent
   Claim shall continue to constitute a Valid Claim for more than five years
   following the first approved commercial sale of the first Licensed Product or
   Licensor Improvement Product which qualifies as a Licensed Product or
   Licensor Improvement Product solely as a result of such Pending Claim.

   1.51 Vitrasert Licensed Product. "Vitrasert Licensed Product" means the
   product that has received FDA regulatory approval pursuant to application
   #20-569 as approved on March 4, 1996, and the manufacture, use, sale, or
   importation of which would, absent the license granted by Licensor to
   Licensee herein, infringe any Valid Claim included in the Licensed Patents.

                                      -7-

<PAGE>

ARTICLE 2. GRANTING CLAUSE:

2.1   License Grant.

2.1.1 License to First Generation Exclusive Licensed Product and Vitrasert
      Licensed Product. Licensor grants to Licensee, and Licensee accepts, an
      exclusive, royalty-bearing, worldwide right and license, with exclusive
      right to sublicense, under Licensor's interest (i.e., subject to the UKRF
      Licenses) in the Licensed Patents and Licensor Improvement Patents, solely
      to make, have made, use, sell, offer to sell, and import First Generation
      Exclusive Licensed Products and Vitrasert Licensed Product in the Licensed
      Field.

2.1.2 License to Non-Exclusive Licensed Product. Licensor grants to Licensee,
      and Licensee accepts a non-exclusive, royalty-bearing, worldwide right and
      license, without the right to sublicense, under Licensor's interest (i.e.,
      subject to the UKRF Licenses) in the Licensed Patents and Licensor
      Improvement Patents solely to make, have made (including by
      manufacturers), use, sell, offer to sell, have sold (including by
      distributors), and import Non-Exclusive Licensed Products in the Licensed
      Field.

2.1.3 Intentionally Omitted.

2.1.4 No License. Nothing in this Agreement shall be construed as granting a
      license, whether express, implied or by operation of law, to Licensee
      under any Patent Rights, Know-how, or other proprietary rights owned,
      acquired or controlled by Licensor other than the rights expressly granted
      by Licensor to Licensee in this Agreement, including, without limitation,
      Sections 2.3 and 2.8. Licensee shall have no rights in any Other
      Technology or in any inventions disclosed in any patents, patent
      applications or invention disclosure forms listed in Exhibit 1.23(b),
      regardless of whether such Other Technology or such inventions disclosed
      in Exhibit 1.23(b) incorporate, or are infringed by the use of, Licensor
      Know-how. This Agreement does not create, and shall under no circumstances
      be construed or interpreted as creating, an obligation on the part of
      Licensor to grant any license to Licensee other than as expressly set
      forth herein. Any further contract or license agreement between the
      Parties shall be in writing.

2.1.5 Reserved Rights. All rights not expressly granted to Licensee in this
      Agreement are reserved to Licensor for itself, its partners and Affiliates
      (other than Licensee) and other licensees and sublicensees.
      Notwithstanding the licenses granted in Article 2, Licensor hereby retains
      and reserves a royalty-free right and license to use and permit others to
      use the Licensed Patents and Licensor Improvement Patents for research,
      but not for making, using, selling, or importing any commercial products
      or processes for First Generation Exclusive Licensed Products and the
      Vitrasert Licensed Product, and for development purposes, subject in all
      cases to Section 2.5.

2.2   Sublicensing. Licensee shall have the right to grant Sublicenses under
the license granted pursuant to Section 2.1.1, provided, however, that any such
Sublicense shall not be inconsistent with the terms and conditions of this
Agreement and that Licensee shall be responsible for the operations of any
Sublicensee relative to this Agreement as if such operations were carried out by
Licensee itself, including (without limitation) the payment of any royalties
provided for

                                      -8-
<PAGE>
   hereunder, regardless of whether the terms of any Sublicense provide for such
   amount to be paid by the Sublicensee directly to Licensor, but Sublicensees
   shall not be required to pay Milestones Payments pursuant to Article 4.

   2.3 Non-suit. While the licenses granted hereby only include rights to
   Licensed Patents and Licensor Improvement Patents as expressly stated in this
   Agreement, and do not include rights to Other Technology, Licensor shall not
   bring (and shall not authorize or assist a third party to bring) any action
   under Other Technology owned by Licensor or controlled and able to be
   licensed by Licensor to block Licensee or any Sublicensee from:

      (a) exercising its rights with respect to a Uveitis Base Royalty Product
that is an implant that is required to be surgically inserted through an
incision of at least 2 mm (and which cannot be inserted through an incision of
less than 2 mm) in the scelera into the vitreous, is secured by a suture
attaching a tab to the scelera in the posterior of the eye, uses the
reservoir/suture tab design currently used in clinical trial #001 for Uveitis,
uses fluocinolone acetonide as an active ingredient with no other active
ingredients, and generally conforms with the drawings and meets the
specifications shown in Exhibit 1.14 of this Agreement and any prior iterations
thereof, with only such modifications to the design that do not modify the
parameters set forth above and that are required to obtain Regulatory Approval
for the implant in the above clinical trials as a result of the current
stability issue or another safety issue that may arise during the course of such
clinical trials; and

      (b) exercising those rights (but only those rights) granted by Licensor to
Licensee pursuant to Section 2.1.1, provided that:

            (i) the Other Technology is filed on or before or claims priority to
      an application filed on or before December 31, 2004 (provided the non-suit
      only applies to the extent of claims directed to the subject matter in the
      application to which such Other Technology claims priority); and

            (ii) the Other Technology claims an invention for which Licensee,
      prior to any public disclosure of the Invention by the Licensor, has
      recorded an invention disclosure form including one or more claims to the
      same Invention, provided that such invention disclosure form has described
      such Invention with enough particularity to demonstrate that Licensee was
      in possession of the Invention at the time such invention disclosure form
      was recorded.

For the purposes of this Section 2.3, Other Technology shall not include those
patents, patent applications and invention disclosure forms set forth in Exhibit
2.3 (i.e., Licensor shall not be precluded from bringing an action based on
those patents, patent applications and invention disclosure forms set forth in
Exhibit 2.3). Also, for the purposes of this Section 2.3, the non-suit granted
herein shall not preclude Licensor from enforcing any of its rights in Other
Technology that are directed to the composition of active ingredients,
formulations, indications or novel polymers that are not limited in use or
application to First Generation Exclusive Licensed Products. For the purposes of
this Section 2.3, patents, patent applications, Patent Rights, Inventions and
Other Technology shall only mean patents, patent applications, Patent Rights,
Inventions and Other Technology of Control Delivery Systems, Inc., and shall not
include

                                      -9-
<PAGE>

patents, patent applications, Patent Rights, Inventions and other technology of
a third party acquiree or transferor, or a third party merger or consolidation
partner, of or with Control Delivery Systems, Inc., or a third party acquiror or
transferee of substantially all of the assets or stock of Control Delivery
Systems, Inc.'s opthalmics business. The provisions of this Section 2.3 shall in
no way limit Licensee's rights under Licensor Improvement Patents as set forth
in this Agreement.

   2.4 Non-assert of Know-how. Licensor shall not bring (and shall not authorize
   or assist a third party to bring) any action against Licensee or a
   Sublicensee alleging misappropriation of Licensor's Know-how. Licensee shall
   not bring (and shall not authorize or assist a third party to bring) any
   action against Licensor or a sublicensee of Licensor alleging
   misappropriation of Licensee's Know-how. For the purposes of this Section,
   Licensor's Know-how shall be limited to Know-how known by Licensor as of June
   18, 2003, and Licensee's Know-how shall be limited to Know-how known by
   Licensee as of June 18, 2003. The prohibitions of this Section shall not
   apply to any action which the aggrieved Party may bring if such action is
   limited to the intentional and willful theft or misappropriation of the
   Know-how based on misappropriation actions occurring by the other Party
   solely after the Amendment Date. For the purposes of this Section 2.4,
   Know-how shall only mean Know-how of Control Delivery Systems, Inc., and
   shall not include Know-how of a third party acquiree or transferor, or a
   third party merger or consolidation partner, of or with Control Delivery
   Systems, Inc., or a third party acquiror or transferee of substantially all
   of the assets or stock of Control Delivery Systems, Inc.'s opthalmics
   business.

   2.5 Non-Compete.

   (a) Non-Compete for Uveitis Product. Licensor shall not Develop, or license a
   third party to Develop, a Uveitis Product, but only for so long as (1)
   Licensee is Actively Commercializing a Uveitis Base Royalty Product; and (2)
   Licensee is not Developing or Commercializing a Uveitis Product that is not a
   Uveitis Base Royalty Product. Licensor further agrees not to Commercialize,
   or license a third party to Commercialize, a Uveitis Product but only for so
   long as (3) Licensee is Actively Commercializing a Uveitis Base Royalty
   Product; and (4) Licensee is not Commercializing a Uveitis Product that is
   not a Uveitis Base Royalty Product. Notwithstanding the foregoing, the
   prohibitions under this Section 2.5(a) shall not apply to the Development and
   Commercialization activities of a third party acquiree or transferor, or a
   third party merger or consolidation partner, of or with Licensor, or a third
   party acquiror or transferee of substantially all of the assets or stock of
   Licensor's opthalmics business, provided that such acquiror, acquiree,
   transferor, transferee, or a merger or consolidation partner does not use in
   such Development or Commercialization activities for a Uveitis Product any
   (i) Licensed Patent or (ii) Know-how owned or controlled by Licensor as of
   the date of such acquisition, transfer, merger or consolidation. For the
   purposes of this Section 2.5(a), patents, patent applications, Patent Rights,
   Inventions and Know-how shall only mean patents, patent applications, Patent
   Rights, Inventions and Know-how of Control Delivery Systems, Inc., and shall
   not include patents, patent applications, Patent Rights, Inventions and
   Know-how of a third party acquiree or transferor, or a third party merger or
   consolidation partner, of or with Control Delivery Systems, Inc., or a third
   party acquiror or transferee of substantially all of the assets or stock of
   Control Delivery Systems, Inc.'s opthalmics business. In addition, the
   Parties

                                      -10-
<PAGE>


      agree that whenever Licensee realizes revenue from Commercializing a
      Uveitis Product, Licensee will receive a royalty on such revenue.

   Licensee shall provide written notice to Licensor within ninety (90) days
   after: (x) Licensee's filing of an IND for a Uveitis Product that is not a
   Uveitis Base Royalty Product; (y) Licensee's ceasing to Actively
   Commercialize a Uveitis Base Royalty Product; and (z) Licensee's
   Commercialization of a Uveitis Product that is not a Uveitis Base Royalty
   Product. Such written notice shall set forth in reasonable detail the basis
   for Licensee's determination of whether a Uveitis Product is or is not a
   Uveitis Base Royalty Product.

   If Licensee no longer satisfies the requirements of Sections 2.5(a)(1), (2),
   (3) or (4) and Licensor has commenced animal pre-clinical trials, the
   restrictions of this Section 2.5 shall no longer be applicable to Licensor
   and shall thereafter terminate, regardless of whether Sections 2.5(a)(1),
   (2), (3) or (4) are subsequently satisfied by Licensee. Notwithstanding the
   foregoing, Licensor shall not be prohibited under this Section from
   Developing or Commercializing a product designed and approved for an
   indication other than Uveitis, regardless of whether such product is or could
   be subject to off-label or other unapproved sales or uses for the prevention,
   treatment or diagnosis of Uveitis.

   (b) Non-Compete for First Generation Exclusive Licensed Product. Licensor
   agrees that during the Term of this Agreement, Licensor shall not Develop or
   Commercialize a First Generation Exclusive Licensed Product so long as
   Licensee has exclusive rights to such First Generation Exclusive Licensed
   Product under this Agreement. Notwithstanding the foregoing, the prohibitions
   under this Section 2.5(b) shall not apply to the Development or
   Commercialization activities of a third party acquiree or transferor, or a
   third party merger or consolidation partner, of or with Licensor, or a third
   party acquiror or transferee of substantially all of the assets or stock of
   Licensor's opthalmics business, provided that such acquiror, acquiree,
   transferor, transferee, or a merger or consolidation partner does not use in
   such Development or Commercialization activities for a First Generation
   Exclusive Licensed Product any (i) Licensed Patent or (ii) Know-how owned or
   controlled by Licensor as of the date of such acquisition, transfer, merger
   or consolidation. In consideration of the non-compete as set forth in this
   Section 2.5(b), as well as all other rights granted and information provided
   by Licensor to Licensee under this Agreement with respect to First Generation
   Exclusive Licensed Products, including without limitation the rights granted
   pursuant to Sections 2.1.1, 2.2, 2.3, 2.4, 2.5 and 2.6 herein, the Parties
   agree that the royalty rate set forth in Section 3.1.1 reflects the value of
   all such rights granted and information provided and shall be paid whether or
   not such First Generation Exclusive Licensed Product is covered by a Valid
   Claim in the Licensed Patents or Licensor Improvement Patents, and whether or
   not such royalty payments under Section 3.1.1 extend beyond the term of any
   Licensed Patent or Licensor Improvement Patent containing Valid Claims
   covering such First Generation Exclusive Licensed Product. For the purposes
   of this Section 2.5(b), patents, patent applications, Patent Rights,
   Inventions and Know-how shall only mean patents, patent applications, Patent
   Rights, Inventions and Know-how of Control Delivery Systems, Inc., and shall
   not include patents, patent applications, Patent Rights, Inventions and
   Know-how of a third party acquiree or transferor, or a third party merger or
   consolidation partner, of or with Control Delivery Systems, Inc., or a third
   party acquiror or transferee of substantially all of the assets or stock of
   Control Delivery Systems, Inc.'s opthalmics business.

                                      -11-
<PAGE>

   2.6 Licensor Disclosure of Inventions. Licensor represents that the patents,
   patent applications and invention disclosure forms listed on Exhibits 1.23(a)
   and (b) disclose all Inventions conceived or made by or on behalf of Licensor
   prior to June 18, 2003. Licensor agrees that any Invention conceived or made
   by or on behalf of Licensor prior to June 18, 2003, which is not listed on
   Exhibits 1.23(a) or (b) shall be deemed a Licensed Patent and added to
   Exhibit 1.23(a). For the purposes of this Section 2.6, patents, patent
   applications, Patent Rights and Inventions shall only mean patents, patent
   applications, Patent Rights and Inventions of Control Delivery Systems, Inc.,
   and shall not include patents, patent applications, Patent Rights and
   Inventions of a third party acquiree or transferor, or a third party merger
   or consolidation partner, of or with Control Delivery Systems, Inc., or a
   third party acquiror or transferee of substantially all of the assets or
   stock of Control Delivery Systems, Inc.'s opthalmics business.

   2.7 Licensee Disclosure of Inventions. Licensee represents that all
   Inventions conceived or made by or on behalf of Licensee after June 9, 1999,
   and before June 18, 2003, that: (a) directly relate to (i) treatment by (A)
   intraocular local delivery of an active ingredient into the eye, (B) local
   delivery of an active ingredient into the eye by injection into the scelera
   (provided that the foregoing in subparts (A) and (B) shall not include
   technology developed for the cataract, refractive surgical and contact lens
   businesses of Licensee), (ii) non-topical sustained ophthalmic release of an
   active ingredient (provided that the foregoing in this subsection (ii) shall
   not include technology developed for the cataract, refractive surgical and
   contact lens businesses of Licensee), (iii) co-drug modifications for
   altering the bioavailability or rate of release of a drug, where "co-drug" is
   defined as two or more pharmaceutically active ingredients that are linked by
   a covalent or ionic bond with each other, which bond dissolves in vivo, and
   where "co-drug" specifically excludes any natural extracts; or (iv) pro-drug
   modifications for altering the bioavailability or rate of release of a drug
   for non-topical applications; or (b) would interfere with the subject matter
   of, or dominate the practice of any invention disclosed in, Licensed Patents
   or invention disclosure forms disclosed in Exhibits 1.23(a) or (b) (all such
   inventions in subparts (a) and (b) of this Section 2.7 are referred to
   collectively as "Licensee Relevant Inventions") are disclosed in the
   invention disclosure forms and unpublished patent applications that have been
   disclosed to Licensor's counsel by Licensee. In addition to any other
   remedies available to Licensor, Licensee shall grant and hereby grants
   Licensor a world-wide perpetual, non-exclusive royalty-free license, with the
   right to sublicense, to use any Licensee Relevant Invention made by Licensee
   after June 9, 1999, and before June 18, 2003, that was not disclosed to
   Licensor's counsel by Licensee; provided, however, that such right and
   license shall be subject to Licensee's other rights hereunder, e.g., the
   exclusive rights granted under Section 2.1.1 and Section 2.5.

                                      -12-
<PAGE>

   2.8 Co-Owned Patents. With respect to the patents and patent applications
   listed in Exhibit 2.8 and any inventions disclosed in the invention
   disclosure forms listed in Exhibit 2.8, including all Patent Rights in the
   foregoing (the "Co-Owned Patents"), Licensee shall assign and hereby assigns
   to Licensor a one-half interest in the Co-Owned Patents, and to the extent of
   Licensor's interest in the Co-Owned Patents, such Co-Owned Patents shall be
   deemed to be Licensed Patents, provided that Licensor's interest in the
   Co-Owned Patents shall be exclusively licensed to Licensee solely to make,
   have made, use, sell, offer to sell, and import Licensed Products in the
   field of ophthalmology, and further provided that such license shall (a)
   become non-exclusive in the event Licensee's rights to First Generation
   Exclusive Licensed Product become non-exclusive; and (b) terminate in the
   event this Agreement terminates. Licensee shall fully cooperate with
   Licensor, at Licensor's expense, with any activities necessary to perfect the
   rights assigned to Licensor, including the execution of assignments of any
   patents or patent applications or the filing of any patent applications.

   2.9 Licensee Non-suit. Licensee shall not bring (and shall not authorize or
   assist a third party to bring) any action under any patents or patent
   applications listed in Exhibit 2.9 or any Inventions disclosed in the
   invention disclosure forms listed in Exhibit 2.9, including all Patent Rights
   or other intellectual property rights in the foregoing, against Licensor or
   any sublicensee of Licensor.

   2.10 Licensee Covenant Not to File. Licensee shall not file (and shall not
   authorize or assist an Affiliate or other third party to file) an application
   for Patent Rights, either in the United States or in any other foreign
   jurisdiction, containing claims covering any inventions disclosed in the
   invention disclosure forms listed in Exhibit 2.10.

   2.11 Frustration Regarding Vitrasert Product. Subject to the last sentence of
   Section 14.1 of this Agreement, if any third party brings any cause of
   action, claim, or other challenge which has the result of frustrating in a
   material way the licensing of the intellectual property applicable to
   Licensee's rights with respect to the Vitrasert Licensed Product (a
   "Frustration Claim"), Licensor shall cooperate with Licensee in any
   reasonable arrangement designed to give Licensee as nearly as possible the
   same economic benefits with respect to a Vitrasert Licensed Product and to
   have Licensee assume the same obligations and expenses as if such Frustration
   Claim with respect to a Vitrasert Licensed Product had not occurred.

ARTICLE 3. ROYALTIES AND REPAYMENT OBLIGATIONS

  3.1 Running Royalties. Licensee shall pay running royalties to Licensor as
      follows:

3.1.1 Net Sales of First Generation Exclusive Licensed Products. Subject to
      Sections 3.2 and 3.3, on all Net Sales of First Generation Exclusive
      Licensed Products, Licensee shall pay to Licensor a running royalty rate
      equal to the Base Royalty.

3.1.2 Net Sales of Third Party Licensed Products. Subject to Section 3.3, on all
      Net Sales of any Third Party Licensed Product Licensee shall pay to
      Licensor a running royalty equal to the Base Royalty reduced by [*] of the
      amount of any running royalty payable or "deemed paid or payable" by
      Licensee with respect to such Net Sales to any third party licensor of
      proprietary technology or other proprietary property included in such
      Third

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                      -13-
<PAGE>

      Party Licensed Product, provided, however, that the total running royalty
      due to Licensor with respect to such Net Sales shall in no event be less
      than [*] of the Base Royalty. Where Licensee acquires rights to a Third
      Party Licensed Product but doesn't pay a royalty based on net sales, units
      sold, etc., royalties "deemed paid or payable" shall be the imputed
      royalty paid by Licensee in connection with the payment of the purchase
      price or other consideration to acquire those rights needed to use the
      applicable proprietary product, compound, method, or process in such Third
      Party Licensed Product. Where Licensee acquires rights to such proprietary
      product, compound, method or process which permit Licensee to use such
      product, compound, method or process for purposes other than use in
      connection with such Third Party Licensed Product or where Licensee
      acquires the applicable proprietary product, compound, method or process
      in connection with the acquisition of any other rights or assets, a
      reasonably allocable share of such purchase price or other consideration
      shall be allocated to the right to use such product, compound, method or
      process in connection with such Third Party Licensed Product. The
      allocated portion of the purchase price or other consideration shall then
      be converted into an imputed royalty, taking into account all relevant
      factors, including, without limitation, the length of time over which
      Licensee may exercise the rights involved, the likely sales of such Third
      Party Licensed Product over such period of time, and/or other factors
      considered relevant at the time. In no event shall the deemed royalty so
      derived exceed the royalty that would have been paid for the rights
      involved in an arms-length transaction with such third party had Licensee
      licensed such rights for use in connection with such Third Party Licensed
      Product on a purely royalty-bearing basis. If Licensor and Licensee cannot
      agree on the amount of any deemed royalty, the issue shall be resolved by
      the dispute resolution provisions of this Agreement.

3.1.3 Net Sales of Vitrasert Licensed Products. Subject to Section 3.3, on all
      Net Sales of Vitrasert Licensed Product, Licensee shall pay to Licensor a
      running royalty equal to [*] of Net Sales. In addition to
      payment of the royalty under this Section 3.1.3, Licensee shall also pay
      to Licensor all amounts due to UKRF under the UKRF Licenses for Net Sales
      of Vitrasert Licensed Product.

3.1.4 Net Sales of Non-Exclusive Licensed Products. For Non-Exclusive Licensed
      Products, other than Third Party Licensed Products, Licensee shall pay to
      Licensor a running royalty rate equal to: (a) the Base Royalty on all Net
      Sales of Non-Exclusive Licensed Product employing a delivery system, which
      delivery system would, absent the license granted by Licensor to Licensee
      herein, infringe any Valid Claim included in a Licensed Patent or Licensor
      Improvement Patent; (b) [*] of Net Sales of Non-Exclusive Licensed Product
      that employs an anchoring method, which anchoring method would, absent the
      license granted by Licensor to Licensee herein, infringe only a Valid
      Claim of a Licensed Patent or Licensor Improvement Patent related to the
      anchoring method, and that is not subject to payment of a running royalty
      pursuant to Section 3.1.4(a); and (c) a royalty rate to be determined by
      arbitration through the American Arbitration Association ("AAA") for any
      Non-Exclusive Licensed Product that is not subject to payment of a running
      royalty pursuant to Sections 3.1.4(a) or 3.1.4(b) and which would, absent
      the license granted by Licensor to Licensee herein, infringe any Valid
      Claim included in a Licensed Patent or Licensor Improvement Patent,
      provided that such rate shall be not less than [*] of Net Sales and not
      greater than


      [*] - INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
      TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED
      WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
      SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.



                                      -14-
<PAGE>

      [*] of Net Sales. For the purposes of the AAA arbitration, all Valid
      Claims included in any Licensed Patent or Licensor Improvement Patent
      shall be deemed valid and enforceable.

  3.2 Royalty Step-Down for Generic Competition.

      (a) Notwithstanding anything in this Agreement to the contrary, in each
country where (i) the making, using, selling, offering to sell or importing of a
particular Uveitis Base Royalty Product or a particular First Generation
Exclusive Licensed Product does not infringe a Valid Claim of a Licensed Patent
or a Licensor Improvement Patent; and (ii) such Uveitis Base Royalty Product or
First Generation Exclusive Licensed Product is no longer covered under
Hatch-Waxman, Orphan Drug, Pediatric, or other non-patent exclusivity, including
applicable similar standards outside the United States; and (iii) with respect
to First Generation Exclusive Licensed Product, such product is subject to a
running royalty equal to the Base Royalty, and is not subject to a royalty
reduction or offset, including without limitation an offset under Section 3.1.2
of this Agreement, then with respect to each such Uveitis Base Royalty Product
or First Generation Exclusive Licensed Product (each an "Eligible Licensed
Product") in such country, Licensee shall be entitled to a royalty adjustment
for each such Eligible Licensed Product as follows:

         If sales of Generic Product (as defined in subsection (b) below) in a
         particular fiscal quarter are greater than [*] of Total Relevant Sales
         (as defined in subsection (b) below) for a particular Eligible Licensed
         Product, then the running royalty on Net Sales of such Eligible
         Licensed Product in such fiscal quarter shall be [*].

      (b) For the purposes of this Section 3.2, "Generic Product" shall mean a
product or products sold by a third party without a license from Licensor that
has been approved under an ANDA pursuant to 21 U.S.C. Section 355(j) (or a
substantially similar application or filing in jurisdictions outside the United
States) that references safety and efficacy data of an Eligible Licensed
Product. For the purposes of this Section 3.2, "Total Relevant Sales" shall
mean, in a fiscal quarter, the total combined sales by all Persons, including
Licensee or Sublicensees, of (i) all Generic Product (with respect to a
particular Eligible Licensed Product); and (ii) the relevant Eligible Licensed
Product.

      (c) In the event of any adjustments to the running royalty pursuant to
this Section 3.2, Licensee shall provide to Licensor written notice of such
adjustment, along with reasonably detailed documentation (including market
reports and other data) supporting Licensee's determination of the Total
Relevant Sales. Such written notice and documentation shall be supplied to
Licensor with any Royalty Reports due to Licensor pursuant to Section 7.1, and
shall be subject to the record keeping and audit rights as set forth in Section
7.2. In addition, in the event Licensee has made an adjustment to the running
royalty of a Uveitis Base Royalty Product pursuant to this Section 3.2 such that
the running royalty for such Uveitis Base Royalty Product in a country is less
than the Base Royalty for two consecutive fiscal quarters, then Licensor shall
have the right, at its sole discretion, to Develop and Commercialize a Uveitis
Product in such country, notwithstanding the provisions of Section 2.5(a).
Licensor shall retain such right to Develop and Commercialize a Uveitis Product
in such country, even if the running royalty for


      [*] - INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
      TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED
      WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
      SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.



                                      -15-
<PAGE>

such Uveitis Base Royalty Product in such country is equal to the Base Royalty
in subsequent fiscal quarters.

   3.3 Royalties Payable Only Once. Licensee's obligation to pay royalties under
   this Article 3 shall be imposed only once at the highest applicable royalty
   rate, with respect to any Net Sale of any Licensed Product. Only a single
   royalty shall be due and payable by Licensee under this Agreement with
   respect to a Licensed Product regardless of whether the Licensed Product is
   covered by more than one claim of a Licensed Patent or Licensor Improvement
   Patent and in no event will such royalty exceed [*].

   3.4 Timing of Royalty Payments. Within thirty (30) days after the end of each
   fiscal quarter of Licensee, Licensee shall pay to Licensor the royalty
   payment due for each such quarter in U.S. dollars, provided, however, that
   solely with respect to any royalty payment due with respect to Net Sales made
   pursuant to Sections 1.32(a) or (b) herein, such thirty (30) day period may
   be extended to such longer period as Licensee may reasonably require, not to
   exceed ninety (90) days, to determine the amount of such Net Sales for such
   fiscal quarter. If a Sublicensee adjusts any of its Net Sales for any
   applicable quarter on account of misreported or late-reported Net Sales,
   Licensee shall promptly pay (or cause the Sublicensee to pay) any royalties
   due within 30 days after such adjustment. If Net Sales are in a currency
   other than U.S. Dollars, the sales shall be converted from the currency of
   the country in which the sales were made into U.S. Dollars at the month-end
   exchange rate for such currency for such sales made during such month as
   determined by Licensee in accordance with its standard accounting policies
   and procedures consistently applied during each of Licensee's fiscal
   quarters. If any royalty or other amount due Licensor is in a non-U.S. Dollar
   currency, and Licensee or any Sublicensee is prohibited from exporting that
   currency from that jurisdiction, Licensee or such Sublicensee shall pay an
   amount equal to the royalty or other amount due in such blocked currency into
   a bank account of Licensor's choice in such jurisdiction, and such deposit
   shall be deemed to be full satisfaction of Licensee and Sublicensee's
   obligation to make the applicable payment to Licensor.

   3.5 Withholding Taxes. Licensee and Licensor shall use all commercially
   reasonable and legal efforts to reduce tax withholding on any payments to be
   made to Licensor hereunder. If Licensee concludes that, notwithstanding such
   efforts, tax withholding under the laws of any country is required with
   respect to any royalty payment to be made to Licensor under this Agreement,
   Licensee shall pay or cause its Sublicensee to pay any applicable withholding
   taxes imposed by any such political jurisdiction on such royalty payments,
   and the amount of any such payments shall be credited against Licensee's
   royalty obligation under this Agreement. Licensee shall promptly provide
   Licensor with, or promptly cause Licensor to be provided with, original
   receipts or other evidence sufficient to allow Licensor to obtain the
   benefits of any such tax withholding.

   3.6 Intentionally Omitted.

   3.7 Repayment of Advanced Amount. The Parties acknowledge that Licensee has
   made advances to Licensor (collectively, "Advanced Amount") totaling Ten
   Million Forty-Four Thousand Seven Hundred Nineteen Dollars ($10,044,719),
   which are still outstanding under the 1999 Agreement immediately preceding
   the Amendment Date. The Parties stipulate that



   [*] - INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
   TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH
   THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND
   EXCHANGE ACT OF 1934, AS AMENDED.


                                      -16-
<PAGE>

   the Advanced Amount constitutes all known financial liabilities of the
   Parties under all prior agreements between the Parties, including without
   limitation the 1999 Agreement, and no other amounts are due to Licensee by
   Licensor except as set forth in this Agreement. The Parties also acknowledge
   that the Advanced Amount is liquidated and that Licensee's right to payment
   of the Advanced Amount will not be subject to invocation of the dispute
   resolution procedure under Article 22. The Advanced Amount will be repaid and
   reduced as described in this Section 3.7. Any remaining amounts due after
   such repayment and reduction shall be the "Unpaid Advanced Amount." In
   addition, the Parties acknowledge that Licensor has provided services to
   Licensee between June 18, 2003, and the Amendment Date, for which Licensee
   will reimburse Licensor $250,000. The reimbursement of the $250,000 will be
   accomplished by reducing the Advanced Amount by $250,000 such that the Unpaid
   Advanced Amount hereby is reduced to $9,794,719. Licensor will repay, and, in
   addition to any other rights provided at law or equity, Licensee may recoup,
   such Unpaid Advanced Amount as follows:

3.7.1 Cash Payment. Licensor will pay Three Million Dollars ($3,000,000) to
      Licensee in cash promptly upon the execution of this Agreement. Licensor
      will wire transfer such amount to Licensee pursuant to Licensee's
      instructions, and this Agreement will not be effective until Licensee has
      actually received such payment. This payment shall reduce the Unpaid
      Advanced Amount.

3.7.2 Milestone/Royalty Recoupment. After the reduction described in the first
      paragraph of Section 3.7 and the payment described in Section 3.7.1, the
      Unpaid Advanced Amount will be reduced to $6,794,719. Licensee may further
      recoup the Unpaid Advanced Amount from (i) any Milestone Payments (as
      defined in Section 4.1), and (ii) royalty payments otherwise due Licensor
      hereunder in each case until the entire remaining Unpaid Advanced Amount
      has been fully repaid.

3.7.3 Equity Option. Licensor may make an optional payment of $1,000,000 (One
      Million Dollars) to Licensee by December 27, 2003, which payment, if made,
      shall reduce the Unpaid Advanced Amount. Effective upon such payment,
      Licensee shall grant to Licensor an option to acquire all of Licensee's
      holdings of Licensor's common stock (600,000 shares, collectively the
      "Stock") at an exercise price of $5.00 per share. This option must be in
      the form of Exhibit 3.7.3, and Licensee shall deliver the option
      certificate evidencing the option within 5 days of the payment that
      reduces the Unpaid Advanced Amount. Payments to Licensee as a result of
      exercising the option will not reduce the remaining Unpaid Advanced
      Amount, if any. The foregoing per share option price is not intended by
      the Parties to in any way represent the fair market value of such shares,
      and shall in no way be used by either Party to support a valuation of
      Licensor.

3.7.4 July 1, 2007. Irrespective of any other circumstances whatsoever, the
      Unpaid Advanced Amount, if any, shall be absolutely due and payable by
      Licensor to Licensee on July 1, 2007, and Licensor shall make immediate
      payment of such amount to Licensee without Licensee having to make any
      further demand or provide any further notice. Licensor will be liable for
      and shall pay a late charge equal to one and one-half (1.5) times the
      prime rate in effect as announced by Chase Manhattan Bank, N.A. from time
      to time on any outstanding balance of the Unpaid Advanced Amount remaining
      after July 1, 2007, until the entire Advanced Amount has been repaid in
      full to Licensee. The Parties agree that

                                      -17-
<PAGE>

      as of the Amendment Date, Licensor shall execute a promissory note, the
      form of which is attached as Exhibit 3.7.4 (the "Note"), in the amount of
      the Unpaid Advanced Amount as of the Amendment Date (and as may be reduced
      pursuant to the terms of this Agreement and the terms of the attached
      Note).

   3.8 Royalty Calculation. In addition to any other rights provided at law or
   equity, if the Advanced Amount has not been fully repaid by Licensor to
   Licensee as required hereunder, the amount of any royalties that might
   otherwise be due and owing from Licensee to Licensor under this Agreement
   shall in all instances be the amount determined in accordance with the other
   Sections of this Article 3, less the amount of Unpaid Advanced Amount at the
   time of such determination.

ARTICLE 4. LICENSE AND MAINTENANCE FEES.

   4.1 License and Maintenance Fees. Licensee shall pay one-time license and
   maintenance fees ("Milestone Payments") for the achievement of certain goals
   set forth in Exhibit 4.1 to Licensor within ten (10) business days after each
   of the events specified in Exhibit 4.1.

ARTICLE 5. DEVELOPMENT OF LICENSED PRODUCTS

   5.1 Joint Diligence Obligation. Licensor and Licensee shall both use
   reasonable commercial efforts to comply with all diligence obligations under
   the UKRF Licenses to the extent required by the UKRF Licenses.

   5.2 Licensee's General Diligence Obligations. Licensee shall use commercially
   reasonable efforts to Develop and Commercialize First Generation Exclusive
   Licensed Products.

   5.3 (a) Licensee's Specific Diligence Obligations - Uveitis. Licensee agrees
   to the following specific obligations:

      (i)   Licensee shall file an NDA with respect to a First Generation
            Exclusive Licensed Product for Uveitis by the later of (a) [*] or
            (b) [*] then within a commercially reasonable time after [*] has
            been identified and found to be acceptable to the FDA, provided
            that Licensee has diligently pursued [*].

      (ii)  Licensee shall make the first commercial sale of a First Generation
            Exclusive Licensed Product for Uveitis in the United States within
            six (6) months after approval of an NDA for such First Generation
            Exclusive Licensed Product.

      (b) Licensee's Specific Diligence Obligations - Other First Generation
      Exclusive Licensed Product. In the event Licensee has failed to meet its
      diligence obligations with respect to First Generation Exclusive Licensed
      Product for Uveitis pursuant to Section 5.3(a) above, then Licensee agrees
      to the specific obligations with respect to at least one First Generation
      Exclusive Licensed Product for an indication other than Uveitis as set
      forth in Exhibit 5.3.

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.


                                      -18-
<PAGE>

   5.4 Licensee's Specific Diligence Obligations - Non-Exclusive Licensed
   Products. In addition to the general obligations set forth in Section 5.2,
   Licensee further agrees to the specific obligations with respect to
   Non-Exclusive Licensed Products set forth in Exhibit 5.4.

   5.5 Failure to Comply with Diligence Obligations.

      (a) If Licensee fails to meet its obligations under Article 5 with respect
to a First Generation Exclusive Licensed Product for Uveitis, and does not cure
such breach within 90 days after written notice from Licensor, Licensee shall
lose its exclusive rights with respect to First Generation Exclusive Licensed
Products for Uveitis. In addition, if Licensee fails to meet the specific
obligations as set forth in Section 5.3(b) for a First Generation Exclusive
Licensed Product for an indication other than Uveitis, and does not cure such
breach within 90 days after written notice from Licensor, Licensee shall lose
its exclusive rights with respect to First Generation Exclusive Licensed
Products.

      (b) If Licensee fails to meet its obligations under Article 5 with respect
to any Non-Exclusive Licensed Product and does not cure such breach within 90
days after written notice from Licensor, Licensee shall lose its rights with
respect to the applicable Non-Exclusive Licensed Product. For example, if the
diligence obligations as set forth in Exhibit 5.4 have not been met with respect
to a Non-Exclusive Licensed Product that (a) has [*] as an active ingredient;
(b) is [*]; (c) is [*]; (d) has a [*] delivery system; (e) is located [*]; and
(f) is for [*] indications, then Licensee would lose its rights with respect to
such Non-Exclusive Licensed Product ("Product A"). As a further example, if the
diligence obligations for the above Product A have been met, but any diligence
obligation has not been met with respect to a Non-Exclusive Licensed Product
that (a) has [*] as an active ingredient; (b) is [*]; (c) is [*]; (d) has a [*];
(e) is located [*]; and (f) is for [*] indications rather than [*] indications
("Product B"), then Licensee would not lose rights to Product A, but would lose
rights to Product B.

      (c) The parties agree that Licensee's failure to meet its diligence
obligations under Article 5 shall not constitute a basis for termination of this
Agreement under Section 11.3.2.

ARTICLE 6. MARKETING OBLIGATIONS. During the term of this Agreement, Licensee
and its Affiliates shall use commercially reasonable efforts, consistent with
the efforts expended by Licensee with respect to its own proprietary ophthalmic
products to:

      (i)   Market, sell, distribute, and support the First Generation Exclusive
            Licensed Product - Uveitis, including, without limitation,
            establishing, directly or through Sublicensees, an adequate sales
            force in each Target Market;

      (ii)  Obtain third party reimbursement for such Licensed Product, where
            applicable;

      (iii) Maintain and provide Licensor with such sales and other information
            customarily maintained by Licensee for purposes of monitoring sales
            progress on a country by country basis;

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                      -19-
<PAGE>

      (iv)  Keep Licensor promptly and fully informed of developments in the
            markets where such Licensed Product is being sold; and

      (v)   Comply with export laws and restrictions and regulations of the
            Department of Commerce or other United States or foreign agency or
            authority.

      Nothing contained in this Article 6 shall limit any other obligations
Licensee may have under this Agreement.

ARTICLE 7. REPORTING AND ACCOUNTING PROVISIONS:

   7.1 Royalty Report. Licensee shall make written royalty reports ("Royalty
   Reports") to Licensor within thirty (30) days after the end of each fiscal
   quarter of Licensee during the term of this Agreement, stating in each such
   report the number, description, and aggregate Net Sales of each Licensed
   Product sold during the preceding three (3) fiscal months of Licensee and
   upon which a royalty is payable as provided in Article 3 (on a Licensed
   Product-by-Licensed Product basis; provided, however, that solely with
   respect to any report with respect to Net Sales made pursuant to Sections
   1.28(a) and (b) herein, such thirty (30) day period may be extended to such
   longer period as Licensee may reasonably require, not to exceed ninety (90)
   days, to determine the amount of such Net Sales for such fiscal quarter. The
   first such report shall include all such Licensed Products so sold prior to
   the date of such report. The first such report shall include all such
   Licensed Products so sold prior to the date of such report, provided that
   with respect to Vitrasert Licensed Product, the first such report after the
   Amendment Date shall reflect only the preceding fiscal months since the last
   such report for Vitrasert Licensed Product.

   7.2 Record Keeping by Licensee. Licensee shall keep records showing the sales
   of Licensed Products and Third Party Licensed Products in sufficient detail
   to enable the royalties payable hereunder to be determined. Licensee shall
   permit its books and records to be examined at Licensor's expense by an
   independent auditor chosen by Licensor and reasonably acceptable to Licensee
   during regular business hours and upon reasonable advance notice, but not
   later than two years following the rendering of any written report and no
   more often than once per calendar year. Such audit shall be permitted only to
   the extent necessary to verify the reports provided for in this Article 7.
   The auditor shall report to Licensor only the amount of royalty payable for
   the period under audit and shall keep confidential any information learned or
   obtained during the examination. If the audit shows an underpayment of more
   than the greater of (i) $50,000, or (ii) five percent (5%) of the amount
   otherwise due, Licensee shall reimburse Licensor for the reasonable costs of
   the audit. Licensee shall promptly remit any underpayment to Licensor. If the
   audit shows an overpayment, Licensor shall promptly pay such overpayment
   amount to Licensee upon request, or, at Licensee's election, Licensee may
   offset such amount against the next payment of royalties or other amounts due
   Licensor hereunder.

   7.3 Termination Report. Licensee also shall make a written report to Licensor
   within thirty (30) days after the date of any termination of this Agreement
   providing to Licensor the same information described in Section 7.1 with
   respect to any Net Sales which were not previously reported to Licensor.

                                      -20-
<PAGE>

ARTICLE 8. OWNERSHIP:

   8.1 Ownership. Except as expressly provided otherwise in this Agreement,
   ownership of Inventions will be determined in accordance with United States
   patent law and related principles.

   8.2 Inventorship. Inventorship of all Inventions (including, without
   limitation, Improvements) made during the term of this Agreement will be
   determined in accordance with United States patent law and related
   principles.

8.3 Licensee Improvements.

      (a) Licensee Improvements. If Licensee files any patent application
("Licensee Improvement Application") for any Improvement created, invented or
discovered before [*] ("Licensee Improvement"), Licensee agrees to grant, and
hereby grants, to Licensor a non-exclusive, worldwide right and license, with
the right to sublicense, under Licensee's interest in such Licensee Improvement
Applications, and in any issued patents claiming priority thereto ("Licensee
Improvement Patent") or any patent applications claiming priority thereto, to
make, have made, use, sell, offer to sell, and import. For the sake of clarity,
a Licensee Improvement shall be any Improvement of a product, if the product
with respect to which the Improvement was made was a Licensed Product at the
time such Improvement was made. Licensee shall promptly notify Licensor of the
filing of such Licensee Improvement Application. Notwithstanding the foregoing,
in the event of (i) any transfer by Licensee of substantially all of the assets
or stock of Licensee's proprietary (branded and/or generic) ophthalmic
pharmaceutical business; or (ii) any transfer by Licensor of substantially all
of the assets or stock of Licensor's ophthalmics business, "Licensee
Improvement" shall only include Improvements created, invented or discovered
before the earlier of (x) the effective date of such transfer or (y) [*].

      (b) Royalties. Upon issuance of a Licensee Improvement Patent, and for so
long as the making, using, selling, offering to sell, or importing of the
Licensee Improvement covered by such Licensee Improvement Patent does not
infringe a Valid Claim of a Licensed Patent, Licensor Improvement Patent or
other Patent Rights of Licensor, Licensor will owe a royalty to Licensee equal
to the lesser of: (i) [*] of net sales of products the making, using, selling,
offering for sale or importing of which would infringe an Issued Patent Claim of
a Licensee Improvement Patent ("Licensor Improvement Product"), or (ii) [*] of
all running royalties received by Licensor based on net sales of Licensor
Improvement Product by licensees or sublicensees of Licensor. For the avoidance
of doubt, if the making, using, selling, offering to sell, or importing of such
Licensee Improvement infringes a Valid Claim of a Licensed Patent, Licensor
Improvement Patent or other Patent Rights of Licensor, then Licensor will not
owe a royalty to Licensee.

      (c) Net Sales. For the purposes of this Section 8.3, net sales means, in
any case where a Licensor Improvement Product is sold or commercially disposed
of for value by Licensor or any sublicensee of Licensor in an arm's length
transaction with a third party (other than an Affiliate of Licensor or
sublicensee of Licensor), the gross invoice price for such Licensor Improvement
Product, less the following: (i) discounts, chargebacks, Medicare or other

[*] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.


                                      -21-
<PAGE>

government rebates, and rebates to purchasers actually taken or allowed; (ii)
credits or allowances given or made for rejections or return of any previously
sold products actually taken or allowed; (iii) to the extent included in such
gross invoice price any tax or government charge imposed on the production,
import, export, sale, delivery or use of such products, including, without
limitation, any value added or similar tax or government charge, but not
including any tax levied with respect to income; and (iv) to the extent included
in such gross invoice price any reasonable and documented packaging and
distribution charges. Net sales shall also include and be deemed to have been
made with respect to (A) any Licensor Improvement Product not sold or otherwise
transferred to any third party but rather used by Licensor to provide a
commercial service and (B) any other transfer of a Licensor Improvement Product
for less than arm's length value other than intercompany transfers where the
transferee is not the end user. The amount of any net sale as defined in the
preceding sentence shall be imputed using the price or prices at which the
Licensor Improvement Product at issue is then being sold in transactions covered
by the first sentence of this Section or, if no such transactions have occurred,
on a reasonable basis to be determined at the time by the Parties.
Notwithstanding any other provision of this Section, net sales shall not include
the transfer without consideration of any Licensor Improvement Product by
Licensor (x) for use in any clinical trial or in any preclinical or other
research, (y) as detailing samples or other use to promote additional net sales
in amounts consistent with the normal business practices of Licensor, or (z) for
compassionate use.

      (d) Offsets. If (a) any Licensor Improvement Product is covered by an
issued patent or other intellectual property right held by one or more third
parties and it becomes necessary for Licensor to obtain a license from such
third party or parties under such patent, and/or other intellectual property
right and accordingly to pay royalties to such third party(ies) with respect to
any net sale or transfer of any Licensor Improvement Product or (b) the
therapeutic effect of any Licensor Improvement Product is derived in part from
any proprietary product, compound, method or process in-licensed or acquired by
Licensor from an unaffiliated third party on an arm's length basis (a "Third
Party Licensor Improvement Product"), then Licensor may reduce any royalty
otherwise due Licensee by [*] of the amount of royalty due to such third party,
but in no event to less than [*] of the royalty or other payment which may then
be due to Licensee. In addition, if Licensor is required to pay any an upfront
or similar fee to any third party(ies), Licensee shall share in the payment of
any such consideration which involves more than a running royalty as follows.
If, for example, Licensor is required to pay an upfront fee of $1 Million to a
third party, the total consideration then due under Section 8.3 to Licensee
shall be reduced by [*] until [*] of the upfront fee [*] has been recouped by
Licensor.

      (e) Royalties Payable Only Once. Licensor's obligation to pay royalties
under this Section 8.3 shall be imposed only once with respect to any net sale
of any Licensor Improvement Product. Only a single royalty shall be due and
payable by Licensor under this section 8.3 with respect to a Licensor
Improvement Product regardless of whether the Licensor Improvement Product is
covered by more than one claim of a Licensee Improvement Patent.

      (f) Timing of Royalty Payments. Within thirty (30) days after the end of
each fiscal quarter of Licensor, Licensor shall pay to Licensee the royalty
payment due for each such quarter in U.S. dollars, provided, however, that
solely with respect to any royalty payment due with respect to net sales made
pursuant to Sections 8.3(c)(A) or (B) herein, such thirty (30) day period


[*] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                      -22-
<PAGE>

may be extended to such longer period as Licensor may reasonably require, not to
exceed ninety (90) days, to determine the amount of such net sales for such
fiscal quarter. If consideration received by Licensor, or a sublicensee of
Licensor, pursuant to Section 8.3(c) is in a currency other than U.S. Dollars,
the consideration shall be converted from the currency of the country in which
the sales were made into U.S. Dollars at the month-end exchange rate for such
currency for such sales made during such month as determined by Licensor in
accordance with its standard accounting policies and procedures consistently
applied during each of Licensor's fiscal quarters. If any royalty or other
amount due Licensee is in a non-U.S. Dollar currency, and Licensor is prohibited
from exporting that currency from that jurisdiction, Licensor shall pay an
amount equal to the royalty or other amount due in such blocked currency into a
bank account of Licensee's choice in such jurisdiction, and such deposit shall
be deemed to be full satisfaction of Licensor's obligation to make the
applicable payment to Licensee.

      (g) Withholding Taxes. Licensee and Licensor shall use all commercially
reasonable and legal efforts to reduce tax withholding on any payments to be
made to Licensee pursuant to Section 8.3. If Licensor concludes that,
notwithstanding such efforts, tax withholding under the laws of any country is
required with respect to any royalty payment to be made to Licensee under this
Agreement, Licensor shall pay any applicable withholding taxes imposed by any
such political jurisdiction on such royalty payments, and the amount of any such
payments shall be credited against Licensor's royalty obligation under Section
8.3. Licensor shall promptly provide Licensee with, or promptly cause Licensee
to be provided with, original receipts or other evidence sufficient to allow
Licensee to obtain the benefits of any such tax withholding.

      (h) Expiration of Royalty Obligations. Subject to the next sentence, with
respect to Licensor Improvement Product, Licensor's obligation to pay a running
royalty shall terminate on a Licensor Improvement Product -by- Licensor
Improvement Product and country-by-country basis, upon the date that the last to
expire of any issued and enforceable Licensee Improvement Patent which covers
the manufacture, use, sale, or importing of such Licensor Improvement Product.
At the end of each such term, and on a country by country basis, Licensor shall
have a non-exclusive, worldwide, irrevocable, fully paid up license to make,
have made, use, offer to sell, sell, have sold (including through distributors),
and import such Licensor Improvement Product in such country. Notwithstanding
any other provision of this Agreement, the provisions of this Section 8.3 shall
survive any termination of this Agreement, except in the event Licensee
terminates this Agreement pursuant to Section 11.4.2 for Licensor's breach of
Section 8.3.

ARTICLE 9. FILING AND MAINTENANCE OF PATENTS:

Licensor shall in good faith file, prosecute, and maintain all Licensed Patents
in the Licensed Territory at its sole discretion and expense (except for
Co-Owned Patents for so long as Licensee has exclusive rights to First
Generation Exclusive Licensed Products), and except as follows. With respect to
Licensed Patents which include claims that cover First Generation Exclusive
Licensed Products, for so long as Licensee has exclusive rights to any First
Generation Exclusive Licensed Product, Licensor shall keep Licensee informed
with respect to the course and conduct of patent applications and prosecution
matters. With respect only to Licensed Patents which include claims that cover
First Generation Exclusive Licensed Products, Licensor shall use best efforts to
incorporate claims and arguments suggested by Licensee, provided said arguments
would not materially limit Licensor's ability to prosecute or enforce claims
directed to products

                                      -23-
<PAGE>

and methods outside the definition of First Generation Exclusive Licensed
Products. Licensee represents, warrants and covenants that it will not make
suggestions for claims and arguments that, in good faith, Licensee knows or
should know would limit the scope of Licensed Patents so as to not cover
(directly or under the Doctrine of Equivalents) any product or method of use of
a product marketed or to be marketed by Licensee. Licensor shall prosecute and
maintain Licensed Patents in the [*]. At
Licensee's expense, Licensor will prosecute and maintain Licensed Patents in
[*] and any other countries as
Licensee may request. Notwithstanding the foregoing in this Article 9, Licensee
shall have the sole right to file, prosecute, and maintain the Co-Owned Patents
for so long as Licensee has exclusive rights to First Generation Exclusive
Licensed Products, provided that Licensee shall keep Licensor informed with
respect to the course and conduct of patent applications and prosecution
matters.

ARTICLE 10. ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS:

   10.1 Notice to Licensor. Licensee shall inform Licensor promptly in writing
   of any activity by a third party (an "Infringer"), if Licensee believes such
   activity might constitute infringement of any Licensed Patent in the Licensed
   Field, including details then known to Licensee, and provided that Licensee's
   failure to provide notice under this Section 10.1 shall not impact Licensee's
   rights under Section 10.6.

   10.2 Right to Bring Suit - Licensor; Settlement. With respect only to suits
   brought against Infringers by Licensor with respect to infringing products
   that fall within the definition of First Generation Exclusive Licensed
   Products for which Licensee has exclusive rights under this Agreement,
   Licensor shall consult with and keep Licensee informed of the progress of
   such proceedings, including, without limitation, furnishing copies of
   communications, pleadings and other documents and keeping Licensee informed
   of settlement efforts and developments, and Licensee shall be entitled to
   participate with counsel in such proceedings, but at its own expense. With
   respect only to suits brought against Infringers by Licensor with respect to
   infringing products that fall within the definition of First Generation
   Exclusive Licensed Products for which Licensee has exclusive rights under
   this Agreement, no settlement, consent, judgment, or other voluntary final
   disposition of a suit with respect to infringement of any Licensed Patent may
   be entered into without the consent of Licensee, which consent may only be
   withheld based on Licensee's reasonable business judgment. Notwithstanding
   the foregoing, Licensor shall not have the right to bring suit under any
   Co-Owned Patents for so long as Licensee has exclusive rights to First
   Generation Exclusive Licensed Products.

   10.3 Right to Bring Suit - Licensee. With respect only to Licensed Patents
   (except for Co-Owned Patents for so long as Licensee has exclusive rights to
   First Generation Exclusive Licensed Products) and with respect to infringing
   products that fall within the definition of First Generation Exclusive
   Licensed Products or the Vitrasert Licensed Product for which Licensee has
   exclusive rights under this Agreement, if Licensor has not taken legal action
   or been successful in obtaining cessation of the infringement within (a)
   ninety (90) days from the date of notice by Licensee; (b) thirty (30) days
   after Licensee notifies Licensor that Licensee would like to move for
   injunctive relief; or (c) ten (10) days before the expiration of a period of
   time set by applicable law in which action must be taken with respect to the
   alleged infringement (e.g., as may be required under the Hatch-Waxman Act and
   35 USC Section 271),


   [*] - INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
   TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH
   THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND
   EXCHANGE ACT OF 1934, AS AMENDED.


                                   -24-
<PAGE>

   Licensee has the right but not the obligation to bring suit against an
   Infringer at Licensee's own expense. This right of Licensee to bring suit, as
   well as to continue an existing suit, is also conditioned on all of the
   following requirements:

      (i)   If Licensee owns (or has licensed from a third party and has the
            right to enforce) any patent(s) that literally reads-on the
            allegedly infringing device or method (collectively, the "Accused
            Device") practiced by the Infringer, Licensee will include in the
            complaint one or more claims alleging infringement of all such other
            patent(s);

      (ii)  Licensee has provided evidence to Licensor that there is a good
            faith basis to believe that the Accused Device is being prepared for
            commercialization;

      (iii) Licensee will use reasonable efforts to keep Licensor reasonably and
            timely informed of the pre-litigation and litigation issues and
            strategy (including, without limitation, furnishing copies of
            communications, pleading, and other documents and keeping Licensor
            informed of settlement efforts and developments), and will use
            reasonable effort to obtain suggestions and strategy from Licensor,
            including during pre-trial motions and discovery;

      (iv)  In the instance of litigation issues and strategies pertaining to
            defenses or setting strategy for the scope of claims, Licensee shall
            incorporate all suggestions and strategy from Licensor as may be
            deemed appropriate in the reasonable business judgment of Licensor;
            and

Except for joining the legal actions described in this Section 10.3 as a party
at Licensee's request, Licensor shall have no obligation regarding such actions
unless required to participate by law or contract, but Licensor will provide
reasonable assistance at the request of Licensee as provided in Section 10.5
below. However, Licensor shall have the right to participate in any such actions
through its own counsel and at its expense.

No settlement, consent judgment or other voluntary disposition of a suit
(collectively, "Settlements") with respect to infringement of any Licensed
Patent (except for Co-Owned Patents for so long as Licensee has exclusive rights
to First Generation Exclusive Licensed Products) may be entered into without the
consent of Licensor, which shall not be unreasonably withheld or delayed, and
provided that no such consent shall be required where the impact of the
settlement, consent judgment or other voluntary disposition is limited to the
Licensed Field for First Generation Exclusive Licensed Product for which
Licensee has exclusive rights under this Agreement.

   10.4 UKRF. If neither Party commences actions or proceedings against
   Infringers or unauthorized users of any Licensed Patent or Know-how that has
   been licensed from UKRF within the time periods specified above, UKRF shall,
   at its expense, have the right to initiate and pursue such action and receive
   all resulting benefits.

   10.5 Expense. If either Party shall initiate or carry on legal proceedings
   against any Infringer as contemplated hereby, the other Party shall fully
   cooperate with and supply all assistance

                                      -25-
<PAGE>

   reasonably required by the first Party. The first Party shall consult with
   and keep the other Party informed of the progress of such proceedings,
   including, without limitation, furnishing copies of communications, pleadings
   and other documents and keeping the other Party informed of settlement
   efforts and developments, and the other Party shall be entitled to
   participate with counsel in such proceedings, but at its own expense.

If Licensee initiates and carries on such proceedings, it may offset [*],
including reasonable legal expenses, incurred in regard thereto against any
payments owed to Licensor under Article 3 of this Agreement, provided, however,
that after the initiation of any such proceedings, no such payment shall be
reduced by more than [*].

Any award paid by any third party as a result of such proceedings (whether by
way of settlement or otherwise) shall be first applied to reimbursement of the
unreimbursed legal fees and expenses incurred by the Parties, pro rata in
proportion to such fees and expenses, then to the payment to Licensor of any
amounts that were offset against royalty or other payments as provided above,
and then the remainder shall be divided by the Parties pro rata in proportion to
the fees and expenses incurred by the Parties, after reimbursement by Licensor
of Licensee's expenses pursuant to the royalty off-set set forth above, in
connection with any action against the Infringer; provided, however, that each
Party (regardless of the extent, if any, to which such Party participates in
such action) shall be entitled, after reimbursement of any applicable expenses
and royalties as provided herein, to no less than [*] of any net recovery.

   10.6 Co-Owned Patents. Notwithstanding anything to the contrary in this
   Section 10.6, Licensee has the sole right, at Licensee's own expense, to
   bring and control any suits under the Co-Owned Patents against a third party
   for so long as Licensee has exclusive rights to First Generation Exclusive
   Licensed Products. Licensor shall have the right to participate in any such
   suits through its own counsel and at its expense. Licensor shall reasonably
   assist Licensee, with respect to such suits, at Licensee's request and
   expense. If required by law, Licensee may join Licensor as a party to any
   such suit, provided that Licensee shall hold Licensor harmless from, and
   indemnify Licensor against, any costs, expenses, or liability that Licensor
   incurs in connection with such suit. To the extent a suit is related to
   Co-Owned Patents and not any Licensed Patents, Licensor Improvement Patents
   or Other Technology, Licensee shall have the right to settle any such suit
   for so long as Licensee has exclusive rights to First Generation Exclusive
   Licensed Products. Any award paid by any third party as a result of such
   proceedings (whether by way of settlement or otherwise) (a) shall be first
   applied to reimbursement of the unreimbursed legal fees and expenses incurred
   by either Party pro rata in proportion to such fees and expenses, then (b)
   Licensor shall receive an amount equal to such reasonable approximation of
   the royalties that Licensee would have paid to Licensor if Licensee had sold
   the infringing products and services rather than the infringer. Any remaining
   amounts after reimbursement pursuant to (a) and (b) above shall be solely for
   the account of Licensee for proceedings under this Section 10.6.


   [*] - INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
   TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH
   THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND
   EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
ARTICLE 11. TERM; TERMINATION:

   11.1 Expiration of Royalty Obligations. Subject to the next sentence, with
   respect to Non-Exclusive Licensed Products, Licensee's obligation to pay a
   running royalty shall terminate on a Licensed Product-by-Licensed Product
   and country-by-country basis, upon the date that the last to expire of any
   issued and enforceable Licensed Patent or Licensor Improvement Patent
   which covers the manufacture, use, sale, or importing of such
   Non-Exclusive Licensed Product in such country expires. At the end of each
   such term, and on a country by country basis, Licensee shall have a
   non-exclusive, worldwide, irrevocable, fully paid up license to make, have
   made, use, offer to sell, sell, have sold (including through
   distributors), and import such Licensed Products in such country. Subject
   to the next sentence, with respect to First Generation Exclusive Licensed
   Products, Licensee's obligation to pay a running royalty shall terminate
   on a Licensed Product-by-Licensed Product and country-by-country basis,
   upon the date that is the later of (i) the last to expire of any issued
   and enforceable Licensed Patent or Licensor Improvement Patent which
   covers the actual manufacture, use, sale, or importing of such Licensed
   Product in such country, or (ii) ten (10) years from the last new FDA or
   other comparable approval with respect to an indication for the applicable
   Licensed Product in the applicable country but in no event more than
   twenty (20) years from the date of the first FDA or comparable approval
   for the first indication with respect to such Licensed Product in such
   country. At the end of each such term, and on a country by country basis,
   Licensee shall have an irrevocable, fully paid up license under the
   Licensed Patents in the Licensed Field to make, have made, use, offer to
   sell, sell, and import such Licensed Product in such country.

   11.2 Term. This Agreement shall continue for the Term, unless earlier
   terminated by Licensor or Licensee as provided herein.

   11.3 Termination by Licensor. Licensor shall have the right to terminate
   this Agreement and the licenses granted hereunder upon the happening of
   any of the following events:

11.3.1 Failure to Pay. Licensee fails to pay or cause to be paid any royalty or
      other payment which has become due to Licensor under this Agreement,
      within thirty (30) days after receiving a written request from Licensor to
      make such payment or to cause such payment to be made; provided, however,
      that if any payment is disputed in good faith by Licensee, Licensee may
      delay paying the disputed portion of such payment by invoking the dispute
      resolution procedure set forth in Article 22. If the dispute resolution
      procedure results in a final determination that Licensee owes some or all
      of such disputed amount, Licensee shall pay such owed amount within thirty
      (30) days of the determination pursuant to Article 22 as provided therein,
      together with interest thereon from the date such amount was due at one
      and one-half (1.5) times the prime rate in effect at such determination as
      announced by Chase Manhattan Bank, N.A. In addition to any other
      termination rights Licensor may have under this Section, if Licensee fails
      to pay Licensor such owed amount within thirty (30) days of the final
      determination as set forth above, Licensor may, subject to the next
      sentence, terminate this Agreement upon thirty (30) days' written notice
      to Licensee. Notwithstanding the foregoing, if Licensee's failure to pay
      or cause to be paid royalties or other payments is limited to royalties or
      payments for: (a) a First Generation Exclusive Licensed Product, then
      Licensor's right to terminate pursuant to the provisions of this Section
      11.3.1 shall be limited to termination

                                      -27-
<PAGE>

      of Licensee's rights to all First Generation Exclusive Licensed Product;
      (b) a Non-Exclusive Licensed Product, then Licensor's right to terminate
      pursuant to the provisions of this Section 11.3.1 shall be limited to
      termination of Licensee's rights to all Non-Exclusive Licensed Product;
      and (c) a Vitrasert Licensed Product, then Licensor's right to terminate
      pursuant to the provisions of this Section 11.3.1 shall be limited to
      termination of Licensee's rights to all Vitrasert Licensed Product;

11.3.2 Breach. Licensee has materially breached or materially defaulted under
      this Agreement as a result of a breach or default of any other provision
      of this Agreement and has not cured such breach or default within ninety
      (90) days after written notice from Licensor to Licensee specifying the
      nature of such breach or default in reasonable detail; provided, however,
      that if Licensee has invoked the dispute resolution procedure set forth in
      Article 22, this Agreement may not be terminated except in accordance with
      such Article; and further provided that if Licensee's material breach or
      default is limited to a material breach or default relating to: (a) First
      Generation Exclusive Licensed Product, then Licensor's right to terminate
      pursuant to the provisions of this Section 11.3.2 shall be limited to
      termination of (i) the specific First Generation Exclusive Licensed
      Product for which the breach or default occurred; or (ii) with respect to
      any further material breach or default thereafter, Licensee's rights to
      all First Generation Exclusive Licensed Product; (b) Non-Exclusive
      Licensed Product, then Licensor's right to terminate pursuant to the
      provisions of this Section 11.3.2 shall be limited to termination of (i)
      the specific Non- Exclusive Licensed Product for which the breach or
      default occurred; or (ii) with respect to any further material breach or
      default thereafter, Licensee's rights to all Non-Exclusive Licensed
      Product; and (c) Vitrasert Licensed Product, then Licensor's right to
      terminate pursuant to the provisions of this Section 11.3.2 shall be
      limited to termination of Licensee's rights to all Vitrasert Licensed
      Product; or

11.3.3 Bankruptcy. The filing of a bankruptcy petition by or against the
      Licensee, the entry by Licensee into a trust deed, creditor's arrangement
      or comparable proceeding, or the appointment of a receiver for
      substantially all of the assets or business of Licensee that is not
      dismissed within ninety (90) days from the date of such filing or
      appointment.

   11.4 Termination by Licensee. Licensee shall have the right to terminate
   this Agreement and the licenses granted hereunder upon the happening of
   any of the following events:

11.4.1 Without Cause. Licensee may terminate this Agreement at any time without
      cause in its entirety or with respect to a Vitrasert Licensed Product or a
      Non-Exclusive Licensed Product on ninety (90) days' written notice to
      Licensor. Upon termination of this Agreement in its entirety, Licensee
      shall remain liable for all Milestone Payments, royalty payments, and
      other payments under this Agreement falling due before the end of the
      first ninety (90) days after Licensor's receipt of the notice of
      termination without cause. Thereafter, for an additional ninety (90) days
      (for a total of one hundred eighty (180) days after Licensor's receipt of
      the notice of termination), Licensee shall continue to be liable for all
      payments, including, but not limited to, royalty payments, due under the
      Agreement, excluding Milestone Payments. Upon termination of this
      Agreement with respect to a Vitrasert Licensed Product or a Non-Exclusive
      Licensed Product, Licensee shall remain liable for all payments then due
      with respect to such Licensed

                                      -28-
<PAGE>

      Product(s), and thereafter Licensee shall have the right for one hundred
      eighty (180) days to sell off any inventory of such Licensed Product(s),
      and shall remain liable for the royalties due, if any, with respect to
      such sales.

11.4.2 Breach. Licensee may terminate this Agreement if Licensor has materially
      breached or defaulted under any provision of this Agreement and has not
      cured such breach or default within ninety (90) days after written notice
      from Licensee to Licensor specifying the nature of such breach or default
      in reasonable detail; provided, however, that if Licensor has invoked the
      dispute resolution procedure set forth in Article 22, this Agreement may
      not be terminated except in accordance with such Article.

      11.5 Bankruptcy. All rights and licenses granted under or pursuant to this
      Agreement by one Party to the other are, for all purposes of Section
      365(n) of Title 11 of the United States Code ("Title 11"), licenses of
      rights to "intellectual property" as defined in Title 11. During the term
      of this Agreement each Party shall create and maintain current copies to
      the extent practicable of all such intellectual property. If a bankruptcy
      proceeding is commenced by or against one Party under Title 11, the other
      Party shall be entitled to a copy of any and all such intellectual
      property and all embodiments of such intellectual property, and the same,
      if not in the possession of such other Party, shall be promptly delivered
      to it (a) upon such Party's written request following the commencement of
      such bankruptcy proceeding, unless the Party subject to such bankruptcy
      proceeding, or its trustee or receiver, elects within thirty (30) days to
      continue to perform all of its obligations under this Agreement, or (b) if
      not delivered as provided under clause (a) above, upon such other Party's
      request following the rejection of this Agreement by or on behalf of the
      Party subject to such bankruptcy proceeding. If Licensee has taken
      possession of all applicable embodiments of the intellectual property of
      Licensor pursuant to this Section 10.5 and the trustee in bankruptcy of
      Licensor does not reject this Agreement, Licensee shall return such
      embodiments upon request. If Licensor seeks or involuntarily is placed
      under Title 11 and the trustee rejects this Agreement as contemplated
      under 11 U.S.C. 365(n)(1), Licensee hereby elects, pursuant to Section
      365(n) to retain all rights granted to Licensee under this Agreement to
      the extent permitted by law.

      11.6 Effect of Termination. Upon termination of this Agreement for any
      reason, nothing herein shall be construed to release either Party from any
      obligation that matured prior to the effective date of such termination.
      The provisions of the following Sections shall survive termination of this
      Agreement for any reason: Article 1, Sections 2.4, 2.7, 2.8 (except as set
      forth therein), 2.9, 2.10, 3.5, 3.7, 7.2, 7.3, 8.1, 8.2, 8.3 (except where
      termination of this Agreement is pursuant to Section 11.4.2 for Licensor's
      breach of Sections 8.3), Sections 11.1, 11.3, 11.4, 11.5, 11.6, 11.7,
      Articles 12, 14, 15, 16, 17, 21, 22, 23, 24, 25, 26, 27, 28, 30, 31, 32,
      34, 35 and 36. Licensee and any Sublicensee may, after a termination, sell
      all Licensed Products which are in inventory at the time of termination
      and complete and sell Licensed Products which Licensee can clearly
      demonstrate were in the process of manufacture at the time of such
      termination, provided that Licensee shall pay to Licensor any royalties or
      other payments due on the sale of such Licensed Products and shall submit
      reports, in accordance with this Agreement.

      11.7 Grant Back. Except under the circumstances described in the last
      sentence of this Section, solely for the purpose of enabling Licensor and
      its licensees to continue the

                                      -29-
<PAGE>

   development and commercialization of First Generation Exclusive Licensed
   Products to which Licensee no longer has rights, Licensee shall grant to
   Licensor a fully paid-up, irrevocable, non-exclusive, worldwide license,
   with the right to grant sublicenses under the Licensee Patents (as defined
   below), if any, to make, have made, use, sell, and import any First
   Generation Exclusive Licensed Product that is at the time being
   commercialized (other than a Third Party Licensed Product) and for no
   other purpose. For purposes of the foregoing, "Licensee Patent" means any
   Patent Right existing at the time of termination of this Agreement which
   would block Licensor from practicing any Patent Right included in the
   Licensed Patents. Licensor shall not be entitled to any grant back under
   this Section if this Agreement is terminated by Licensee under Section
   11.4.2 or 11.5 or if Licensee's obligation to pay royalties has expired
   pursuant to Section 11.1.

ARTICLE 12. OWNERSHIP OF CLINICAL IP:

   12.1 Clinical IP Outside Licensees License Rights. Subject to any rights
   or restrictions imposed by applicable third parties, and to protections
   for Confidential Information herein, Licensee shall provide Licensor with
   a Right of Access to Clinical IP, provided that Licensor shall not use
   such Clinical IP for a Licensed Product in the Licensed Field so long as
   Licensee has a license for such Licensed Product under this Agreement.

   12.2 Clinical IP-Cooperation. Licensee shall use commercially reasonable
   efforts, and shall reasonably cooperate with Licensor, to provide Licensor
   with such waivers, irrevocable cross reference letters, assignments,
   and/or other reasonable documentation as may be necessary or useful for
   Licensor's full exercise of any Right of Access to Clinical IP granted by
   Licensee to Licensor pursuant to this Article 12.

ARTICLE 13. UNIVERSITY OF KENTUCKY RESEARCH FOUNDATION LICENSES:

Licensor shall maintain the UKRF Licenses in full force and effect, including
(without limitation) making all royalty payments. Licensor shall not, after the
Amendment Date, amend or modify the UKRF Licenses without Licensee's prior
written consent, which consent shall not be unreasonably withheld or delayed,
provided, however, that after providing prior written notice to Licensee,
Licensor may amend or modify the UKRF Licenses without Licensee's prior written
consent so long as such amendment would not have an adverse impact on Licensee's
rights or increase the cost to Licensee of exercising such rights.
Notwithstanding the foregoing, if UKRF delivers a notice of nonpayment of
royalties or of any other breach of any of the UKRF Licenses to Licensor,
Licensor shall immediately notify Licensee and Licensee shall have the right to
make such payments directly to UKRF or otherwise to cure such breach. In
addition, Licensor shall inform UKRF of the existence of this Agreement and
request UKRF to send a copy of all default notices to Licensee simultaneously
with any notice of default to Licensor and to permit Licensee to assume, upon
receipt of written notice from Licensee to UKRF, Licensor's obligations under
the UKRF License(s) to which such default notice applies. Licensee shall have
the right to offset the payments made to UKRF and the cost of curing any default
under any of the UKRF Licenses against future royalties or other payments due
Licensor under this Agreement as provided in Article 19.

                                      -30-
<PAGE>

ARTICLE 14. INDEMNIFICATION:

   14.1 Indemnification of Licensee. Subject to Sections 14.2 and 14.3,
   Licensor shall indemnify, defend and hold Licensee and each of its
   officers, directors, employees, agents and consultants (each a "Licensee
   Indemnitee") harmless from and against all third party costs, claims,
   suits, expenses (including reasonable attorneys' fees and expenses,
   whether incurred as a result of a third party claim or a claim to enforce
   this provision), damages, and, solely with respect to the Vitrasert
   Licensed Product, any amounts paid by Licensee to a third party pursuant
   to any agreement between Licensee and the third party for the manufacture,
   distribution, promotion, or sale of the Vitrasert Licensed Product (a
   "Vitrasert Third Party Loss") (collectively, including a Vitrasert Third
   Party Loss, "Losses") to the extent arising out of or resulting from (i)
   any material breach or failure by Licensor in the performance or
   non-performance of its obligations or covenants under this Agreement; (ii)
   any breach by Licensor of any representation or warranty hereunder; (iii)
   the manufacture, marketing, possession, use, sale or other disposition by
   Licensor or any of its sublicensees other than Licensee or any Sublicensee
   of any Licensed Product (except to the extent where such Losses arise or
   result from any negligence of Licensee (or any contract manufacturer of
   Licensee) in the manufacture of any such Licensed Product or the failure
   of Licensee (or any contract manufacturer of Licensee) to manufacture such
   Licensed Product in accordance with GMPs); (iv) FDA enforcement actions,
   inspections, product recalls or market withdrawals relating to a Licensed
   Product to the extent arising out of or resulting from Licensor's
   marketing, possession, use, sale or other disposition of the Licensed
   Product; and (v) any material breach or failure by Licensor in the
   performance of any Clinical Agreement or Trial Agreement except for (a)
   the payment obligations expressly assumed by Licensee pursuant to Article
   36, and (b) breaches of a Clinical Agreement or Trial Agreement to the
   extent resulting from a delay by Licensee in providing notice of
   termination or assignment and assumption to third parties pursuant to
   Article 36. Notwithstanding the foregoing or anything else in the
   Agreement to the contrary, Licensee's remedies under this Section 14.1 or
   any other provision of this Agreement, including without limitation
   Section 2.11, for any Vitrasert Third Party Loss and for Frustration
   Claims pursuant to Section 2.11 herein, shall be limited to, in the
   aggregate, and satisfied solely out of, the amount of royalties for
   Vitrasert Licensed Products received by Licensor after the date of
   Licensor's receipt of written notice from Licensee of such Frustration
   Claim or Vitrasert Third Party Loss specifying the nature and amount of
   the claim or loss in reasonable detail.

   14.2 Indemnification of Licensor. Subject to Sections 14.1 and 14.2,
   Licensee shall indemnify, defend and hold Licensor and each of its
   officers, directors, employees, agents and consultants (each a "Licensor
   Indemnitee") harmless from and against all Losses to the extent arising
   out of or resulting from (i) any material breach or failure by Licensee in
   the performance or non-performance of its obligations or covenants under
   this Agreement; (ii) any breach by Licensee of any representation or
   warranty hereunder; (iii) the manufacture, marketing, possession, use,
   sale or other disposition of any Licensed Product by Licensee or any
   Sublicensee (except to the extent where such Losses arise or result from
   any negligence of Licensor (or any contract manufacturer of Licensor) in
   the manufacture of any such Licensed Product or the failure of Licensor
   (or any contract manufacturer of Licensor) to manufacture the Licensed
   Product in accordance with GMPs); and (iv) FDA enforcement actions,
   inspections, product recalls or market withdrawals relating to a Licensed
   Product to the extent

                                      -31-
<PAGE>

   arising out of or resulting from Licensee's marketing, possession, use,
   sale or other disposition of the Licensed Product or the failure of
   Licensee (or any contract manufacturer of Licensee) to manufacture the
   Licensed Product in accordance with GMPs or the specifications for the
   Licensed Product.

   14.3 Limitation of Liability. Except where a Party commits a willful,
   intentional breach of any material provision of this Agreement, no
   breaching Party shall be responsible or liable under any provision of this
   Agreement or under any contract, theory of negligence or strict liability,
   or under any other legal or equitable theory for any resulting indirect,
   special, incidental, consequential, punitive, or exemplary damages of the
   other Party, including (without limitation) damages such as lost revenues
   or profits and damage to goodwill or reputation. Nothing in this Section
   shall relieve any Party of any obligation with respect to any third party
   claim.

   14.4 Procedure for Indemnification. If an event occurs which a Party
   believes requires indemnification (Indemnification Event"), the Party
   seeking indemnification ("Indemnified Party") shall give prompt written
   notice to the other Party ("Indemnifying Party") providing reasonable
   details of the nature of the event and the basis of the indemnity claim.
   The Indemnifying Party shall then have the right, at its expense and with
   counsel of its choice, to defend, contest, or otherwise protect against
   any such action. The Indemnified Party shall also have the right, but not
   the obligation, to participate at its own expense in the defense with
   counsel of its choice. The Indemnified Party shall cooperate as requested
   by the Indemnifying Party to assist it in defending or contesting any such
   action. If the Indemnified Party fails to promptly notify the Indemnified
   Party of the occurrence of an Indemnification Event, to the extent, but
   only to the extent, that such failure results in a material adverse effect
   on the Indemnifying Party, the Indemnified Party shall not be entitled to
   indemnification with respect to such Indemnification Event. If the
   Indemnifying Party fails within thirty (30) days after receipt of such
   notice: (a) to notify the Indemnified Party of its intent to defend, or
   (b) to defend, contest, or otherwise protect against such suit, action,
   investigation, claim or proceeding, or fails to diligently continue to
   provide such defense after undertaking to do so, the Indemnified Party
   shall have the right, upon ten (10) days' prior written notice to the
   Indemnifying Party, to defend, settle and satisfy any such suit, action,
   claim, investigation or proceeding and recover the costs of the same from
   the Indemnifying Party.

   14.5 Insurance. To the extent required by the UKRF Licenses, Licensee will
   maintain product liability insurance, with an endorsement naming UKRF, the
   University of Kentucky, its Board of Trustees, agents, officers, and
   employees as additional insureds covering liabilities for the production,
   manufacture and/or sale of the Licensed Product by Licensee or any
   Sublicensee. The policy of insurance shall contain a provision of
   non-cancellation except upon the provision of thirty (30) days' notice to
   the University of Kentucky. Policy limits shall be not less than
   $1,000,000 per occurrence.

ARTICLE 15. TRADEMARKS:

Licensee shall own the logos, trade names, copyrights, trademarks, and other
commercial symbols ("Marks") developed or used in connection with any and all
Licensed Products. During and after the term of this Agreement, Licensor shall
not directly or indirectly contest the

                                      -32-
<PAGE>

ownership, validity or originality of the Marks for the Licensed Products, the
Third Party Licensed Products, and the goodwill represented by any of the
foregoing Marks. Licensor will not use any name or other symbol confusingly
similar to or, in the reasonable judgment of Licensee, suggestive of any of the
foregoing Marks. If Licensor learns of any unauthorized use of any such Marks it
shall promptly inform Licensee in writing.

ARTICLE 16. REPRESENTATIONS AND WARRANTIES:

   16.1 Representations and Warranties of Both Parties. As of the Amendment
   Date, each Party hereby represents and warrants to the other Party that:

      (i)   It is a corporation duly organized, validly existing, and in good
            standing under the laws of the jurisdiction of its incorporation.

      (ii)  It has all requisite corporate power and authority and is free to
            enter into this Agreement and to perform its obligations hereunder
            without the need for any other action or consent;

      (iii) It has taken all corporate and other action to authorize the
            execution and delivery of this Agreement, any other documents
            executed and delivered in connection herewith and the performance of
            its obligations hereunder and thereunder, all of which shall be
            valid, binding and enforceable in accordance with its or their
            terms;

      (iv)  The execution, delivery, and performance of this Agreement (a) will
            not violate or require it to obtain any consent or approval, to make
            any filing or to provide any notice, or (b) will not conflict with
            or result in a breach of any agreement or other instrument to which
            it is a party or by which it is bound;

      (v)   It is not a party to any agreement with any third party which is in
            conflict with the rights granted to the other pursuant to this
            Agreement, including, without limitation, with respect to the
            Licensed Patents; and

      (vi)  Except as described in Exhibit 16.1(vi), there is no litigation,
            proceeding, or governmental investigation to which it is a party
            pending or threatened against it, or, to its knowledge, against any
            third party, as to which there is a likelihood of an outcome(s) that
            would, individually or in the aggregate, reasonably be expected to
            delay or otherwise materially impair its ability to perform its
            obligations contemplated by this Agreement.

16.2 Representations and Warranties of Licensor. Licensor hereby represents and
warrants to Licensee as of the Amendment Date that:

      (i)   The UKRF Licenses set forth in Exhibit 1.47 are the only UKRF
            Licenses, all of which are in full force and effect and have not
            been amended or modified without Licensee's written consent;
            Licensor has complied with all provisions of the UKRF Licenses;
            Licensor owes no royalty or other payment to UKRF or any affiliate
            of UKRF under the UKRF Licenses and there does not exist any event
            of

                                      -33-
<PAGE>

            default with respect to Licensor under any of the UKRF Licenses
            which, after notice or lapse of time or both, would constitute an
            event of default with respect to Licensor;

      (ii)  Licensor has all rights and consents necessary to grant the rights
            and licenses granted to Licensee under this Agreement;

      (iii) Except for the Co-Owned Patents, and as described in Exhibit
            16.2(iii), Licensor warrants that it owns the entire right, title,
            interest in and to the Licensed Patents and that the entire interest
            is not encumbered in any manner;

      (iv)  Licensor has made written request of all patent counsel engaged by
            Licensor for all opinions of counsel, clearances, studies, licenses,
            and agreements relating to Licensed Products, and has provided
            Licensee with all information relating to Licensed Products received
            by Licensor as of the Amendment Date in response to such requests
            and further, has provided Licensor all other formal written opinions
            of counsel, licenses, and agreements relating to First Generation
            Exclusive Licensed Products;

      (v)   The Persons who are listed on Exhibit 16.2(v) are all of the
            officers, employees, and consultants of Licensor as of the Amendment
            Date. Except as set forth in Exhibit 16.2(v), each of such Persons
            has signed a confidentiality and invention disclosure and assignment
            agreement (a) which requires such individual to observe
            confidentiality restrictions at least as strict as those between the
            Parties, and (b) which results in Licensor having unrestricted
            ownership of any intellectual property created by such individual
            during his or her employment or engagement by Licensor, including
            (without limitation) all intellectual property created or developed
            by such individual before the date of this Agreement during such
            employment or engagement; and

      (vi)  Licensor has not received any written communication from a third
            party that a Licensed Product may or actually does infringe or
            otherwise violate any intellectual property right of such third
            party. Licensor's officers as of the Amendment Date have not
            received any oral communication from a third party that a Licensed
            Product may or actually does infringe or otherwise violate any
            intellectual property right of such third party.

As used in this Agreement, (i) "to Licensor's knowledge" (or any equivalent
term) means to the best actual knowledge, as of the date of this Agreement, of
Licensor and its officers after diligent investigation, without commissioning
special searches or studies, and (ii) "to Licensee's knowledge" (or any
equivalent term) means to the best actual knowledge, as of the date of this
Agreement, of Licensee and its officers after diligent investigation, without
commissioning special searches or studies.

ARTICLE 17. WARRANTY DISCLAIMER:

EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES,
AND HEREBY DISCLAIMS, ANY EXPRESS OR IMPLIED WARRANTY INCLUDING, WITHOUT
LIMITATION, ANY IMPLIED

                                      -34-
<PAGE>

WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR
NON-INFRINGEMENT WITH RESPECT TO ANY OF THE RIGHTS OR INTERESTS GRANTED
HEREUNDER, INCLUDING WITHOUT LIMITATION THOSE WITH RESPECT TO THE LICENSED
PATENTS OR LICENSOR IMPROVEMENT PATENTS OR KNOW-HOW OR ANY LICENSED PRODUCT.

ARTICLE 18. OPERATIONS IN COMPLIANCE WITH LAW:

Up to the date of this Agreement, each Party has complied, and in exercising the
rights granted to each Party by this Agreement, each Party shall comply, in all
material respects with all applicable laws, including, without limitation, the
requirements of 35 U.S.C. Section 200 et seq. and all regulations promulgated
thereunder, as amended, and any similar or successor statutory regulations
(collectively, the "Federal Patent Policy"). To the extent that any Licensed
Patent or Licensor Improvement Patent claims an invention subject to Federal
Patent Policy, the license granted to Licensee hereunder with respect to such
Licensed Patent or Licensor Improvement Patent may be subject to any
royalty-free, non-exclusive license granted to the United States Government
pursuant to 35 U.S.C. Section 204(c)(4).

ARTICLE 19. INFRINGEMENT OF THIRD PARTY'S PATENTS:

Licensee shall promptly send Licensor a copy of any notice or communication from
a third party alleging that Licensee's exercise of its rights under this
Agreement infringe or otherwise violate such third party's intellectual property
rights ("Notice"). Licensor shall have the first right, but shall not be
obligated, to respond to the Notice. If Licensor does not elect to respond,
Licensor shall promptly inform Licensee and Licensee may respond to the Notice.
If Licensee defends such proceedings, it may offset [*], including reasonable
legal expenses, incurred in regard thereto against any payments owed to Licensor
under Article 3, provided, however, that no such payment shall be reduced by
more than [*] by any such offset [*]. Licensee shall continue to perform its
reporting obligations under Article 7 and otherwise continue to perform its
obligations hereunder.

Licensee shall not settle any infringement, misappropriation, or other claim
subject to this Article 19 without the consent of Licensor.

If any Licensed Product is covered by an issued patent or other intellectual
property right held by one or more third parties and it becomes necessary for
Licensee to obtain a license from such third party or parties under such patent,
and/or other intellectual property right and accordingly to pay royalties to
such third party(ies) with respect to any Net Sale of any Licensed Product, then
Licensee may reduce any royalty otherwise due Licensor by [*] of the amount of
royalty payment due to such third party, but in no event to less than [*] of the
royalty which may then be due to Licensor. In addition, if Licensee is required
to pay any an upfront or similar fee to any third party(ies), Licensor shall
share in the payment of any such consideration which involves more than a
running royalty as follows. If, for example, Licensee is required to pay an
upfront fee of $1 Million to a third party, the royalty payments then due
Licensor shall be reduced by [*] until [*] of the upfront fee [*] has been
recouped by Licensee.


[*] - INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.


                                      -35-
<PAGE>


If Licensee is required to pay any damages (i.e., something other than
prospective royalties and upfront or similar fees ) to the third party, Licensee
shall be responsible for the payment of any such damages to the third party and
shall be permitted to recoup one-half (1/2) of such payment from Licensor as
follows: If, for example, Licensee is required to pay damages of $1 Million to
the third party, Licensor's royalty payments otherwise due under this Agreement
shall be reduced by [*] until [*] of the damages [*] have been recouped by
Licensee.

Except as set forth below, any reduction of royalties due to Licensor as a
result of a recoupment of running royalties, upfront fees, and damages in the
aggregate arising out of a third party claim of infringement or violation of
intellectual property rights under this Section shall not reduce any single
royalty payment otherwise due Licensor hereunder by more than [*].

Licensor shall provide Licensee with a copy of any notice of default or breach
received by Licensor which relates in any way to the UKRF Rights within five (5)
business days of receipt of such notice. If Licensor fails to make any payment
before any applicable cure period has expired, Licensee may make such payment in
Licensor's name and on Licensor's behalf before such cure period expires, and
Licensee may fully recover any payment made by Licensee under this paragraph at
the applicable rate described in the next paragraph. Licensor's remedy for
recovering payments made by Licensee to any third party pursuant to this
paragraph shall be limited to recovery from such third party and not Licensee.

Except as set forth below, where Licensee seeks recoupment for payment(s) made
to UKRF as a result of Licensor's failure to make any payment to UKRF, Licensee
shall be permitted to recoup [*] of such payment to UKRF against [*] percent of
the royalty then due to Licensor as follows ("[*] Recoupment Rate"): Licensee
may reduce any royalty payment otherwise due to Licensor hereunder by [*] of
such royalty payment less any royalties payable by Licensor to UKRF ("Net
Royalty Amount"). [*]. The [*] Recoupment Rate shall not apply where Licensee
seeks recoupment for payment(s) made to UKRF where Licensor's decision not to
make any payment to UKRF (i) was made on the basis of a written opinion of
reputable outside patent counsel; (ii) the opinion and any other relevant
information was fully disclosed to Licensee within a reasonable time prior to
Licensor's decision not to pay; and (iii) where, following such disclosure,
Licensee failed to require Licensor to make the payment in accordance with the
provisions of the previous paragraph on the basis of the written opinion of
counsel as provided therein. In such case Licensee shall be permitted to recoup
[*] of Licensee's payment to UKRF by reducing any royalty payment otherwise due
to Licensor hereunder by [*].


[*] - INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.


                                      -36-
<PAGE>

ARTICLE 20. FORCE MAJEURE:

Neither Party shall be liable for any failure to perform arising out of causes
beyond the control and without the fault or negligence of such Party. Such
causes include, but are not limited to, acts of God; acts of the public enemy;
acts of terrorism, natural disasters such as fire or flood or unusually severe
weather; quarantine restrictions; strikes; and freight embargoes.

ARTICLE 21. CHOICE OF LAW/FORUM:

Any legal or other action hereunder shall be brought in the State and federal
courts nearest the principal place of business of the defendant in any such
action, and this Agreement shall be construed and interpreted and its
performance shall be governed by the substantive laws of the State where such
courts are located, i.e., New York, if Licensee is the defendant, and
Massachusetts, if Licensor is the defendant, without regard to the state's
conflict of laws principles. The Parties consent to the exclusive personal
jurisdiction and venue of such courts in the event of such action. In construing
this Agreement, neither Party shall have been deemed to have drafted this
Agreement, and no court or arbitrator will construe or interpret this Agreement
in favor of a Party based on the presumption that it did not draft the term or
clause at issue, it being agreed that each Party has ably represented itself and
has been ably represented by counsel.

ARTICLE 22. DISPUTE RESOLUTION:

If there is any dispute arising out of or relating to this Agreement or a
Party's performance or failure to perform hereunder, such dispute shall, at the
written request of either Party be submitted to the top executive officer of
each Party, or another executive officer of a Party designated by the top
executive officer as his or her representative for such purpose. The initial
Representatives are the General Manager, North American Pharmaceuticals, for
Licensee, and the President of Licensor. The Representatives shall meet as soon
as reasonably practicable to consider the matter and each shall each use
reasonable commercial efforts to effect a resolution. If the Representatives are
able to resolve the dispute, the resolution shall be set forth in a written
instrument signed by each of them.

If the Representatives are not able to resolve the dispute within thirty (30)
days of their first meeting or within such extended period they agree upon, they
shall proceed to non-binding arbitration by a skilled mediator familiar with the
commercial and manufacturing processes of the pharmaceutical industry and
pursuant to the rules of an organization specializing in alternatives to
disputes, such as the CPR Institute for Dispute Resolution, End Dispute, or the
AAA. If the Parties cannot agree upon a single mediator within the next 30 days,
they shall each select a mediator and the two selected shall select the sole
mediator. If a Party does not select a mediator, the mediator selected by the
other Party shall be the sole mediator. The selected mediator shall use his best
efforts to make a nonbinding decision on the merits of the case within sixty
(60) days, and the Parties shall use their best reasonable commercial efforts to
cooperate with the mediator. The mediator need not give reasons for his
decision.

If the Parties are not able to resolve their dispute through mediation, such
dispute may, if they agree, be submitted to binding arbitration pursuant to the
expedited procedures and in accordance

                                      -37-
<PAGE>

with the Patent Licensing Rules of the AAA. The arbitrator shall be mutually
selected by the Parties or, if they cannot agree, each Party shall designate one
arbitrator to represent it in the selection process and the two arbitrators
shall appoint a third arbitrator who shall arbitrate such dispute or difference.
Such selection process shall be completed within sixty (60) days from the end of
the period during which they attempted to resolve the dispute through the
mediation process. The disputed matter shall be arbitrated at such location as
the Parties shall mutually designate or, if they are not able to agree on such
location, at a location selected by the arbitrator. The selected arbitrator
shall, if reasonably possible, be one who is familiar with the commercial and
manufacturing practices of the pharmaceutical industry.

The arbitrator's award shall be final and binding on the Parties and enforceable
by either Party in any court of competent jurisdiction. The fees and expenses of
the arbitrator shall be shared equally by the Parties.

ARTICLE 23. NOTICES:

Any notice, request, instruction or other communication required or permitted to
be given under this Agreement shall be in writing and shall be given by sending
such notice properly addressed to the other Party's address shown below (or any
other address as either Party may indicate by notice in writing to the other
from time to time as required by this Article): (i) by hand or by prepaid
registered or certified mail, return receipt requested, (ii) by a nationally
recognized overnight courier service, or (iii) via facsimile (provided such
facsimile is sent by a machine which acknowledges receipt of the transmission)
at the following addresses:

If to Licensor:

                  Control Delivery Systems
                  400 Pleasant Street
                  Watertown, MA 02472
                  Attn: Paul Ashton, Ph.D., President
                  Facsimile Number:  617-926-2313

With a copy to:

                  Control Delivery Systems
                  400 Pleasant Street
                  Watertown, MA  02472
                  Attn: Lori Freedman, General Counsel
                  Facsimile Number: (617) 926-5050


                                      -38-
<PAGE>

and to:

                  Ropes & Gray
                  One International Place
                  Boston, MA  02110
                  Attn: Mary E. Weber
                  Facsimile Number: (617) 951-7050

If to Licensee:

                  Bausch & Lomb Incorporated
                  1400 N. Goodman Street
                  Rochester, NY 14609
                  Attn: Gary Phillips, M.D.
                        Corporate Vice President, Global Pharmaceutical and
                        Vitreoretinal
                  Facsimile Number: (585) 338-0811

With a copy to:

                  Bausch & Lomb Pharmaceuticals, Inc.
                  One Bausch & Lomb Place
                  Rochester, NY 14604
                  Attn: Robert B. Stiles
                        Senior Vice President and General Counsel
                  Facsimile Number: (585) 338-8706

Any notice, if mailed properly addressed, postage prepaid, shall be deemed made
(i) three (3) days after the date of mailing as indicated on the certified or
registered mail receipt, (ii) on the next business day if sent by overnight
courier service, or (iii) on the date of delivery if hand delivered or the date
of transmission if sent by facsimile transmission.

ARTICLE 24. MERGER CLAUSE:

This Agreement contains the entire understanding between the Parties and
supersedes all proposals, oral and written, all negotiations, conversations or
discussions between or among the Parties relating to the subject matter of this
Agreement and restates the 1999 Agreement and the Vitrasert Agreement, both as
amended, in their entirety.

ARTICLE 25. INTEGRATION CLAUSE:

No amendment or modification to this Agreement shall be valid or binding upon
the Parties unless made in writing and executed by authorized representatives of
both Parties.

ARTICLE 26. SEVERABILITY CLAUSE:

Any terms or provision of this Agreement which is found to be invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity of enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction.

                                      -39-
<PAGE>

ARTICLE 27. NO WAIVER:

The failure of either Party to terminate, seek redress for a breach of, or to
insist on strict performance of any term, covenant, condition, or provision
contained in this Agreement shall not act as a waiver of rights or of the right
to require future compliance and the term, covenant or provision in question
shall remain in full force and effect.

ARTICLE 28. TRANSFERABILITY OF RIGHTS AND OBLIGATIONS:

This License and Agreement shall inure to the benefit of and be binding upon the
successors, assigns, or other legal representatives of the Parties.
Notwithstanding the foregoing, neither Party may assign, delegate, or
subcontract its right and obligations hereunder without the prior written
consent of the other Party, which shall not be unreasonably withheld, except
that (i) no consent to assignment shall be necessary in the case of any transfer
by Licensee of substantially all of the assets or stock of Licensee's
proprietary (branded and/or generic) ophthalmic pharmaceutical business, (ii) no
consent shall be necessary in the case of any Sublicense pursuant to Section
2.1.1, and (iii) no consent to assignment shall be necessary in the case of any
transfer by Licensor of substantially all of the assets or stock of Licensor's
ophthalmics business. In addition, if Licensor directly or indirectly delegates
or transfers any rights or obligations under this Agreement, it shall be a
condition of such delegation or transfer that its obligations under Sections 2.3
and 2.4 are expressly assumed by, and become binding upon, such delegatee or
transferee.

ARTICLE 29. PATENT MARKING:

Licensee shall mark all Licensed Products sold or otherwise disposed of by it in
the United States under the license granted in this Agreement with the word
"Patent" and the number of the Licensed Patent. All License Products shipped of
sold in other countries shall be marked in such a manner as to conform with the
patent laws and practice of the country to which such products are shipped or in
which such products are sold.

ARTICLE 30. INTENTIONALLY OMITTED

ARTICLE 31. INDEPENDENT CONTRACTORS:

Licensor and Licensee are not partners, joint venturers or agents of one another
and shall at all times act as independent contractors without the right or
authority to bind each other with respect to any agreement, representation, or
warranty made with or to any third party. Except as otherwise stated herein,
Licensor and Licensee each shall be responsible for all costs, expenses, and
taxes, arising from the conduct of its own business.

ARTICLE 32. CONFIDENTIALITY:

   32.1 Confidentiality. Notwithstanding any other provision herein, during
   the term of this Agreement and for a period of ten (10) years from
   termination of this Agreement, each Party ("Receiver") will hold in
   confidence, will not disclose to others (except those Affiliates,
   attorneys, accountants, stockholders, investment bankers, advisers or
   other consultants who are bound by an obligation of confidentiality), and
   will not use for any purpose not contemplated

                                      -40-
<PAGE>

   by this Agreement, any technical or business information (including the
   terms and conditions of this Agreement) Receiver obtains from the other
   Party ("Discloser") in connection with this Agreement (collectively, the
   "Confidential Information") provided that the Receiver may disclose
   Confidential Information: (a) as otherwise expressly provided in this
   Agreement, (b) as required by applicable law or any listing agreement
   with, or the rules and regulations of, any applicable securities exchange
   or the National Association of Securities Dealers, (c) necessary to secure
   any required consents under this Agreement as to which the other Party has
   been advised, (d) consented to in writing by the furnishing Party, (e) in
   confidence, to accountants, banks, and financing sources and their
   advisers, or (f) in confidence, to the other party (and their Affiliates,
   attorneys, accountants, stockholders, investment bankers, advisers or
   other consultants who are bound by an obligation of confidentiality) in a
   merger, acquisition or license or proposed merger, acquisition or license,
   or the like, and further provided that with respect to disclosures of the
   terms and conditions of this Agreement made pursuant to the filing of this
   Agreement as an exhibit to a document filed with the SEC, the filing Party
   shall use commercially reasonable efforts to obtain confidential treatment
   under the Securities Act of 1933 or the Securities Exchange Act of 1934 of
   those portions of this Agreement identified to the filing Party in writing
   by the other Party in advance of the filing (the filing party shall
   provide the other Party with reasonable advance notice of the filing to
   permit the other Party to make the confidentiality request described
   above). Except as otherwise set forth above, Receiver shall make
   Discloser's Confidential Information available to persons within
   Receiver's organization only on a "need to know" basis, and Receiver shall
   inform all persons to whom such Confidential Information is made available
   of the confidential nature of the Confidential Information and the
   restrictions comprised hereunder and shall require such persons to keep
   the Confidential Information confidential as provided in this Section.
   However, this confidentiality obligation shall not extend to any portion
   of the Confidential Information which: (i) is known to Receiver as
   documented by its written records at the time of disclosure; or (ii) is or
   becomes public or generally available to the public through publication or
   otherwise but through no fault of Receiver; or (iii) corresponds in
   substance to information furnished to Receiver on a nonconfidential basis
   by a third party having a bona fide right to do so and not having any
   confidential obligation, direct or indirect, to Discloser with respect to
   the same; or (iv) corresponds to information furnished by Discloser to any
   third party on a nonconfidential basis except in limited consumer testing;
   or (v) Receiver can demonstrate was developed by Receiver independently of
   the disclosure of the Confidential Information by Discloser; or (vi) is
   disclosed by Receiver pursuant to a legal requirement, provided Receiver
   has complied with the provisions set forth in Section 32.2 below.

   32.2 External Disclosure. If Receiver becomes legally required to disclose
   any of Discloser's Confidential Information, Receiver shall notify
   Discloser promptly of such requirement so that Discloser may seek a
   protective order or other appropriate remedy concerning such disclosure.
   Receiver will consult with Discloser, if requested to do so, regarding the
   nature and extent of the required disclosure and will cooperate to limit
   such disclosure to the extent practical. Unless specifically requested
   otherwise by Control Delivery Systems Inc., Bausch & Lomb Incorporated
   will direct all communications it receives from potential or existing
   investors in Control Delivery Systems, Inc. to Steve McCluski (Senior Vice
   President and Chief Financial Officer), Robert Bailey (Vice President,
   Assistant General Counsel and Assistant Secretary), or Gary Phillips
   (Corporate Vice President, Global Pharmaceutical and Vitreoretinal) (or
   their respective successors).

                                   -41-
<PAGE>

ARTICLE 33. RELINQUISHMENT:

   33.1 UKRF Letter Agreement. The Licensee hereby relinquishes, agrees to
   relinquish and shall not exercise, any and all rights or causes of actions
   Licensee has, now, in the past, or in the future, pursuant to the Letter
   Agreement dated June 9, 1999, as between UKRF, Licensor and Licensee (the
   "UKRF Letter Agreement"). Licensee hereby agrees that the relinquishment
   of its rights under the UKRF Letter Agreement shall be fully evidenced by
   this Amendment without the need for further documentation of such
   relinquishment, and supercedes any prior negotiations, understandings,
   agreements, instruments and representations with respect to the UKRF
   Letter Agreement.

   33.2 Covenant Not to Compete. The Licensee hereby relinquishes, agrees to
   relinquish and shall not exercise, any and all rights or causes of actions
   Licensee has, now, in the past, or in the future, pursuant to the Covenant
   Not to Compete dated June 9, 1999, as between Licensee and Paul Ashton,
   Ph.D. (the "Covenant Not to Compete"). Licensee hereby agrees that waiver
   of its rights under the Covenant Not to Compete shall be fully evidenced
   by this Amendment, and supersedes any prior negotiations, understandings,
   agreements, instruments and representations with respect to the Covenant
   Not to Compete.

ARTICLE 34. NO LIMIT TO REMEDIES:

Subject to the terms of this Agreement, the existence or choice of any one
remedy available to a Party shall not limit or otherwise restrict a Party from
choosing any remedy available, it being understood that a Party's remedies are
cumulative.

ARTICLE 35. COUNTERPARTS:

This Agreement may be executed in counterparts, each of which shall be
enforceable against the Party actually executing such counterpart, and which
together shall constitute one instrument.

ARTICLE 36. TRANSITION OBLIGATIONS:

   36.1 Clinical/Trial Agreements. The Parties wish to reflect the transfer
   to Licensee of pre-clinical, clinical, manufacturing and regulatory
   activities which were being performed by Licensor and/or Licensee with
   respect to current clinical trials relating to DME, Uveitis and ARMD (the
   "Clinical Activities"). As agreed upon by the Parties, prior to Licensor's
   withdrawal of its IND covering such Clinical Activities, Licensee has
   provided: (a) notice of assignment and assumption to third parties under
   the third party contracts related to the Clinical Activities listed on
   Exhibit 36.1A (the "Clinical Agreements"); and (b) a notice of termination
   (as executed by Licensor) to third parties under third party clinical
   trial agreements listed on Exhibit 36.1B ("Trial Agreements").
   Consequently, Licensor hereby transfers and assigns to Licensee, and
   Licensee hereby assumes, (i) all Clinical Agreements; (ii) all outstanding
   bills for Clinical Activities provided by Licensor to Licensee as of June
   18, 2003; (iii) all payment obligations arising on or after June 18, 2003
   under the Clinical Agreements; and (iv) all payments obligations for
   services required under the Trial Agreements through the date of
   termination of such Trial Agreements. However, notwithstanding any
   payments by Licensee with respect to any Clinical or Trial Agreement,
   Licensor shall be responsible for any material breach or failure by
   Licensor in the performance of any such agreement prior to the

                                      -42-
<PAGE>

   assumption by Licensee, or the termination, of such agreement, except for
   (x) the payment obligations assumed by Licensee pursuant to this Section
   36.1; or (y) breaches of a Clinical or Trial Agreement resulting from a
   delay by Licensee in providing notice of termination or assignment and
   assumption to third parties pursuant to subsections (a) or (b) above.

   36.2 Clinical Activities Data. Up through December 31, 2003 ("Transition
   Period"), Licensor shall cooperate with Licensee and provide reasonable
   access to, answer questions regarding, and transfer to Licensee, all
   relevant information possessed by Licensor regarding the Clinical
   Activities.

   36.3 Transition Space. Licensor shall have the right to control its
   premises, but Licensor shall provide space at its premises during the
   Transition Period through November 30, 2003, to permit Licensee and its
   consultants and representatives ("Licensee Transition Personnel") to
   transition the Clinical Activities to Licensee. Licensor hereby grants to
   Licensee a license to permit Licensee Transition Personnel to use and
   occupy such portions of Licensor's premises as are reasonably designated
   by Licensor to the extent needed to perform such transition activities on
   behalf of Licensee. The Licensee Transition Personnel shall have access to
   all applicable records and information reasonably necessary to complete
   the transition of the Clinical Activities to Licensee as contemplated in
   this Article 36. Licensee shall require all Licensee Transition Personnel
   to (i) observe Licensor's codes of conduct and attire; (ii) observe all
   building security rules and procedures at Licensor's premises; (iii)
   return all building passes, security cards or other access materials
   immediately upon completion and delivery of the transition activities
   contemplated under this Agreement; (iv) work during Licensor's ordinary
   business hours, unless otherwise agreed, and follow Licensor's reasonable
   instructions as to where to work; and (v) adhere to Licensor's reasonable
   restrictions regarding confidential information they may be exposed to at
   Licensor's premises. As soon as possible after receipt of Licensor's
   reasonable request that Licensee remove from Licensor's premises any
   Licensee Transition Personnel failing to adhere to such restrictions,
   Licensee will cause such individual to be removed.

   36.4 Insurance. In connection with the assumption of the payment
   obligations pursuant to Section 36.1, Licensor shall promptly provide
   Licensee with a copy of all insurance policies maintained as of the date
   hereof in connection with Clinical Activities, including without
   limitation the Clinical and Trial Agreements. Such insurance shall be in
   form, substance, and amount reasonably satisfactory to Licensee. Licensor
   shall maintain such insurance in force for as long as any obligation under
   any Clinical or Trial Agreement. Licensee shall be named as an additional
   insured on all such policies, none of which may be cancelled or materially
   amended without prior notice to, and the written consent of, Licensee,
   which consent will not be unreasonably withheld. If there is any default
   under any such policy, Licensee shall have the right, but not the
   obligation, to cure such default, including paying any premiums
   thereunder. If Licensee pays any premium or other amount due from Licensor
   under any such policy or otherwise incurs any out-of-pocket cost in curing
   any such default, such amount(s) will be deemed part of and added to the
   Unpaid Advanced Amount under Article 3.

                                      -43-
<PAGE>

IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed
in duplicate originals by its duly authorized officer or representative.

BAUSCH & LOMB INCORPORATED                      CONTROL DELIVERY SYSTEMS, INC.

By:  /s/Gary Phillips                           By:  /s/ Michael J. Soja
   ------------------------------                 ----------------------------
Printed Name: Gary Phillips                     Printed Name: Michael J. Soja
             --------------------                            -----------------
Title: Corporate Vice President                 Title: V. Ex President and CFO
      ---------------------------                     ------------------------
<PAGE>

                                  EXHIBIT 1.14
       FIRST GENERATION EXCLUSIVE LICENSED PRODUCT SPECIFICATIONS/DRAWINGS

                                    FIGURE 1
                                      [*]

                                    FIGURE 2
                                      [*]

[*] - INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.


                                      -45-

<PAGE>

                                 EXHIBIT 1.23(a)
                 LICENSED PATENTS, PATENT APPLICATIONS AND IDFs

I.    ISSUED PATENTS AND PENDING PATENT APPLICATIONS

[*]


[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.


                                      -46-
<PAGE>
                                 EXHIBIT 1.23(b)
                 EXCLUDED PATENTS, PATENT APPLICATIONS AND IDFs


[*]



[*] - INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                      -52-
<PAGE>
                                  EXHIBIT 1.33
                         NON-EXCLUSIVE LICENSED PRODUCT

[*]

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                      -58-

<PAGE>

                                  EXHIBIT 1.47
                                 UKRF LICENSES

1.     License Agreement By and Between University of Kentucky Research
Foundation and Controlled Delivery Systems, Inc., dated October 20, 1991, as
amended August 10, 1993

       -Patent Rights:  US Patent No. 5,378,475 "Sustained Release Drug
Delivery Devices"

2.     License Agreement By and Between University of Kentucky Research
Foundation and Controlled Delivery Systems, Inc. dated October 31, 1995

       -Patent Rights:  USSN 08/187,462 "Co-drugs as a Method of Controlled
Delivery" (abandoned)

3.     License Agreement By and Between University of Kentucky Research
Foundation and Controlled Delivery Systems, Inc. dated September 9, 1997

       -Patent Rights:  US Patent No. 5,836,935 "Implantable Refillable
Controlled release Device to Delivery Drugs Directly into an Internal Portion
of the Body"

4.     License Agreement By and Between University of Kentucky Research
Foundation and Controlled Delivery Systems, Inc. dated September 9, 1997

       -Patent Rights:  US Patent No. 5,773,019 "Implantable Controlled
Release Device to Delivery Drugs to an Internal Portion of the Body"

5.     License Agreement By and Between University of Kentucky Research
Foundation and Controlled Delivery Systems, Inc. dated September 9, 1997

       -Patent Rights:  US Patent No. 5,681,964 "Permeable Non-Irritating
Prodrugs of non-steroidal, anti-inflammatory agents"

                                      -61-
<PAGE>

                                  EXHIBIT 2.3
          PATENTS, PATENT APPLICATIONS, AND INVENTION DISCLOSURE FORMS
                             NOT SUBJECT TO NON-SUIT

[*]

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.


                                     -62-

<PAGE>

                                   EXHIBIT 2.8
                                CO-OWNED PATENTS

[*]

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                      -63-
<PAGE>

                                  EXHIBIT 2.9
                               LICENSEE NON-SUIT

[*]

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.
                                      -64-
<PAGE>
                                  EXHIBIT 2.10
                       LICENSEE COVENANT NOT TO FILE: IDFS


                                      -65-
[*]
[*]- Indicates material that has been omitted and for which confidential
treatment has been requested. All such information has been filed with the
Commission pursuant to Rule 24b-2 promulgated under the Securities and Exchange
Act of 1934, as amended.
<PAGE>

                                  EXHIBIT 3.7.3
                                 FORM OF OPTION

                               OPTION CERTIFICATE

No. [___]                                                                [DATE]

      BAUSCH & LOMB INCORPORATED, a New York corporation ( "B&L"), for value
received and pursuant to Section 3.7.3 of an Amended and Restated License
Agreement (the "License Agreement"), dated as of December 9th, 2003, by and
between B&L and Control Delivery Systems, Inc., a Delaware corporation ("CDS"),
hereby certifies that CDS, or its registered assigns (the "Option Holder"), is
entitled to purchase from B&L, in whole or in part, 600,000 shares (the "Option
Shares") of CDS common stock, par value $0.01 per share ("Common Stock"), at the
purchase price of $5.00 per share (the "Exercise Price"), at any time or from
time to time prior to 5:00 P.M., New York, New York time, on JUNE 30, 2004 (the
"Expiration Time"), all subject to the terms, conditions and adjustments set
forth below in this Option Certificate.

1.    Exercise.

      a.    Notice of Exercise. The Option Holder may exercise this option, from
            time to time, in whole or in part, by delivering a notice of
            exercise to B&L in substantially the attached form at any time prior
            to the Expiration Time.

      b.    Closing of Exercise. The closing of any exercise of this option must
            occur at the offices of B&L.

            i.    B&L Deliveries. At the closing, B&L shall deliver to the
                  Option Holder:

                  A.    certificates representing the Option Shares being
                        purchased endorsed for transfer or accompanied by
                        executed stock powers,

                  B.    customary representations regarding ownership of the
                        Option Shares, and

                  C.    an agreement to indemnify the Option Holder for any
                        breach of the representations regarding ownership of the
                        Option Shares

            ii.   Option Holder Deliveries. At the closing, the Option Holder
                  shall deliver to B&L the aggregate exercise price for the
                  Option Shares being purchased by wire transfer or check drawn
                  on immediately available funds.

2. Transferability of Option. This option is transferable by the Option Holder
in whole or in part. B&L shall maintain a register of the names and addresses of
Option Holders and the transferees of this option. Upon the surrender of this
Option Certificate and a completed assignment form in substantially the attached
form, B&L shall at its expense execute and deliver

                                                                              66
<PAGE>

to the Option Holder, its transferees, or both a new Option Certificate or
Certificates covering the total number of Option Shares covered by the
surrendered Option Certificate or Certificates.

3.    Representations, Warranties and Covenants.

      a.    Representations. B&L represents and warrants to the Option Holder as
            follows as of the date of this Option Certificate:

            i.    B&L has the full power and authority to grant this option.

            ii.   B&L is the registered holder and beneficial owner of the
                  Option Shares.

            iii.  The Option Shares are unencumbered except for encumbrances
                  imposed by the Stockholders' Agreement (the "Stockholders
                  Agreement"), dated as of August 8, 2000, by and among CDS and
                  the stockholders party thereto, and the Standstill Agreement
                  (the "Standstill Agreement"), entered into in connection with
                  the License Agreement by CDS and B&L.

      b.    No Disposition of Option Shares. Until the Expiration Time, B&L
            shall not and shall not agree to dispose of any interest in the
            Option Shares or create or allow to be created any encumbrance on
            the Option Shares.

      c.    Cooperation. B&L shall cooperate with the Option Holder to
            effectuate any amendments or waivers to the Stockholders Agreement,
            the Standstill Agreement or any other similar agreement, or any
            amendment to CDS' Certificate of Incorporation, to enable the
            closing of any purchase of Option Shares to occur, provided that B&L
            shall not be required to incur any costs or expenses other than out
            of pocket expenses or costs to its own advisors in connection
            therewith.

4.    Adjustment to Option Shares.

      a.    Recapitalization. If the outstanding shares of Common Stock are
            changed into or exchanged for a different number or kind of shares
            or other CDS securities by reason of any recapitalization,
            reclassification, stock split, stock dividend, combination,
            subdivision or similar transaction, the number and kind of Option
            Shares and the Exercise Price shall be appropriately and
            proportionally adjusted.

      b.    Sale of CDS. If CDS consolidates or merges with any other entity and
            the Common Stock is converted into or exchanged for stock or other
            securities of another entity or for cash or other property (any of
            the foregoing, "Merger Consideration"), B&L shall retain the Merger
            Consideration, and the Option Holder shall receive upon exercise the
            Merger Consideration attributable to the shares of Common Stock
            being purchased.

5.    Miscellaneous.

      a.    Remedies/No Waivers. B&L stipulates that in the event of any default
            or threatened default by B&L in the performance of this Option
            Certificate, the Option Holder's remedies at law will be inadequate.
            A court may specifically enforce the terms of this

                                                                              67
<PAGE>

            Option Certificate or enjoin any violation or impending violation of
            the terms of this Option Certificate. Any delay or failure to
            enforce this Option Certificate does not impair the right to
            enforcement and is not a waiver of any breach or any future breach.
            All remedies of the Option Holder shall be cumulative and not
            alternative.

      b.    Choice of Law/Forum. Any legal or other action pertaining to the
            terms of this Certificate must be brought in the state and federal
            courts nearest the principal place of business of the defendant in
            the action. This Option Certificate shall be construed and
            interpreted in accordance with, and its performance shall be
            governed by, the substantive laws of the state where such courts are
            located, without regard to the state's conflict of laws principles.
            B&L and the Option Holder consent to the exclusive personal
            jurisdiction and venue of such courts in the event of such action.

      c.    Notices.

            i.    Delivery. Any notice, request, instruction or other
                  communication required or permitted to be given pursuant to
                  this Option Certificate shall be in writing and shall be given
                  as follows to the address indicated in Section 5(c)(iii):

                  A.    by hand,

                  B.    by prepaid registered or certified mail, return receipt
                        requested,

                  C.    by a nationally recognized overnight courier service, or

                  D.    via facsimile.

            ii.   Timing of Effectiveness. Any notice shall be deemed made as of
                  the time set forth in this Section 5(c)(ii).

                  A.    If delivered by hand, upon delivery.

                  B.    If sent by mail, 3 days after the date of mailing
                        indicated on the certified or registered mail receipt.

                  C.    If sent by overnight courier service, on the next
                        business day.

                  D.    If sent by facsimile, on the date of confirmed
                        receipt.

            iii.  Addresses for Notice. The addresses for notice are as
                  follows:

                  A.    If to the original Option Holder

                        Control Delivery Systems
                        400 Pleasant Street
                        Watertown, MA 02472
                        Attn:  Paul Ashton, Ph.D., President
                        Facsimile Number:  617-926-2313

                                                                              68
<PAGE>

                        with a copy to:

                        Control Delivery Systems
                        400 Pleasant Street
                        Watertown, MA  02472
                        Attn:  Lori Freedman, General Counsel
                        Facsimile Number:  (617) 926-5050

                        and to:

                        Ropes & Gray
                        One International Place
                        Boston, MA  02110
                        Attn:  Mary E. Weber
                        Facsimile Number:  (617) 951-7050.

                  B.    If to a subsequent Option Holder, to the address showing
                        on the transfer register maintained by B&L for such
                        Option Holder.

                  C.    If to B&L:

                        Bausch & Lomb Incorporated
                        1400 N. Goodman Street
                        Rochester, NY  14609
                        Attn:  Gary Phillips, M.D.
                               Corporate Vice President, Global Pharmaceutical
                               and Vitreoretinal
                        Facsimile Number:  (585) 338-0811

                        with a copy to:

                        Bausch & Lomb Pharmaceuticals, Inc.
                        One Bausch & Lomb Place
                        Rochester, NY 14604
                        Attn:  Robert B. Stiles
                                 Senior Vice President and General Counsel
                        Facsimile Number: (585) 338-8706

      d.    Amendments and Waivers. This Option Certificate may be amended only
            by a written instrument signed by B&L and the Option Holder. B&L
            shall record any amendments of this Option Certificate in the
            register maintained to record transfers. Any term of this Option
            Certificate may be waived only by a written instrument signed by the
            waiving party.

      e.    Severability. Any terms or provision of this Option Certificate
            which are invalid or unenforceable in any jurisdiction are
            ineffective only to the extent of such invalidity or
            unenforceability and only in such jurisdiction. The invalidity of
            any term of this Option Certificate in one jurisdiction does not
            impair the enforceability of the

                                                                              69
<PAGE>

            remaining terms or affect the validity of the term in any other
            jurisdiction.

      f.    Construction. The headings contained in this Option Certificate are
            for convenience only and are not a part of this Option Certificate.

                                                                              70
<PAGE>



      IN WITNESS WHEREOF, this Option Certificate has been duly executed by B&L
and as of the date first written above.

                                             BAUSCH & LOMB INCORPORATED

                                             By:_____________________________
                                             Name:
                                             Title:

                   [SIGNATURE PAGE TO B&L OPTION CERTIFICATE]
<PAGE>


                           FORM OF NOTICE OF EXERCISE

           [To be executed and delivered only upon exercise of option]

To:Bausch & Lomb Incorporated

      The undersigned registered holder of an option to purchase Control
Delivery Systems, Inc. common stock, par value $.01 per share, from Bausch &
Lomb Incorporated hereby exercises such Option for [_______________] shares. The
closing of this exercise shall occur on [_______________].(1) At the closing,
the undersigned requests that B&L transfer the shares being purchased to
[______________], whose address is [________________].

Dated: [_____________]

                                               _________________________________
                                               Signature(2)

----------
(1) This date must be a business day on or before the 30th day following the
        date of the notice of exercise.

(2) The signature must conform to the name of the holder as specified on
        the face of the Option Certificate or to a registered assign on the
        transfer register maintained by B&L. Otherwise, the person or entity
        must provide B&L with evidence of valid assignment.

                 [FORM OF EXERCISE FOR B&L OPTION CERTIFICATE]


<PAGE>

                               FORM OF ASSIGNMENT

 [To be executed and delivered to Bausch & Lomb only upon assignment of option,
                              in whole or in part]

      For value received, the undersigned registered holder of an option to
purchase Control Delivery Systems, Inc. common stock, par value $.01 per share,
from Bausch & Lomb Incorporated hereby sells, assigns and transfers unto
[________________], whose address is [____________], the rights represented by
such option to purchase [______________](3) shares of Control Delivery Systems,
Inc. common stock and appoints [____________] attorney to make such transfer on
the transfer register maintained by Bausch & Lomb Incorporated for such
purposes, with full power of substitution in the premises.

Dated: [________________]

                                        _____________________________
                                              Signature(4)

----------
(3) Insert the number of shares assigned. In the case of a partial assignment,
      Bausch & Lomb Incorporated will execute and deliver a new Option
      Certificate representing the unassigned portion of the option to the
      assigning holder.

(4) The signature must conform to the name of the holder as specified on
      the face of the Option Certificate or to a registered assign on the
      transfer register maintained by B&L. Otherwise, the person or entity must
      provide B&L with evidence of valid assignment.


<PAGE>

                                  EXHIBIT 3.7.4
                             FORM OF PROMISSORY NOTE

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR SUCH LAWS COVERING THE TRANSFER OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE BORROWER THAT SUCH
REGISTRATION IS NOT REQUIRED.

                                 PROMISSORY NOTE

$6,794,719.00                                                 December 9th, 2003

      FOR VALUE RECEIVED, the undersigned Control Delivery Systems, Inc. (the
"Borrower") promises to pay to Bausch & Lomb Incorporated (the "Lender") on the
Maturity Date (as hereinafter defined), the principal sum of Six Million Seven
Hundred Ninety-Four Thousand Seven Hundred and Nineteen Dollars ($6,794,719), or
such lesser principal amount as may be outstanding hereunder. Payments hereunder
shall be made to the Lender at 1400 N. Goodman Street, Rochester, New York or at
such other address as the Lender may specify.

      1.   MATURITY DATE. The term "Maturity Date" means July 1, 2007. If the
Borrower has not repaid the entire principal amount due to the Lender under this
Note by the Maturity Date (whether by prepayment or by offset as described
below), the Borrower will be liable for and shall pay a late charge at an annual
rate of one and one-half (1.5) times the prime rate in effect as announced by
the JPMorgan Chase Bank, N.A. from time to time, on any outstanding balance of
the principal amount remaining after the Maturity Date. This late charge will
compound annually and will accrue commencing on the day following the Maturity
Date until the entire remaining principal amount of this Note has been repaid.

                                       -74-
<PAGE>

      2.   OFFSET. The Borrower agrees that the Lender will have the right to
offset and apply certain amounts owing by the Lender to the Borrower under the
Amended and Restated License Agreement dated as of December 9th, 2003 between
the Borrower and the Lender (the "License Agreement") against the amount of
principal due under this Note. Such amounts that may be offset include (a) any
Milestone Payments (as defined in the License Agreement) owing from Lender to
Borrower, and (b) any royalty payments otherwise due Borrower under Article 3 of
the License Agreement, in each case until the entire remaining principal amount
of this Note has been fully repaid. If the Lender elects to apply any amounts
described in the preceding sentence against principal due hereunder, the Lender
shall provide an executed Certificate of Offset of Principal in the form of
Exhibit A to the Borrower promptly after each such application; provided,
however, that if such application is with respect to royalty payments owed by
the Lender to the Borrower, Lender shall furnish the Certificate of Offset of
Principal to the Borrower in conjunction with the Royalty Report referenced in
Section 7.1 of the License Agreement. The remaining principal amount owed under
this Note shall be reduced to the amount indicated on such Certificate.
Notwithstanding the foregoing, neither the existence of this Note nor the
provision of one or more Certificates of Offset of Principal by the Lender shall
affect any of the Borrower's rights under the License Agreement, including
without limitation the Borrower's right to audit and dispute the amounts of any
royalty payments pursuant to Sections 7.1 and 7.2 of the License Agreement.

      3.   PREPAYMENTS. This Note may be prepaid in whole or from time to time
in part without premium or penalty, including without limitation by means of any
payment made by the Borrower under Section 3.7.3 of the License Agreement.

      4.    UNSECURED. The indebtedness represented by this Note is unsecured.

      5.    DEFAULT.

            5.1   Each of the following shall constitute an "Event of Default"
for purposes of this Note:

                                       -75-
<PAGE>

            5.1.1 the Borrower fails to pay any amount
      on this Note when it is due and payable;

            5.1.2 there occurs any material event of default by the Borrower
      under the License Agreement, and any applicable grace period shall have
      expired;

            5.1.3 if the Borrower files a petition in bankruptcy
      or is adjudicated bankrupt, or if a petition in bankruptcy is filed
      against the Borrower and such petition is not discharged or dismissed
      within sixty (60) days thereafter, or if the Borrower makes any assignment
      for the benefit of its creditors or any arrangement pursuant to any
      bankruptcy law, or if a trustee, custodian or receiver is appointed for
      the Borrower or any of its assets or property;

            5.1.4 there occurs any material event of default by
      Borrower under any agreement relating to its Material Financing Debt.
      "Material Financing Debt" means any financing debt (other than under this
      Note) outstanding in an aggregate amount of principal (whether or not due)
      and accrued interest exceeding $5,000,000; or

            5.1.5 the dissolution or liquidation of Borrower.

      5.2   If there shall occur an Event of Default under subparagraphs 5.1.1,
5.1.2 or 5.1.4 above, Lender shall be entitled by notice to Borrower to declare
this Note and any interest accrued hereon and all liabilities of Borrower
hereunder to be forthwith due and payable; and if there shall occur an Event of
Default under subparagraphs 5.1.3 or 5.1.5 above, then this Note and any
interest accrued hereon and all liabilities of Borrower hereunder to Lender
shall automatically become forthwith due and payable; and in each case the same
shall thereupon become due and payable without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived.

      5.3   Borrower agrees to pay all reasonable costs and expenses incurred by
Lender (including reasonable attorney's fees), if any, in connection with the
enforcement or collection of this Note arising after the occurrence of any Event
of Default or any event which with notice or lapse of time or both would
constitute an Event of Default, unless such occurrence is cured by Borrower
within any applicable grace period or such reimbursement is not required

                                      -76-
<PAGE>

by the terms of any waiver granted by Lender in respect of such occurrence. The
obligations of Borrower under this paragraph shall survive the payment of this
Note.

      6.    WAIVERS. The Borrower waives to the extent not prohibited by
applicable law (a) all presentments, demands for performance, notices of
nonperformance (except to the extent required by the provisions hereof),
protests, notices of protest and notices of dishonor, (b) any requirement of
diligence or promptness on the part of the Lender in the enforcement of its
rights under this Note, (c) all notices of every kind which may be required to
be given by any statute or rule of law, (d) any valuation, stay, appraisement or
redemption laws and (e) any defense of any kind (other than payment) which the
Borrower may now or hereafter have with respect to its liability under this
Note. No failure or delay on the part of Lender in the exercise of any power or
right in this Note shall operate as a waiver thereof, and no exercise or waiver
of any single power or right, or the partial exercise thereof, shall affect the
Lender's rights with respect to any and all other rights and powers.

      7.    ASSIGNABILITY. This Note shall bind and inure to the benefit of the
Borrower and the Lender and their permitted successors and assigns.
Notwithstanding the foregoing, neither party may assign, delegate, or
subcontract its rights and obligations hereunder without the prior written
consent of the other party, which shall not be unreasonably withheld or delayed,
except that (i) no consent to assignment shall be necessary in the case of any
transfer by the Lender of substantially all of the assets or stock of Lender's
proprietary (branded and/or generic) ophthalmic pharmaceutical business, and
(ii) no consent to assignment shall be necessary in the case of any transfer by
the Borrower of substantially all of the assets or stock of the Borrower's
opthalmics business, and provided that such assignee, delegatee or transferee
shall be at least as creditworthy as the Borrower (where creditworthiness of the
assignee, delegatee or transferee shall take into account the fair value of the
opthalmics business being transferred to such assignee, delegatee or
transferee)

                                       -77-
<PAGE>

      8.    LOSS OR MUTILATION OF NOTE. Upon receipt by the Borrower of evidence
satisfactory to the Borrower of the loss, theft, destruction or mutilation of
this Note, together with indemnity reasonably satisfactory to the Borrower, in
the case of loss, theft or destruction, or the surrender and cancellation of the
Note, in the case of mutilation, the Borrower shall execute and deliver to
Lender a new Note of like tenor as this Note.

      9.    NOTICES. Any notice, request, instruction or other communication
required or permitted to be given under this Note shall be in writing and shall
be given by sending such notice properly addressed to the other party's address
shown below (or any other address as either party may indicate by notice in
writing to the other from time to time as required by this paragraph): (i) by
hand or by prepaid registered or certified mail, return receipt requested, (ii)
by a nationally recognized overnight courier service, or (iii) via facsimile
(provided such facsimile is sent by a machine which acknowledges receipt of the
transmission) at the following addresses:

      If to the Borrower:

            Control Delivery Systems
            400 Pleasant Street
            Watertown, MA 02472
            Attn: Chief Executive Officer
            Facsimile Number:  617-926-2313

      With a copy to:

            Control Delivery Systems
            400 Pleasant Street
            Watertown, MA  02472
            Attn: Lori Freedman, General Counsel
            Facsimile Number: (617) 926-5050

                                       -78-
<PAGE>

       and to:

            Ropes & Gray
            One International Place
            Boston, MA  02110
            Attn: Mary E. Weber
            Facsimile Number: (617) 951-7050

       If to the Lender:

            Bausch & Lomb Incorporated
            1400 N. Goodman Street
            Rochester, NY 14609
            Attn: Gary Phillips, M.D.
                  Corporate Vice President, Global Pharmaceutical and
            Vitreoretinal
            Facsimile Number: (585) 338-0811

       With a copy to:

            Bausch & Lomb Pharmaceuticals, Inc.
            One Bausch & Lomb Place
            Rochester, NY 14604
            Attn: Robert B. Stiles
                  Senior Vice President and General Counsel
            Facsimile Number: (585) 338-8706

Any notice, if mailed properly addressed, postage prepaid, shall be deemed made
(i) three (3) days after the date of mailing as indicated on the certified or
registered mail receipt, (ii) on the next business day if sent by overnight
courier service, or (iii) on the date of delivery if hand delivered or the date
of transmission if sent by facsimile transmission.

      10.   GOVERNING LAW; CONSENT TO JURISDICTION. This Note shall be governed
by and construed in accordance with the internal laws of the State of New York
applicable to agreements made and to be performed entirely within such State,
including all matters of construction, validity and performance (including
Section 5-1401 and 5-1402 of the New York General Obligations Law but excluding
all other choice of law and conflicts of law rules). Any legal or other action
hereunder shall be brought in the State and federal courts nearest the

                                      -79-
<PAGE>

principal place of business of the defendant in any such action, and the parties
consent to the exclusive personal jurisdiction and venue of such courts in the
event of such action.

      11.   CONSTRUCTION. In construing this Note, neither party shall have been
deemed to have drafted this Note, and no court or arbitrator will construe or
interpret this Note in favor of a party based on the presumption that it did not
draft the term or clause at issue, it being agreed that each party has ably
represented itself and has been ably represented by counsel.

      12.   WAIVER AND AMENDMENT. Any term of this Note may only be amended,
waived or modified with the written consent of the Borrower and the Lender of
this Note.

            [The remainder of this page is intentionally left blank.]

                                      -80-
<PAGE>

      IN WITNESS WHEREOF, the undersigned has caused this Note to be executed as
of the date first above written.

BORROWER                                    CONTROL DELIVERY SYSTEMS, INC.

                                            By:_________________________________

                                            Name:_______________________________

                                            Title:______________________________

LENDER                                      BAUSCH & LOMB INCORPORATED

                                            By:_________________________________

                                            Name:_______________________________

                                            Title:______________________________

                                      -81-

<PAGE>

                              PAYMENTS OF PRINCIPAL

<TABLE>
<CAPTION>
                            Amount of                     Unpaid
                            Principal                    Principal             Notation
Date                      Repaid/Offset                   Balance               Made By
<S>                       <C>                            <C>                   <C>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

---------------------------------------------------------------------------------------
</TABLE>

                                      -82-

<PAGE>

                                                                    Exhibit A to
                                                                 Promissory Note

                       CERTIFICATE OF OFFSET OF PRINCIPAL

      Reference is hereby made to the Promissory Note dated December 9th, 2003
by Control Delivery Systems, Inc. in favor of Bausch & Lomb Incorporated in the
original principal amount of $6,794,719 (the "Note"). Capitalized terms not
defined herein have the meanings given such terms in the Note.

      In accordance with paragraph 2 of the Note, the Lender hereby certifies to
the Borrower that the Lender has elected to offset against the remaining
principal amount of the Note the following funds owed by the Lender to the
Borrower under the License Agreement:

<TABLE>
<CAPTION>
                    Description of                  Amount      Remaining Principal Balance
Date of Offset      Amounts Offset                  Offset         of Note (after Offset)
--------------      --------------                  ------      ---------------------------
<S>                 <C>                             <C>         <C>

</TABLE>

      IN WITNESS WHEREOF, the undersigned has caused this Certificate to be
executed as of the date first above written.

LENDER                                         BAUSCH & LOMB INCORPORATED

                                               By:______________________________

                                               Name:____________________________

                                               Title:___________________________

                                      -83-

<PAGE>

                                   EXHIBIT 4.1
                               MILESTONE PAYMENTS

Licensee shall make the following one-time Milestone Payments to Licensor within
ten (10) business days after each of the following events:

(i)   [*] - the later of (a) June 1, 2000, or (b) the date Phase III
clinicals for uveitis have begun for the first Licensed Product;

(ii)  [*] - the later of (a) March 1, 2001, or (b) the date Phase III
clinicals for the first Licensed Product for DME or ARMD have begun;

(iii) [*] - the later of (a) September 1, 2002, or (b) the date an NDA
has been filed for the first Licensed Product for uveitis;

(iv)  [*] - the later of (a) March 1, 2003, or (b) the date an NDA has
been filed for the first First Generation Exclusive Licensed Product for either
DME or ARMD;

(v)   [*] - the later of (a) November 1, 2003, or (b) the date the FDA
has approved the NDA for the first First Generation Exclusive Licensed Product
for a uveitis related indication; and

(vi)  [*] - the later of (a) April 1, 2004, or (b) the date the FDA has
approved the NDA for the first First Generation Exclusive Licensed Product for
either a DME or ARMD related indication.

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.
                                      -84-

<PAGE>

                                   EXHIBIT 5.3

     LICENSEE'S SPECIFIC DILIGENCE OBLIGATIONS - FIRST GENERATION EXCLUSIVE
                   LICENSED PRODUCT (NON-UVEITIS INDICATIONS)

[*]

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                      -85-

<PAGE>

                                   EXHIBIT 5.4

   LICENSEE'S SPECIFIC DILIGENCE OBLIGATIONS - NON-EXCLUSIVE LICENSED PRODUCTS

[*]

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                      -86-

<PAGE>

                                EXHIBIT 16.1(vi)
              LITIGATION, PROCEEDINGS, GOVERNMENTAL INVESTIGATIONS

                                 Not Applicable

                                      -87-

<PAGE>

                                EXHIBIT 16.2(iii)
                   EXCEPTIONS TO OWNERSHIP OF LICENSED PATENTS

1. US Patent No. 5,378,475 "Sustained Release Drug Delivery Devices"

Owned by University of Kentucky Research Foundation and licensed to Control
Delivery Systems, Inc. pursuant to the License Agreement By and Between
University of Kentucky Research Foundation and Control Delivery Systems, Inc.,
dated October 20, 1991, as amended August 10, 1993

2. USSN 08/187,462 "Co-drugs as a Method of Controlled Delivery" (abandoned)

Owned by University of Kentucky Research Foundation and licensed to Control
Delivery Systems, Inc. pursuant to the License Agreement By and Between
University of Kentucky Research Foundation and Control Delivery Systems, Inc.
dated October 31, 1995

3. US Patent No. 5,836,935 "Implantable Refillable Controlled release Device to
Delivery Drugs Directly into an Internal Portion of the Body"

Owned by University of Kentucky Research Foundation and licensed to Control
Delivery Systems, Inc. pursuant to the License Agreement By and Between
University of Kentucky Research Foundation and Control Delivery Systems, Inc.
dated September 9, 1997

4. US Patent No. 5,773,019 "Implantable Controlled Release Device to Delivery
Drugs to an Internal Portion of the Body"

Owned by University of Kentucky Research Foundation and licensed to Control
Delivery Systems, Inc. pursuant to the License Agreement By and Between
University of Kentucky Research Foundation and Control Delivery Systems, Inc.
dated September 9, 1997

5. US Patent No. 5,681,964 "Permeable Non-Irritating Prodrugs of non-steroidal,
anti-inflammatory agents"

Owned by University of Kentucky Research Foundation and licensed to Control
Delivery Systems, Inc. pursuant to the License Agreement By and Between
University of Kentucky Research Foundation and Controlled Delivery Systems, Inc.
dated September 9, 1997

                                      -88-

<PAGE>

                                 EXHIBIT 16.2(v)
                               LICENSOR DISCLOSEES

I. ALL OFFICERS, EMPLOYEES, AND CONSULTANTS OF LICENSOR AS OF THE AMENDMENT DATE

[*]

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                      -89-

<PAGE>

                                  EXHIBIT 36.1A
                               CLINICAL AGREEMENTS

[*]

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.
                                      -92-


<PAGE>

                                  EXHIBIT 36.1B
                                TRIAL AGREEMENTS

[*]

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                      -93-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.13
<SEQUENCE>4
<FILENAME>y16393exv4w13.txt
<DESCRIPTION>EX-4.13: COLLABORATION AGREEMENT
<TEXT>
<PAGE>

                                                                    EXHIBIT 4.13

                                                               Execution Version

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                             COLLABORATION AGREEMENT

                                 BY AND BETWEEN

                         CONTROL DELIVERY SYSTEMS, INC.

                                       AND

                             ALIMERA SCIENCES, INC.

                          DATED AS OF FEBRUARY 11, 2005

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                  Page
<S>                                                                                               <C>
ARTICLE  1  DEFINITIONS..................................................................           1

ARTICLE  2  JOINT DEVELOPMENT TEAM.......................................................          15
   2.1        Establishment of Joint Development Team....................................          15
   2.2        Responsibilities of the Joint Development Team.............................          16
   2.3        Meetings; Minutes..........................................................          16
   2.4        Decision-Making and Dispute Resolution.....................................          17
   2.5        Expenses...................................................................          17
   2.6        Dissolution of JDT.........................................................          17

ARTICLE  3  DEVELOPMENT ACTIVITIES.......................................................          17
   3.1        General....................................................................          18
   3.2        Development Plan...........................................................          18
   3.3        Performance................................................................          21
   3.4        Primary Contact Persons....................................................          22
   3.5        Availability of Employees..................................................          22
   3.6        Visit of Facilities........................................................          23
   3.7        Subcontracts...............................................................          23
   3.8        Information Sharing........................................................          23
   3.9        Records....................................................................          23
   3.10       Manufacturing for Clinical Supply Requirements.............................          23
   3.11       Technology Transfer by CDS.................................................          24

ARTICLE  4  COMMERCIALIZATION............................................................          24
   4.1        Commercialization of Product(s) in the Collaboration Field.................          24
   4.2        Commercialization Budget...................................................          24
   4.3        Diligence..................................................................          25
   4.4        Costs of Commercialization.................................................          27
   4.5        Manufacturing for Commercial Supply Requirements...........................          27
   4.6        Product Recalls............................................................          27

ARTICLE  5  GRANT OF RIGHTS..............................................................          28
   5.1        Grant of License by CDS....................................................          28
   5.2        Grant of License by Alimera................................................          29
   5.3        Sublicenses and Subcontracts...............................................          29
   5.4        Ownership of and Rights to Inventions......................................          29
   5.5        Limitation on Use..........................................................          30
   5.6        Reservation of Rights......................................................          30
   5.7        No Grant of Other Technology or Patent Rights..............................          31
   5.8        Options to Licenses in the Collaboration Field.............................          31
   5.9        Clinical IP................................................................          32
   5.10       Section 365(n) of the Bankruptcy Code......................................          32
</TABLE>

                                      -i-
<PAGE>

<TABLE>
<S>                                                                                                <C>
ARTICLE  6  COSTS & REVENUES - PRE AND POST PROFITABILITY DATE...........................          33
   6.1        License Fee................................................................          33
   6.2        Milestone Payment..........................................................          33
   6.3        Direct Development Costs...................................................          33
   6.4        Revenues Prior to Profitability Date.......................................          35
   6.5        Costs and Revenues After the Profitability Date............................          35
   6.6        Revenues from Third Party Agreements.......................................          38
   6.7        Records; Audits............................................................          38

ARTICLE  7  INTELLECTUAL PROPERTY........................................................          39
   7.1        CDS-Prosecuted Patent Rights...............................................          39
   7.2        Abandonment................................................................          40
   7.3        Alimera-Prosecuted Patent Rights...........................................          40
   7.4        Information Disclosure; Cooperation........................................          41
   7.5        Employees and Sublicensees Assignment of Inventions........................          41
   7.6        Infringement...............................................................          41
   7.7        Marking....................................................................          44
   7.8        Trademarks.................................................................          44
   7.9        UKRF Licenses and B&L Agreement............................................          45

ARTICLE  8  CONFIDENTIALITY..............................................................          45
   8.1        Confidentiality............................................................          45
   8.2        Disclosure.................................................................          46

ARTICLE  9  REPRESENTATIONS AND WARRANTIES...............................................          46
   9.1        Representations and Warranties of CDS......................................          46
   9.2        Representations and Warranties of Alimera..................................          47
   9.3        Warranty Disclaimer........................................................          48
   9.4        Limited Liability..........................................................          48

ARTICLE  10  INDEMNITY...................................................................          48
   10.1       Cross Indemnity............................................................          48
   10.2       Limitation on Indemnity Obligations........................................          49
   10.3       Procedure..................................................................          49
   10.4       Insurance..................................................................          49
   10.5       Product Liability Claims...................................................          50

ARTICLE  11  TERM AND TERMINATION........................................................          50
   11.1       Term.......................................................................          50
   11.2       Termination for Default by Either Party....................................          50
   11.3       Termination for Non-Payment of Development Payment.........................          50
   11.4       Termination for Failure to Approve an Initial Development Plan.............          51
   11.5       Termination for Abandonment................................................          52
   11.6       Effect of Expiration or Termination of the Agreement.......................          54
   11.7       Survival of Provisions Upon Expiration or Termination......................          54
</TABLE>

                                      -ii-
<PAGE>

<TABLE>
<S>                                                                                                <C>
ARTICLE  12  MISCELLANEOUS...............................................................          54
   12.1       Interpretation.............................................................          54
   12.2       Assignment.................................................................          55
   12.3       Severability...............................................................          55
   12.4       Notices....................................................................          55
   12.5       Governing Law and Venue....................................................          56
   12.6       Compliance with Applicable Laws............................................          56
   12.7       Dispute Resolution.........................................................          56
   12.8       Use of Name/Publicity......................................................          57
   12.9       Entire Agreement...........................................................          57
   12.10      Headings...................................................................          58
   12.11      Independent Contractors....................................................          58
   12.12      Waiver.....................................................................          58
   12.13      Counterparts...............................................................          58
</TABLE>

SIGNATURE PAGE

EXHIBITS

      EXHIBIT 1.11A     CDS EXISTING PATENT RIGHTS

      EXHIBIT 1.11B     EXCLUDED CDS PATENT RIGHTS

      EXHIBIT 1.15      CDS PATENT COST-SHARING COUNTRIES

      EXHIBIT 1.42      EXCLUDED PRODUCT SPECIFICATIONS/DRAWINGS

      EXHIBIT 1.87      UKRF LICENSES

      EXHIBIT 3.2       INITIAL DEVELOPMENT PLAN

      EXHIBIT 5.8.3     TERMS FOR OPTION LICENSE AGREEMENT

      EXHIBIT 11.5.1    TERMS FOR THE [*] LICENSE AGREEMENT

      [*] - INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
      TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED
      WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
      SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.

                                     -iii-
<PAGE>

                             COLLABORATION AGREEMENT

THIS COLLABORATION AGREEMENT (the "Agreement") dated as of February 11, 2005
(the "Effective Date"), is made by and between CONTROL DELIVERY SYSTEMS, INC., a
corporation organized and existing under the laws of the State of Delaware
having its offices at 400 Pleasant St., Watertown, Massachusetts 02472 ("CDS"),
and ALIMERA SCIENCES, INC., a corporation organized and existing under the laws
of the State of Delaware having its offices at 6120 Windward Parkway,
Alpharetta, GA 30005 ("Alimera"). CDS and Alimera are sometimes referred to
herein individually as a "Party" and collectively as the "Parties."

                                 R E C I T A L S

      WHEREAS, CDS designs and develops innovative ophthalmic drug delivery
products; and

      WHEREAS, Alimera develops and commercializes ophthalmic drug products; and

      WHEREAS, the Parties are interested in collaborating with one another and
jointly funding the development, and sharing Net Profits from the sale, of novel
products for treating eye diseases in humans, including a product for the
treatment of diabetic macular edema using a corticosteroid; and

      WHEREAS, CDS is willing to grant Alimera a license to certain of its
proprietary technology and know-how relating to developing products for treating
eye diseases and enter into such a collaboration upon the terms and conditions
set forth below;

      NOW THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties hereto
agree as follows:

                             ARTICLE 1 DEFINITIONS

For purposes of this Agreement, the terms defined in this Article shall have the
meanings specified below, whether used in their singular or plural form:

      1.1 "Affiliate" shall mean any corporation or other entity that controls,
is controlled by, or is under common control with a Party to this Agreement. A
corporation or other entity shall be regarded as in control of another
corporation or entity if it directly or indirectly owns or controls more than
fifty percent (50%) of the voting stock or other ownership interest of the other
corporation or entity, or if it possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of the corporation
or other entity or the power to elect or appoint more than fifty percent (50%)
of the members of the governing body of the corporation or other entity.

      1.2 "Alimera Improvements" shall mean any and all Improvements created,
conceived or reduced to practice by Alimera, or its Affiliates, agents,
subcontractors or sublicensees, alone or with others, or by Third Parties acting
on their behalf, that are (a) Improvements covered by or derived from practice
of the CDS Technology, and/or (b)

                                      -1-
<PAGE>

Improvements covered by or derived from the practice of the Improvements set
forth in clause (a); provided, however, that Alimera Improvements shall not
include any Improvement that meets each of the following: (x) is related
specifically to an active ingredient provided by Alimera and used in the
Products, (y) can be practiced without infringing any CDS Existing Patent Rights
and any Patent Rights included within CDS Improvements, or without utilizing any
CDS Know-How, and (z) does not fall within the definition of the CDS Core
Technology.

      1.3 "Alimera Know-How" shall mean Know-How Controlled by Alimera.

      1.4 "Alimera Patent Costs" shall mean fees and costs associated with
filing, prosecution and maintenance of the Alimera-Prosecuted Patent Rights, as
defined in Section 7.3, in the Territory.

      1.5 "Approval" shall mean the approvals from applicable regulatory
authorities in any country or region required to lawfully market a Product in
such country or region, including, but not limited to, approval of an NDA. The
term "Approved" shall mean the receipt of Approval.

      1.6 "Bankruptcy Code" shall mean Title 11 of the United States Code, as
amended from time to time.

      1.7 "B&L" shall mean Bausch & Lomb Incorporated.

      1.8 "B&L Agreement" shall mean the Amended and Restated License Agreement
between CDS and B&L dated as of December 9, 2003 as in existence and effect on
the Effective Date, a full and complete copy of which has been provided to
Alimera.

      1.9 "Business Day" shall mean each day of the week excluding Saturday,
Sunday and U.S. federal holidays.

      1.10 "CDS Core Technology" shall mean (a) any drug delivery device, or
component thereof, for ophthalmic use that includes a core containing one or
more drugs, and (b) any method or process for using a device described in clause
(a).

      1.11 "CDS Existing Patent Rights" shall mean (a) the United States and
foreign patents and patent applications listed in Exhibit 1.11A, (b) any Patent
Rights arising from those patents and patent applications during the Term, and
(c) any other patents or patent applications Controlled by CDS as of the
Effective Date, a Valid Claim of which, absent the licenses granted by CDS to
Alimera under Section 5.1, would be infringed by the making, having made, using,
selling, offering to sell or importing of a Product in the Collaboration Field
by Alimera or its subcontractors or sublicensees as permitted under this
Agreement; provided, however, that CDS Existing Patent Rights shall in no event
include the patents and patent applications listed in Exhibit 1.11B or any
Patent Rights arising from those patents or patent applications.

      1.12 "CDS Improvements" shall mean any and all Improvements created,
conceived or reduced to practice by CDS, or its Affiliates, agents, or
sublicensees, alone or with others or by Third Parties acting on their behalf,
during the course of activities conducted as set forth in the Development Plan,
that are (a) Improvements covered by or derived from practice of the CDS
Technology, and (b) Improvements covered by or derived from the practice of the
Improvements

                                      -2-
<PAGE>

set forth in clause (a); provided, however, that CDS Improvements shall not
include any Improvement that is an Alimera Improvement.

      1.13 "CDS Know-How" shall mean Know-How Controlled by CDS that is required
for development and Commercialization of a Product.

      1.14 "CDS Net Income" or "CDS Net Losses" shall mean, for the first
calendar quarter after the CDS Profitability Date and for any calendar quarter
thereafter, Net Sales by CDS, and/or CDS Sublicense Revenue actually received by
CDS, for a Product in that calendar quarter minus the CDS Product Costs for such
Product in that calendar quarter; provided that in the event any portions of the
CDS Product Costs are already included in arriving at CDS Sublicense Revenue,
such portions of the CDS Product Costs shall be excluded from the above
calculation to determine the CDS Net Income or CDS Net Losses. To the extent Net
Sales and/or CDS Sublicense Revenue actually received by CDS exceed the CDS
Product Costs for the relevant calendar quarter, such amount of difference shall
be deemed "CDS Net Income," and to the extent CDS Product Costs exceed Net Sales
and/or CDS Sublicense Revenue actually received by CDS for the relevant calendar
quarter, the amount of such difference shall be deemed "CDS Net Losses." For
clarification, with respect to calculating CDS Net Income for any unit of
Product, the Manufacturing Cost incurred to manufacture such unit shall be
deemed to be incurred in that country and quarter in which such unit is sold.

      1.15 "CDS Patent Costs" shall mean fees and costs associated with filing,
prosecution and maintenance of the CDS-Prosecuted Patent Rights, as defined in
Section 7.1.2, in the countries listed on Exhibit 1.15.

      1.16 "CDS Patent Rights" shall mean CDS Existing Patent Rights and CDS'
interest in any Patent Rights included within Alimera Improvements and CDS
Improvements.

      1.17 "CDS Product Costs" shall mean, with respect to a Product, all costs
CDS incurred for developing and Commercializing such Product, including, without
limitation, the following costs: (a) all Direct Development Costs incurred by
CDS during the Term of this Agreement, (b) each of the following to the extent
paid by CDS to Alimera pursuant to this Agreement: all Development Payments,
Compounded Development Payments, Determined Disputed Costs and Compounded
Disputed Payments, (c) each of the following, if any, owed by Alimera to CDS to
the extent not already paid by Alimera: any Compounded Development Payments and
Compounded Disputed Payments, plus any interest on such unpaid amount that has
accrued in accordance with the terms of this Agreement after termination of
either this entire Agreement or this Agreement with respect to a Product, as
applicable, (d) each of the following to the extent not already included in
Direct Development Costs or reimbursed by Alimera: CDS Patent Costs, UKRF Costs
and insurance premiums paid by CDS to maintain insurance required by Section
10.4, as compounded, if applicable, pursuant to Section 4.4, and (e) any other
costs incurred by CDS for developing and Commercializing such Product.

      1.18 "CDS Profitability Date" shall mean, with respect to a Product, the
first day of the first calendar quarter in which the aggregate of Net Sales by
CDS, and CDS Sublicense Revenue actually received by CDS, of such Product for
all preceding calendar quarters and the

                                      -3-
<PAGE>

current calendar quarter exceeds the CDS Product Costs during all preceding
calendar quarters and the current calendar quarter; provided that in the event
that any portions of the CDS Product Costs are already included in arriving at
the CDS Sublicense Revenue, such portions of the costs shall be excluded from
the above calculation to determine the CDS Profitability Date. For
clarification, all preceding calendar quarters include the Term of this
Agreement and for any applicable periods thereafter.

      1.19 "CDS Sublicense Revenue" shall mean any form of consideration
(excluding any amounts paid for equity securities of CDS other than amounts that
exceed the fair market value of such securities) in connection with a sublicense
agreement that CDS enters into with a Third Party to sell or otherwise transfer
some or all of CDS' rights to a Product, including, but not limited to,
marketing rights and/or distribution rights, provided that (1) the fair market
value of such securities shall be determined by mutual agreement of both
Parties, and (2) in the event that the Parties fail to reach such mutual
agreement, the matter shall be resolved by arbitration in accordance with
Section 12.7.2 herein.

      1.20 "CDS Technology" shall mean CDS Patent Rights, CDS Know-How and CDS'
interest in Alimera Improvements and CDS Improvements.

      1.21 "Change of Control" shall mean, with respect to a Party, (a) a merger
or consolidation of such Party with a Third Party which results in the voting
securities of such Party outstanding immediately prior thereto ceasing to
represent at least fifty percent (50%) of the combined voting power of the
surviving entity immediately after such merger or consolidation, or (b) except
in the case of a bona fide equity financing in which a Party issues new shares
of its capital stock, a transaction or series of related transactions in which a
Third Party, together with its Affiliates, becomes the beneficial owner of fifty
percent (50%) or more of the combined voting power of the outstanding securities
of such Party, or (c) the sale or other transfer to a Third Party of all or
substantially all of such Party's assets related to the Collaboration Field.

      1.22 "Clinical IP" shall mean (a) all preclinical and clinical protocols,
studies, data, results, study-related forms, materials and reports (e.g.,
investigator brochures, informed consent forms, data safety monitoring board
related documents, patient recruitment related materials, biocompatibility
studies, animal studies, safety studies, and chemistry, manufacturing and
control data) resulting from any preclinical or clinical study or trial of any
Product in the Collaboration Field that is conducted by or under the direction
of Alimera or CDS, or their Permitted Subcontractors or sublicensees, pursuant
to this Agreement, and any audit of any such preclinical or clinical study or
trial, and (b) all INDs, NDAs, any unfiled applications, components or materials
normally associated with an IND or NDA, regulatory filings or applications
comparable to INDs or NDAs in any foreign jurisdictions, and other regulatory
applications and Approvals regarding any Product in the Collaboration Field that
are prepared or submitted by or under the direction of Alimera or CDS, or their
Permitted Subcontractors or sublicensees, pursuant to this Agreement; provided,
however, that Clinical IP shall not include any Pre-Existing Clinical IP.

      1.23 "Clinical Supply Requirements" shall mean, with respect to each
Product, the quantities of such Product that are required for the conduct of
preclinical studies and clinical trials required to procure data necessary for
the acceptance of filing of an NDA for the Product,

                                      -4-
<PAGE>

pursuant to the Development Plan. For the avoidance of doubt, supplies for
Non-NDA Trials are excluded from the definition of Clinical Supply Requirements.

      1.24 "CODRUG(TM)" shall mean a compound or a pharmaceutically acceptable
salt thereof comprising one constituent moiety covalently or ionically
associated with at least one other constituent moiety, wherein each moiety, in
its separate form (i.e., in the absence of the association), is a
therapeutically or pharmacologically active agent or a prodrug or
pharmaceutically acceptable salt of such an agent. The covalent association
between said moieties can be either direct or indirect through a linker.
Examples of covalent association include without limitation ester, amide,
carbamate, carbonate, cyclic ketal, thioester, thioamide, thiocarbamate,
thiocarbonate, xanthate, and phosphate ester bonds. Each constituent moiety of a
CODRUG(TM) compound can be the same as or different from the other constituent
moiety. Upon cleavage of the covalent or ionic association, the individual
constituent moieties are reconstituted as the therapeutically or
pharmacologically active forms of the same moieties prior to conjugation.

       1.25 "Collaboration Field" shall mean the treatment and prevention of eye
diseases in humans; provided, however, that the treatment and prevention of [*]
is excluded from the Collaboration Field.

      1.26 "Commercial Supply Requirements" shall mean, with respect to each
Product, quantities of such Product that are required to fulfill requirements
for commercial sales, Product sampling, and Non-NDA Trials, in the Collaboration
Field in the Territory.

      1.27 "Commercialize" or "Commercialization" shall mean any and all
activities directed to marketing, promoting, Detailing, distributing, importing,
offering for sale, having sold and/or selling a product, including, but not
limited to, sampling, and conducting Non-NDA Trials.

      1.28 "Commercialization Budget" shall have the meaning set forth in
Section 4.2 hereof.

      1.29 "Commercially Reasonable Efforts" shall mean efforts and resources
that parties in the pharmaceutical industry would consider normal to use for a
compound or product owned by a party in that industry or to which that party has
rights, which is of similar market potential at a similar stage in its
development or product life, taking into account the competitiveness of the
marketplace, the proprietary position of the compound or product, the regulatory
structure involved, the profitability of the applicable products, and other
relevant factors. In determining Commercially Reasonable Efforts with respect to
a particular Product, a Party may not consider any other product(s) owned or
licensed by it.

      1.30 "Compounded Development Payment" shall have the meaning set forth in
Section 6.3.2 hereof.

      1.31 "Confidential Information" shall have the meaning set forth in
Section 8.1 hereof.

      1.32 "Control" or "Controlled by" shall mean, in the context of a license
to or ownership of intellectual property, possession of the ability on the part
of a Party to grant access

      [*] - INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.
                                      -5-
<PAGE>

to or a license or sublicense as provided for herein without violating the terms
of any agreement or other arrangement with any Third Party existing at the time
such Party would be required hereunder to grant the other Party such access or
license or sublicense.

      1.33 "Detail" shall mean a face-to-face meeting (including a live video
presentation) with one or more healthcare professionals with prescribing
authority during which scientific and/or medical information about the Product
is discussed. Detailing does not include merely a reminder or a promotional
sample drop. When used as a verb, the term "Detailing" shall mean to engage in
the activity of a Detail.

      1.34 "Development Budget" shall mean the initial Development Budget and
thereafter each budget in the rolling three (3) year development plan agreed to
by the Parties as described in Section 3.2 hereof.

      1.35 "Development Plan" shall mean the initial Development Plan and
thereafter each rolling three (3) year development plan agreed to by the Parties
as described in Section 3.2 hereof. Each Development Plan (including the initial
Development Plan) (a) shall set forth a strategy and plan for development
(including, but not limited to, preclinical development and clinical trials),
manufacturing and regulatory approval for each Product, shall indicate which
Party shall have responsibility for the various development activities specified
therein consistent with the other terms of this Agreement, and shall specify the
expected timing of such activities, including the estimated dates of the
initiation and completion of such activities, and (b) shall include a
Development Budget as described in Section 3.2.

      1.36 "Direct Commercialization Costs" shall mean only the following costs
incurred, on a cash basis, by Alimera for Commercializing a Product in
accordance with this Agreement and pursuant to the Commercialization Budget:

            (a) Direct Costs of marketing activities for the Product, including
pre-launch, launch, advertising, packaging, activities necessary for seeking and
maintaining pricing and reimbursement approvals from Third Party payors,
literature, lectures, training (including wet labs for training healthcare
professionals) and sales promotion;

            (b) [*]

            (c) Direct Costs associated with maintaining Approvals for the
Product;

            (d) Direct Costs of package development and package maintenance for
the Product;

            (e) Selling Expenses for the Product;

            (f) Manufacturing Costs to satisfy Commercial Supply Requirements
for the Product;

            (g) Direct Costs of distribution of the Product other than the costs
specified in Section 1.60(d);

      [*] - INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                      -6-
<PAGE>

            (h) Royalties, milestones and other fees paid by Alimera under Third
Party license(s) [*] that are at arms' length to the extent they relate to the
Product, to the extent such licenses are necessary for Alimera to make, have
made, use, offer to sell, sell, and import the Product without infringing
patents of such Third Parties, including without limitation as provided for in
Section 7.6.4;

            (i) Direct Costs of selection, filing, prosecution and maintenance
of trademarks used solely for the Product (or an appropriate allocation in the
case of any trademarks used for the Product and other products);

            (j) Direct Costs of Medical Advisory Services for the Product;

            (k) Recall expenses that are Direct Commercialization Costs as set
forth in Section 4.6;

            (l) Product Liability Losses that are Direct Commercialization Costs
as set forth in Section 10.5;

            (m) Insurance premiums paid by Alimera for the insurance required by
Section 10.4 to the extent such insurance relates to Commercialization of the
Product (i.e., if insurance covers risks other than risks related to
Commercialization of the Product, then only an appropriate portion of such
premiums shall be included); and

            (n) Taxes, duties, tariffs and other governmental charges (excluding
taxes on income) associated with manufacture and distribution of the Product, to
the extent not deducted from Net Sales pursuant to Section 1.60(c).

Notwithstanding any other provisions in this Agreement, Direct Commercialization
Costs shall include only the costs of labor for those individuals who spent
greater than fifty percent (50%) of their time on activities within the
Commercialization Budget during any calendar month (the "Majority Time
Individuals"), and such costs shall be determined according to the amount of the
Majority Time Individuals' time actually spent on such Commercialization
activities, provided that, if the Commercialization activity is Detailing, then
such costs for the Majority Time Individuals shall be determined in accordance
with Section 1.81. In the event there is more than one Product on the market at
any given time, Direct Commercialization Costs attributable to more than one
Product shall be allocated to each Product as appropriate; provided, however,
that in no event shall any Direct Commercialization Costs be accounted for more
than once. Notwithstanding the foregoing, in the event that a person devotes
time to activities under both the Commercialization Budget and the Development
Plan, the time spent shall be aggregated in determining whether such person
meets the fifty percent (50%) threshold set forth in this definition and in the
definition of Direct Development Costs, and the person's time shall be allocated
accordingly between development and Commercialization.

      1.37 "Direct Costs" shall mean, on a cash basis, the costs of labor
(including only salaries, wages and current period employee benefits (but
specifically excluding expenses associated with stock options or other
equity-based or deferred compensation)), raw materials, supplies, services,
fees, and other resources, directly and exclusively consumed or used in the
conduct of the applicable activity; provided, however, that the following costs
shall not be

      [*] - INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                      -7-
<PAGE>

deemed Direct Costs: (i) corporate overhead expenses, including, but not limited
to, general administration, business development, travel, entertainment,
executive management, facilities, finance, information system and data
management services, investor relations, human resources, legal, payroll,
purchasing, and corporate supervisory services; (ii) amortization and
depreciation expenses, interest expenses, taxes, extraordinary or nonrecurring
losses customarily deducted by a Party in calculating and reporting consolidated
net income, capital expenditures (including, but not limited to, purchases of
facilities, property or equipment), and inventory write-offs (to the extent not
attributable to a Product); (iii) consulting (including legal) fees unless
specifically set forth in a mutually approved budget; and (iv) payments made to
any related party or Affiliates in excess of an arm's length charge for the
relevant product or service.

      1.38 "Direct Development Costs" shall mean the following costs incurred,
on a cash basis, by either Party for developing a Product, to the extent set
forth in the Development Budget approved by the Parties:

            (a) Direct Costs for development activities for the Product,
incurred, on a cash basis, by a Party or paid by a Party to Permitted
Subcontractors, conducted pursuant to the Development Plan, including, but not
limited to, research, formulation development and testing, clinical development
activities, data management, toxicology, and planning and execution of clinical
trials required to procure data necessary for the acceptance of filing of an
NDA;

            (b) Manufacturing Costs to satisfy Clinical Supply Requirements;

            (c) Direct Costs for regulatory filings pursuant to the Development
Plan (specifically excluding any filing related to Non-NDA Trials) for the
Product;

            (d) Insurance premiums paid by either Party for commercial insurance
to the extent such insurance relates to development activities conducted
pursuant to the Development Plan in accordance with Section 10.4 hereof (i.e.,
if insurance covers risks other than risks related to development of the
Product, then only an appropriate portion of such premiums shall be included);

            (e) CDS Patent Costs paid from the Effective Date up to the first
Product Profitability Date that are not otherwise reimbursed by a Third Party;
provided, however, that CDS Patent Costs in excess of [*] in any calendar
year shall not be included as Direct Development Costs;

            (f) Direct Costs of the activities conducted under Section 3.11,
including, but not limited to, technology transfer assistance from CDS to
Alimera to enable Alimera to manufacture the Product for Commercialization;

            (g) Direct Costs for capital expenditures to the extent attributable
to the Product as specifically approved in the Development Plan and set forth in
the Development Budget; and

            (h) Other Direct Costs as described in the Development Plan and set
forth in the Development Budget.

            [*] - INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN
FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.

                                      -8-
<PAGE>

Notwithstanding any other provisions in this Agreement, Direct Development Costs
shall (1) with the exception of (e) and (f) above, include only Direct Costs
incurred, on a cash basis, in connection with activities conducted to procure
data necessary for the acceptance of filing of an NDA for the Product; and (2)
include only the costs of labor for those individuals who spent greater than
fifty percent (50%) of their time on activities under the Development Plan
during any calendar month, and such costs shall be determined according to the
percentage of the individuals' time actually spent on such development
activities; and (3) not include any Commercialization costs. Notwithstanding the
foregoing, in the event that a person devotes time to activities under both the
Commercialization Budget and the Development Plan, the time spent shall be
aggregated in determining whether such person meets the fifty percent (50%)
threshold set forth in this definition and in the definition of Direct
Commercialization Costs, and the person's time shall be allocated accordingly
between development and Commercialization.

      1.39 "DME" shall mean diabetic macular edema.

      1.40 "Effective Date" shall mean the date first set forth above.

      1.41 "Earnest Money Loan" shall mean the aggregate of the loan under the
Secured Promissory Notes from CDS to Alimera dated October 19, 2004, November
18, 2004 and December 22, 2004.

      1.42 "Excluded Product" shall mean a [*] that generally conforms to the
drawings and specifications (and any prior iterations thereof in whole or in
part) shown in Exhibit 1.42.

      1.43 "FDA" shall mean the United States Food and Drug Administration or
any successor agency with responsibilities comparable to those of the United
States Food and Drug Administration.

      1.44 "First Commercial Sale" shall mean, with respect to each Product, the
first sale for use or consumption by the general public of such Product in a
country after required Approval has been granted by the applicable regulatory
authority of such country.

      1.45 "First Product" shall have the meaning set forth in Section 1.77
hereof.

      1.46 "GAAP" shall mean the current United States generally accepted
accounting principles, consistently applied.

      1.47 "Gross Sales" shall mean, for any period, on a cash basis (a) for any
arm's length transaction in which Products are sold separately by Alimera or its
Affiliates to a Third Party, the gross invoice price for Products in such
transactions, and (b) for all other transactions (i.e., other than those
described in subsection (a)) in which Products are sold, used or otherwise
disposed of by Alimera or its Affiliates (including in barter or similar
transactions, or transactions that are not at arm's length to a Third Party, or
transactions in which Products are not sold separately, but not including the
provision of Products intended for use solely as samples), the total imputed
sales price for Products in such transactions, using as the imputed sales price
the weighted

      [*] - INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                      -9-
<PAGE>

average gross invoice price for Products under subsection (a) during the
preceding calendar quarter or, if there have been no Gross Sales under
subsection (a) in the preceding quarter, using a reasonable imputed price to be
determined at the time by the parties. For purposes of this Section 1.47, "sold
separately" shall mean sold, solely for monetary consideration, on a stand-alone
basis (i.e., with a selling price independent of any other product) for not less
than arm's length value.

      1.48 "Improvements" shall mean any and all Inventions, enhancements,
derivatives, new uses, developments, techniques, materials, compounds, products,
designs, processes or other technology or intellectual property, whether or not
patentable and all Patent Rights and other intellectual property rights in any
of the foregoing.

      1.49 "IND" shall mean the Investigational New Drug Application filed with
FDA or a similar application filed with an applicable regulatory authority
outside of the United States.

      1.50 "Invention" shall mean ideas, information, Know-How, data research
results, writings, inventions, discoveries, modifications, improvements and
other technology (including, but not limited to, any proprietary biological or
other materials, compounds or reagents and computer software), whether or not
patentable or copyrightable.

      1.51 "Joint Development Team" or "JDT" shall mean the body organized and
acting pursuant to Article 2 hereof.

      1.52 "Know-How" shall mean unpatented information, whether or not
patentable, including, but not limited to, technical information, processes,
formulae, trade secrets, materials, designs, drawings and data.

      1.53 "Majority Time Individuals" shall have the meaning set forth in
Section 1.36.

      1.54 "Manufacturing Costs" shall mean:

      (A) with respect to Product manufactured by a Third Party, a Party's cost
of procuring such Product on an arms' length basis; or

      (B) with respect to Product manufactured by a Party or one of its
Affiliates, (1) Direct Costs incurred, on a cash basis, by such Party or one of
its Affiliates to manufacture such Product, including Direct Costs of
purchasing, inspection, quality assurance, quality control, storage, scrap and
training, and (2) a portion of depreciation, amortization, interest expense,
utilities, rent, maintenance and repairs, insurance and other manufacturing
overhead (the "Manufacturing Overhead") allocable to Product as determined by
the following formula: the Manufacturing Overhead multiplied by a fraction, the
numerator of which is the number of direct labor hours of individuals who spent
time on the production of Product at a plant at which Product is manufactured,
and the denominator of which is the number of direct labor hours devoted to the
production of all products at such plant when the plant is operating at full
capacity, provided that Manufacturing Costs shall exclude costs associated with
excess capacity, selling costs (including, without limitation, marketing,
advertising, salaries and commissions), corporate overhead, costs that are
otherwise attributed as Direct Development Costs or Direct Commercialization
Costs under this Agreement, royalties (earned or paid up) and other amounts

                                      -10-
<PAGE>

payable to Third Parties under any license taken by a Party in connection with
the manufacture of the Product, and all amounts spent on research and
development;

provided, however, that any amount determined pursuant to clause (B) shall not
exceed the amount that a qualified Third Party manufacturer would charge for
supplying comparable quantities of the relevant Product in a timely manner on
reasonable and customary terms and conditions.

      1.55 "Medical Advisory Services" shall mean those health care
professionals employed or engaged by a Party with sufficient medical or other
pertinent health care experience to engage in in-depth dialogues with physicians
regarding medical issues associated with a Product.

      1.56 "Milestone Payment" shall have the meaning set forth in Section 6.2
hereof.

      1.57 "NDA" shall mean a new drug application or product license
application or its equivalent filed with and accepted by the FDA after
completion of human clinical trials to obtain marketing approval for a Product,
or any comparable application filed with and accepted by the regulatory
authorities of a country other than the United States, including, where
applicable, any applications for governmental pricing and marketing approval.

      1.58 "Net Profits" or "Net Losses" shall mean, for a particular calendar
quarter, the Net Sales for a Product in a country minus the Direct
Commercialization Costs for such Product in that country. For the avoidance of
doubt, Net Profits shall be calculated on a Product-by-Product and calendar
quarter-by-quarter basis. To the extent Net Sales exceed Direct
Commercialization Costs for the relevant calendar quarter, such amount of
difference shall be deemed "Net Profits," and to the extent Direct
Commercialization Costs exceed Net Sales for the relevant calendar quarter, such
amount of difference shall be deemed "Net Losses." For clarification, with
respect to calculating Net Profits or Net Losses for any unit of Product, the
Manufacturing Cost incurred to manufacture such unit shall be deemed to be
incurred in the country and quarter in which such unit is sold.

      1.59 "Net Profits Payment" shall have the meaning set forth in Section
6.5.1(b) hereof.

      1.60 "Net Sales" shall mean, with regard to a Product, on a cash basis,
for any period, Gross Sales less the following reasonable and customary
deductions:

            (a) normal and customary trade, cash and other discounts, allowances
and credits allowed and actually taken directly with respect to sales of the
Product;

            (b) credits or allowances actually granted for damaged goods or
returns or rejections of the Product;

            (c) taxes or other governmental charges imposed directly on the
sales of Products, including value added taxes or other similar governmental
charges, but not including any tax levied with respect to income;

            (d) freight, postage, shipping, and insurance charges; and

                                      -11-
<PAGE>

            (e) charge back payments and government rebates allowed and taken.

      1.61 "Non-NDA Trial" shall mean any clinical trial, or part of a clinical
trial, of a Product that is not designed or required to procure data necessary
for the acceptance of filing of an NDA. Non-NDA Trials may be conducted before
or after the filing of an NDA, before Approval or at any time after Approval.
Non-NDA Trials shall specifically not include (that is, costs associated with
such trials may be deemed Direct Development Costs) any (i) clinical trials
designed to obtain favorable labeling at the time of initial Approval pursuant
to the Development Plan, (ii) post-Approval or post-marketing trials required by
the FDA or other regulatory authority in granting a conditional Approval, or
(iii) trials required to obtain Approval for pediatric use of a Product, whether
such trials are prior or subsequent to the filing of an NDA or Approval.

      1.62 "Non-Paying Party" shall have the meaning set forth in Section 6.3.2
hereof.

      1.63 "Option Compound" shall mean a compound, other than a compound that
is a corticosteroid, that (i) Alimera has a right to use and (ii) is selected by
Alimera under an Alimera Compound Option set forth in Section 5.8; provided,
however, that Option Compound shall not include any compound that is included in
a license or option by CDS to a Third Party, or is included in a term sheet with
a Third Party, as of the date on which Alimera notifies CDS under Section 5.8
that Alimera wishes to exercise an Alimera Compound Option with regard to such
compound. For the avoidance of doubt, a "compound," as used herein, shall be a
specific compound and shall not be a category or class of compounds.

      1.64 "Option Product" shall mean (i) a product that meets the definition
of "Product" in Section 1.77, except that the term "Option Compound" shall be
substituted in place of "corticosteroid," and (ii) clause (B)(2) and the third
sentence of Section 1.77 shall be omitted.

      1.65 "Option Term" shall mean the period commencing on the Effective Date
and expiring on the earliest of (i) [*] months after the Effective Date;
(ii) the date on which [*]; and (iii) Alimera's exercise of all [*] Alimera
Compound Options under Section 5.8.

      1.66 "Owed Party" shall have the meaning set forth in Section 6.3.2
hereof.

      1.67 "Party" shall mean CDS or Alimera.

      1.68 "Patent Rights" shall mean any United States or foreign patent or
patent applications, any patents issuing from such patent applications, and any
continuations, continuations-in-part to the extent specifically directed to
subject matter specifically described in such patent applications, divisionals,
renewals, reexaminations, reissues, extensions or provisional applications of
any of the foregoing and any corresponding patent, patent application, utility
model, inventor certificate, registration or the like in any country of the
world with respect to the foregoing.

      1.69 "Permitted Subcontractor" shall mean a Third Party or an Affiliate
that has been awarded a subcontract with one Party in accordance with Section
3.7 hereof.

      [*] - INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                      -12-
<PAGE>

      1.70 "Phase I Clinical Trial" shall mean a clinical trial as defined in 21
C.F.R. 312.21(a), as may be amended from time to time, or any foreign equivalent
thereto.

      1.71 "Phase I/II Clinical Trial" shall mean a combined Phase I Clinical
Trial and Phase II Clinical Trial.

      1.72 "Phase II Clinical Trial" shall mean a clinical trial as defined in
21 C.F.R. 312.21(b), as may be amended from time to time, or any foreign
equivalent thereto.

      1.73 "Phase III Clinical Trial" shall mean a clinical trial as defined in
21 C.F.R. 312.21(c), as may be amended from time to time, or any foreign
equivalent thereto.

      1.74 "Pre-Existing Clinical IP" shall mean [*].

      1.75 "Primary Contact Person" shall have the meaning set forth in Section
3.4.

      1.76 "Prime" shall have the meaning set forth in Section 6.5.1(b).

      1.77 "Product" shall mean a drug delivery device that meets all of the
following criteria: (A) it has a core within a polymer layer that contains a
drug in a form other than a CODRUG(TM) and no other active ingredient, where the
core does not include a CODRUG(TM), (B) it is Approved or designed to be
Approved (1) to deliver a corticosteroid and no other active ingredient by
implantation, injection, or other direct delivery method to the posterior
portion of the eye, or (2) to treat DME by delivering a compound or formulation
by implantation, injection, or other direct delivery method other than through
an incision smaller than that required for a 25 gauge needle, (C) it does not
fall under the definition of Excluded Product, and (D) it is Approved or
designed to be Approved for a particular indication in a particular country. For
clarification, eye drops or other topical administration and tablets or other
oral administration shall not be deemed to be direct delivery to the posterior
portion of the eye. For example, "Product" shall specifically include a drug
delivery device that meets all of the following criteria (such product sometimes
referred to as the "First Product"): (1) consists of [*] (2) is Approved or
designed to be Approved to be administered [*]; (3) is Approved or designed to
be Approved [*] and (4) is Approved or designed to be Approved for a particular
indication in a particular country. For clarification, with regard to the same
drug delivery device described above, each indication in each country shall be a
separate Product. By way of non-limiting examples, with regard to a particular
drug delivery device X, (i) X for DME and X for age-related macular degeneration
shall be two different Products, and (ii) X for DME in the United States and X
for DME in Japan shall be two different Products.

      [*] - INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED. -13-
<PAGE>

      1.78 "Profitability Date" shall mean, with respect to each Product, the
first day of the first calendar quarter in which Net Profits are realized for
such Product.

      1.79 "Recall" shall mean any recall of a product or any related actions
(e.g., market withdrawal and stock recovery). For avoidance of doubt, Recall
includes recall of product packaging.

      1.80 "Right of Access to Clinical IP" shall mean the right to reference,
cross-reference, review, have access to, incorporate and use Clinical IP in any
regulatory applications or filings, any patent filings, or for any research or
development purpose.

      1.81 "Selling Expenses" shall mean Direct Costs incurred, on a cash basis,
by Alimera for the sales force who are employees of Alimera or its Affiliates,
all only pursuant to the Commercialization Budget; provided, however, that if a
portion of time of Alimera Majority Time Individuals involved in Detailing
Products is devoted to Detailing products other than Products, then only the
following percentages of the Alimera Majority Time Individuals' time spent in
Detailing shall be Direct Commercialization Costs:

            (a) [*] if the Product is carried in the sole Detail position, in
which the Product is the only product presented during a Detail and the key
Product attributes are verbally presented in a presentation delivered during the
Detail by Alimera's or its Affiliates' sales representative;

            (b) [*] if the Product is carried in the primary Detail position, in
which key Product attributes are verbally presented in the first position during
a Detail, where the Product is given primary emphasis (i.e., an emphasis that is
more important than the emphasis given to any other product presented), and
where no more than three products are presented during such Detail;

            (c) [*] if the Product is carried in the secondary Detail position,
in which key Product attributes are presented in the second position during a
Detail, where the Product is given significant but not primary emphasis, and
where no more than three products are presented during such Detail;

            (d) [*] if the Product is carried in the tertiary Detail position,
in which key Product attributes are presented in the third position during a
Detail, where the Product is given some emphasis, and where three products are
presented during such Detail; provided that (1) if more than one Product is the
subject of a Detail, the foregoing percentages shall be cumulative, not to
exceed 100% (e.g., if one Product is carried in the primary Detail position and
another Product is carried in the secondary Detail position, then [*] of the
sales force time shall be a Direct Commercialization Cost with respect to the
first Product and [*] shall be a Direct Commercialization Cost with respect to
the second Product), and (2) if there are more than three products presented in
a Detail, the percentages specified in (b)-(d) above shall be multiplied by a
fraction, the numerator of which is three and the denominator of which is the
number of products presented in that Detail (e.g., if a Product is carried in
the secondary Detail position and there are four products presented during such
Detail, then [*] is multiplied by -3/4 and [*] of the sales force time shall be
a Direct Commercialization Cost with respect to that

            [*] - INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN
FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.

                                      -14-
<PAGE>

Product). For clarification, the costs of Majority Time Individuals shall be
determined according to the amount of Majority Time Individuals' time actually
spent on Detailing multiplied by the applicable percentage as specified in this
Section 1.81 above. For example, if a Majority Time Individual spends
twenty-five (25) hours on Detailing, in which Products are carried in the
primary Detail positions, then Direct Commercialization Costs attributable to
such Detailing shall be the Direct Costs of 25 hours multiplied by [*] (as may
be further adjusted as specified above). For further clarification, Selling
Expenses relating to a Product may be incurred prior to First Commercial Sale of
such Product (e.g., for sales force training); in such event, the percentages
referred to in this Section 1.81 initially shall be based on the Detail position
for the relevant Product contemplated in the Commercialization Budget. For
example, if the Product is projected in the Commercialization Budget to be the
sole product Detailed by the sales force, then initially [*] of the Direct Costs
associated with the sales force shall be allocated as Selling Expenses. In the
event that the actual Detail position for a Product differs from that projected
in the Commercialization Budget, then the amount of the Direct Costs that are
included as Direct Commercialization Costs shall be adjusted subsequently to
reflect the actual Detail position.

      1.82 "Term" shall have the meaning set forth in Section 11.1.

      1.83 "Territory" shall mean all countries and territories worldwide.

      1.84 "Third Party" shall mean any person or entity other than CDS, Alimera
or their respective Affiliates.

      1.85 "UKRF" shall mean the University of Kentucky Research Foundation.

      1.86 "UKRF Costs" shall mean all royalties, milestones and other fees due
to UKRF related to a Product pursuant to the UKRF Licenses.

      1.87 "UKRF Licenses" shall mean the licenses set forth in Exhibit 1.87, as
may be amended from time to time consistent with Section 7.9, full and complete
copies of which agreements in effect as of the Effective Date have been provided
to Alimera.

      1.88 "Valid Claim" shall mean a claim of an issued and unexpired patent,
or a claim of a pending patent application, which has not been withdrawn,
cancelled, abandoned, disclaimed, or held permanently revoked, unenforceable or
invalid by a decision of a court or other governmental agency of competent
jurisdiction, unappealable or unappealed within the time allowed for appeal.

                        ARTICLE 2 JOINT DEVELOPMENT TEAM

      2.1 Establishment of Joint Development Team. The Parties shall establish a
Joint Development Team ("JDT"), which shall consist of a total of four members,
with two members from each Party. Members of the JDT may be represented at any
meeting by a designee appointed by such member for such meeting, provided that
reasonable advance notice is provided to the other Party and such designee shall
be subject to an appropriate confidentiality agreement. Each Party shall be free
to change its members on prior written notice to the other Party. Each Party
may, in its discretion, upon reasonable notice to the other Party, invite
non-


[*] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                      -15-
<PAGE>

JDT employees and consultants of such Party to attend such meeting, provided
that such non-JDT employees and consultants shall be subject to appropriate
confidentiality agreements. The JDT shall remain in place until the expiration
or termination of its responsibilities set forth in this Agreement.

      2.2 Responsibilities of the Joint Development Team. In addition to the
responsibilities expressly described elsewhere in this Agreement, the JDT shall:

            (a) draft the Development Plan and present it to the Parties for
approval and monitor development activities and execution of the development
activities under the Development Plan;

            (b) develop updates or amendments to the Development Plan, and the
Development Budget, including, but not limited to, the annual updates pursuant
to Section 3.2, and make recommendations to the Parties for approval by the
Parties of such updates or amendments;

            (c) quarterly review and evaluate progress under the Development
Plan; provided, however, that the JDT shall not have authority to make any
determination that either Party is in breach of its obligations under the
Development Plan;

            (d) attempt to settle disputes or disagreements that are unresolved
by the Primary Contact Persons; provided, however, that the JDT shall not have
authority to make any determination that either Party is in breach of its
obligations under the Development Plan; and

            (e) perform any other activities related to the Development Plan as
jointly requested by both Parties from time to time.

      For the avoidance of doubt, the JDT shall have no authority to amend
either this Agreement or the Development Plan.

      2.3 Meetings; Minutes. During the course of implementing the Development
Plan, the JDT shall meet at least once each calendar quarter, and more
frequently as the Parties mutually agree is appropriate, on such dates, in such
places and at such times as the Parties shall agree. The meetings shall
alternate between the offices of the Parties unless the Parties otherwise agree.
Meetings may be by teleconference or videoconference; provided, however, that
the JDT shall meet in person at least twice every calendar year during the
course of implementing the Development Plan. In addition to these required
meetings, the JDT may also be polled or consulted from time to time by means of
telecommunications, video conferences or correspondence, as deemed necessary or
appropriate in order to fulfill its obligations under this Agreement. The JDT
will be chaired by CDS until June 30, 2005 and by Alimera during the second half
of 2005, and the chairmanship of the JDT shall alternate between the Parties
semi-annually thereafter. The role of the chairperson shall be to convene and
preside at meetings of the JDT, but the chairperson shall not be entitled to
prevent items from being discussed or to cast any tie-breaking vote. Not later
than thirty (30) days after the Effective Date, the JDT shall hold an
organizational meeting. Reasonably detailed written minutes will be kept of all
JDT meetings and will reflect without limitation material decisions made at such
meetings. The chairperson of the JDT shall have responsibility for keeping
minutes. Draft meeting minutes will be sent to each

                                      -16-
<PAGE>

member of the JDT for review and approval within ten (10) Business Days after a
meeting. Minutes will be deemed approved unless a member of the JDT objects to
the accuracy or completeness of such minutes within thirty (30) calendar days of
receipt.

      2.4 Decision-Making and Dispute Resolution. From the Effective Date until
the termination of the Development Plan, neither Party shall undertake
development of a Product except in accordance with the Development Plan or as
otherwise permitted by Section 6.3.3. The representatives of each Party shall
have collectively one vote on behalf of such Party; provided, however, that no
such vote taken at a meeting shall be valid unless a representative of each
Party is present and participating in the vote. The JDT shall operate by
unanimous consent, provided that any deadlock shall be resolved as follows: in
the case of any matter which cannot be resolved by the JDT, including, but not
limited to, disputes referred to the JDT by the Primary Contact Persons pursuant
to Section 3.4 hereof, at the written request of either Party, the issue shall
be referred to senior management of the Parties in accordance with Section 12.7.
The JDT shall meet to consider any dispute referred to it pursuant to Section
3.4 within fifteen (15) days of such referral and at the conclusion of such
meeting shall either (1) have resolved the dispute and report such resolution in
writing to the Parties or (2) refer the matter for resolution as set forth in
the preceding sentence. If such executives cannot resolve such matter within the
relevant time period, the matter shall be resolved in accordance with the
following provisions:

            (a) If the deadlock relates to subject matter (other than subject
matter that would have an impact on the Development Budget, Direct Development
Costs and/or the reconciliation of Direct Development Costs) for which one Party
has the primary responsibility as set forth in Sections 3.2.3 and 3.2.4, that
Party shall have the right to resolve the deadlock in its reasonable
determination; and

            (b) If the deadlock relates to subject matter that would have an
impact on the Development Budget, Direct Development Costs and/or the
reconciliation of Direct Development Costs, or to subject matter for which
neither Party has the primary responsibility under Sections 3.2.3 and 3.2.4,
then the matter may be referred to arbitration in accordance with Section 12.7.2
hereof.

      2.5 Expenses. Each Party shall be responsible for all travel and related
costs and expenses for its members, designees and non-JDT invitees to attend
meetings of, and otherwise participate on, the JDT, and such costs and expenses
shall not be Direct Development Costs or Direct Commercialization Costs but time
spent in connection with such meetings shall be treated as time devoted to
development in determining whether a person devotes at least 50% of his time to
development and/or Commercialization activities.

      2.6 Dissolution of JDT. Upon the mutual agreement of the Parties, the
activities and obligations of the JDT and its members may be suspended until
such time as (1) active development is being undertaken, or contemplated to be
undertaken, under the Development Plan, or (2) the JDT is dissolved.

                        ARTICLE 3 DEVELOPMENT ACTIVITIES

                                      -17-
<PAGE>

      3.1 General. CDS and Alimera shall undertake development activities for
the Products in the Collaboration Field in accordance with the Development Plan.
During the course of implementing the Development Plan, CDS and Alimera shall
communicate regularly and shall assume certain rights and responsibilities for
the development of the Products in the Collaboration Field in accordance with
Section 3.2.3 and the Development Plan, all as described more specifically
herein.

      3.2 Development Plan.

            3.2.1. Initial Development Plan. No later than thirty (30) days
after the Effective Date, the Parties will approve an initial Development Plan
for the First Product. Such Development Plan will describe in reasonable detail
the activities to be undertaken by each of the Parties for the period commencing
on the Effective Date and ending on December 31, 2007, and shall be appended
hereto as Exhibit 3.2 and incorporated herein by reference. In the event that an
initial Development Plan is not approved within 30 days after the Effective
Date, either Party may terminate this Agreement in accordance with Section 11.4.

            3.2.2. Annual Updates. Not later than September 30 of each year
during the course of implementing the Development Plan and commencing on
September 30, 2005, the Parties shall agree to an update to the Development
Plan, describing in reasonable detail the activities to be undertaken during the
next three (3) calendar years and the expected timing of such activities,
including the estimated dates of the initiation and completion of such
activities (which may be adjusted by the Parties as necessary). For example, the
annual update taking place on or before September 30, 2005 will describe
development activities and the expected timing for such activities for calendar
years 2006, 2007 and 2008. The most recently updated Development Plan shall be
incorporated into Exhibit 3.2 and shall be deemed the Development Plan for the
applicable time period. The initial Development Plan and each updated
Development Plan shall (a) reflect Commercially Reasonable Efforts to be
undertaken by the Parties to develop Products, and (b) include a Development
Budget, which sets forth, for the time period covered by the applicable
Development Plan, on a calendar quarter-by-quarter and Product-by-Product basis,
the budget for development of each Product during the applicable time period.
The Development Budget shall also specifically allocate the Direct Development
Costs to be incurred by CDS and by Alimera for the period covered in the
Development Budget, broken down on a calendar quarter-by-quarter and
Product-by-Product basis. At any time during the course of development, upon
mutual written agreement, the Parties may amend the Development Plan, including,
but not limited to, the Development Budget. In the event the Parties fail to
agree to an updated Development Plan, the Parties shall refer the matter to
dispute resolution in accordance with Section 12.7 and shall proceed in
accordance with the then existing Development Plan until the matter is resolved;
provided, however, that if the dispute relates to costs proposed by a Party to
implement an agreed to Development Plan, then the Parties shall proceed in
accordance with Section 6.3.3.

      Each Development Budget shall be prepared on a cash basis, shall provide a
level of detail that is reasonably consistent with the initial Development
Budget, and shall provide a greater level of detail for the immediately
succeeding calendar year than for the remaining two (2) calendar years.

                                      -18-
<PAGE>


            3.2.3. Allocation of Responsibility for Development Activities. The
Parties acknowledge and agree that each Development Plan shall allocate primary
responsibility for the various activities (and any related or ancillary
activities) listed below to be performed by the responsible Party as follows:

<TABLE>
<CAPTION>
     Activity                                                                Responsible Party
     --------                                                                -----------------
<S>  <C>                                                                     <C>
A.   Preclinical research and development, including Product design,
     formulation, preclinical safety studies and in vivo pharmacology
     studies                                                                 CDS

B.   Technology transfer as described in Section 3.11                        CDS

C.   Phase I, Phase I/II, Phase II and Phase III Clinical Trials, as
     needed to procure data necessary for the acceptance of filing of an
     NDA                                                                     Alimera

D.   Preparation, filing and maintenance of regulatory filings
     including, but not limited to, NDA, but excluding the CDS IND
     (defined below in Section 3.2.4)                                        Alimera

E.   Filing and maintenance of the CDS IND (defined below in Section
     3.2.4)                                                                  CDS

F.   Manufacturing for Clinical Supply Requirements                          CDS

G.   Filing, prosecution and maintenance of CDS Patent Rights (subject
     to Alimera's rights in Article 7)                                       CDS
</TABLE>

For clarification, commercial manufacturing is Commercialization for which
Alimera has primary responsibility as set forth in greater detail in Article 4.

            3.2.4. Regulatory Approvals.

            (a) Regulatory Filings.

                        (i) The CDS IND. Alimera and CDS shall be jointly
                  responsible for preparing, and CDS shall be responsible for
                  submitting (in the name of CDS), an IND in the United States
                  (the "CDS IND") for the first Product. CDS shall have primary
                  responsibility and final decision-making authority for all
                  regulatory matters related to the CDS IND, including
                  communicating with the FDA about such IND. CDS shall have
                  final decision-making authority for all clinical trials
                  conducted pursuant to such IND. Together with the CDS IND, CDS
                  shall submit to the FDA a letter in form and substance
                  satisfactory to both Parties authorizing a person designated
                  by Alimera and reasonably acceptable to CDS (initially, [*])
                  to communicate directly with the FDA regarding the CDS


[*] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.


                                      -19-
<PAGE>

                  IND. In exercising its right to communicate directly with the
                  FDA related to the CDS IND, (1) Alimera shall not propose any
                  change, or accept any FDA proposals for any change, or make
                  any other decisions, with respect to the CDS IND, (2) if
                  Alimera wishes to initiate communications with the FDA,
                  Alimera shall afford a representative of CDS the opportunity
                  to participate in all such communications, provided that CDS
                  may decline such participation, and (3) if the FDA initiates
                  unsolicited communications with Alimera, Alimera shall use
                  Commercially Reasonable Efforts to afford a representative of
                  CDS the opportunity to participate in all such communications,
                  provided that CDS may decline such participation. In the event
                  that CDS does not participate in any such communication with
                  the FDA, Alimera shall, as soon as possible, but no later than
                  two (2) Business Day after such communication, report to CDS
                  the occurrence of such communication and provide CDS with a
                  reasonably detailed summary of the content of the
                  communication. In the event that the Parties have disagreement
                  prior to, during, or after such communications, CDS shall have
                  the final decision-making authority.

                        (ii) Other Regulatory Filings. When sufficient
                  preclinical data are available from preclinical studies for
                  the first Product conducted pursuant to the Development Plan,
                  Alimera shall have the right and responsibility for filing an
                  IND (in the name of Alimera) including such preclinical data
                  but not including any Pre-Existing Clinical IP. No later than
                  seven days after FDA issues a letter authorizing Alimera's
                  IND, CDS shall request approval from FDA for transferring (1)
                  its clinical protocol for the first Product, and (2)
                  responsibility for the patients in its clinical studies for
                  the first Product, to Alimera's IND. Promptly after receiving
                  such approval from the FDA, and in accordance with any other
                  legal requirements, CDS shall effect such transfer as approved
                  and CDS shall thereafter withdraw the CDS IND. Unless
                  otherwise agreed by the parties, Alimera shall be responsible
                  for all subsequent and non-U.S. regulatory matters, including
                  filing an NDA, provided that no regulatory filings by Alimera
                  shall include any Pre-Existing Clinical IP. Alimera shall be
                  responsible for obtaining Approvals and for subsequent
                  maintenance of Approvals. For regulatory filings made in the
                  name of Alimera, Alimera shall have the primary authority and
                  responsibility, with input from CDS, for submitting
                  supplements, communications, annual reports, adverse event
                  reports, manufacturing changes, supplier designations and
                  other related filings, and for communicating with FDA. The
                  Party responsible for submitting regulatory filings (the
                  "Regulatory Submission Party") shall provide the other Party
                  (the "Regulatory Non-Submission Party") with copies of all
                  substantive submissions to (which may be in draft form), and
                  all correspondences from, the FDA or other regulatory
                  authorities. The Regulatory Non-Submission Party may provide
                  comments regarding such submission prior to such planned
                  submission, and the Regulatory Submission Party shall consider
                  in good faith incorporating into the planned submission any
                  such comments. The Regulatory Non-

                                      -20-
<PAGE>

                  Submission Party shall supply Know-How necessary to obtain
                  Approvals for each Product.

            (b) Manufacture-related Activities. Alimera shall be responsible for
preparing and submitting all documentation to regulatory authorities regarding
the manufacture of the Product for commercial sale necessary to obtain Approvals
for such Product. Alimera shall be responsible for all activities related to
pre-Approval inspections of Alimera's (or its subcontractor's) manufacturing
facility. Each Party shall have the right to inspect and audit the other Party's
manufacturing facility and related records and its operations, upon reasonable
notice. Any information obtained by a Party during such visits shall be treated
as Confidential Information in accordance with Article 8 of this Agreement.

            (c) Documentation. Each Party shall maintain all records, including,
but not limited to, batch records and supporting documentation required by the
FDA and other applicable regulatory authorities with respect to each Product for
the periods of time required by such authorities and shall provide a copy of all
such records to the other Party within ten (10) Business Days of reasonable
request by the other Party. Each Party shall provide the other Party with
reasonable access to documents and other materials Controlled by the other Party
that are useful in the regulatory filings and maintenance of Approvals in the
Territory.

            (d) Reporting. Each Party shall use Commercially Reasonable Efforts
to immediately provide notice to the other Party (and shall in any event provide
such notice within five (5) days) of: (a) discovery by such Party of any event
that triggers a filing requirement with FDA or other regulatory authorities; and
(b) any requirements that FDA may impose with respect to the Approval
(including, but not limited to, additional clinical trials) and all FDA
inquiries requiring a response.

            (e) Meetings. In connection with Section 3.2.4 (a)-(d) above, the
Regulatory Submission Party shall provide the Regulatory Non-Submission Party
with notice of all meetings, conferences, and discussions (including, but not
limited to, advisory committee meetings and any other meeting of experts
convened by FDA or other regulatory authorities concerning any topic relevant to
the Product) scheduled with FDA or such other regulatory authorities concerning
any regulatory matters relating to the Product within one (1) Business Day after
the Regulatory Submission Party receives notice of the scheduling of such
meetings, conferences, or discussions. The Parties shall jointly prepare for and
participate in such meetings, conferences or discussions. The Parties shall
confer in advance on the scheduling of, the objectives to be accomplished at,
and the agenda and strategy for, such meetings, conferences, and discussions
with FDA or other regulatory authorities. In the event that the Parties have
disagreement relating to such meetings, conferences and discussions, the
Regulatory Submission Party shall have the final decision-making authority.

      3.3 Performance.

            3.3.1. Commercially Reasonable Efforts. Each Party shall use
Commercially Reasonable Efforts to conduct all activities and responsibilities
assigned to it under the Development Plan and to cooperate with and provide
reasonable support to the other Party in such other Party's conduct of
activities under such plan.

                                      -21-
<PAGE>

            3.3.2. Allocation of Responsibilities. The Development Plan shall
allocate responsibility between the Parties for each of the activities described
herein in accordance with Section 3.2.3. CDS and Alimera shall each expend
resources in the performance of the development activities in accordance with
the Development Plan. For the avoidance of doubt, neither Party shall have any
right or obligation to undertake any development activity for Products licensed
under this Agreement, other than those allocated to it in the Development Plan
and included in the Development Budget, except as set forth in Section 6.3.3. In
the event that a Party (a) fails to make any payment to a Third Party due to be
made by such Non-Performing Party in connection with development activities as
set forth in the Development Plan and Development Budget, or (b) fails to
perform development activities allocated to it in the Development Plan and
included in the Development Budget, that Party shall be called the
"Non-Performing Party." In the event that the Non-Performing Party fails to make
any payment to a Third Party due to be made by such Non-Performing Party in
connection with development activities as set forth in the Development Plan and
Development Budget, it shall notify the other Party in writing within ten (10)
Business Days after the missed payment due date. The other Party (the "March-In
Party") may, in its sole discretion, decide to make any such payment that the
Non-Performing Party fails to make. The associated costs paid by the March-In
Party shall be Direct Development Costs, and the Non-Performing Party's failure
to pay its share of such costs shall be treated as non-payment of Development
Payment pursuant to Section 6.3.2. In the event that the Non-Performing Party
fails to perform development activities allocated to it in the Development Plan
and included in the Development Budget, (1) it shall so notify the other Party,
and (2) the other Party may, in its sole discretion, after providing the
Non-Performing Party a reasonable opportunity to cure the failure, perform the
relevant activities, in which case the associated costs incurred by the other
Party shall be Direct Development Costs, and the Non-Performing Party's failure
to pay its share of costs shall be treated as non-payment of Development Payment
pursuant to Section 6.3.2.

      3.4 Primary Contact Persons. As of the Effective Date, CDS has designated
[*] as CDS' primary contact person and Alimera has designated [*] as Alimera's
primary contact person (each, a "Primary Contact Person"). The Primary Contact
Persons shall be responsible for the day-to-day interactions between the Parties
related to activities pursuant to the Development Plan and oversight of the
day-to-day operations of these activities. The Primary Contact Persons shall
attempt to resolve any disputes that arise during the course of implementing the
Development Plan. If the Primary Contact Persons cannot resolve any such dispute
within thirty (30) days (or such longer reasonable period of time as they may
agree) after their initial discussion of such issue, the dispute shall be
submitted to the JDT and resolved in accordance with Section 2.4. Each Party may
change its Primary Contact Person upon written notice to the other Party.

      3.5 Availability of Employees. Each Party agrees to make its employees
involved in the conduct of the development activities reasonably available upon
reasonable advance notice and during business hours at their respective places
of employment to consult with the other Party on issues, including, but not
limited to, regulatory, scientific, technical and clinical testing issues,
arising under the Development Plan and in connection with any request from any
regulatory agency.


[*] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.


                                      -22-
<PAGE>

      3.6 Visit of Facilities. Subject to the provisions of Article 8, each
Party shall permit the other Party or the representatives of the other Party to
visit, upon reasonable notice and at reasonably acceptable times, their
respective facilities where the development activities are being conducted, and
to consult informally, during such visits and by telephone, facsimile and email,
with their respective personnel performing work on the development activities.
Any information obtained by a Party during such visits shall be treated as
Confidential Information in accordance with Article 8 of this Agreement. Each
Party shall use Commercially Reasonable Efforts to obtain comparable inspection
rights with respect to subcontractors.

      3.7 Subcontracts. Subject to the provisions of Article 8 and Section 7.3
hereof, each Party may subcontract portions of the development activities to be
performed by it to subcontractors so long as either (a) the JDT has authorized
the subcontract and subcontractor (which subcontract shall be consistent with an
approved Development Budget), or (b) such Party has obtained the prior written
consent of the other Party, which consent shall not be unreasonably delayed or
withheld (each such subcontractor, a "Permitted Subcontractor"). In addition to
obtaining prior written authorization or consent as required by the foregoing,
if the JDT adopts a standard form of subcontract, the Parties shall use
Commercially Reasonable Efforts to utilize such standard form of subcontract
agreement, as may be modified by the JDT from time to time. In any event, any
subcontract entered into pursuant to this Section 3.7, including any standard
form of subcontract, shall be consistent with the terms of this Agreement,
including providing for intellectual property ownership as set forth herein and
all confidentiality obligations of the Parties. With respect to any subcontract,
the subcontracting Party shall provide the JDT with a copy of the subcontract
within thirty (30) days of execution of such subcontract.

      3.8 Information Sharing. Each Party shall provide the other Party or the
JDT with such information related to the Development Plan as the other Party may
reasonably request.

      3.9 Records. The Parties will make available and disclose to one another
all results of the work conducted pursuant to the Development Plan and shall
keep such records as described in this Section 3.9 or elsewhere in this
Agreement; provided, however, that each Party shall maintain in confidence, and
shall limit its use of, such results and records in confidence in accordance
with Article 8 hereof and shall not use such results or records without written
consent of the other Party except to the extent provided in Section 5.9 or other
provisions of this Agreement. The Parties shall maintain records of the results
in sufficient detail and in good scientific manner appropriate for patent
purposes and FDA filings and as will properly reflect all work done and results
achieved in the performance of the development activities pursuant to the
Development Plan (including, but not limited to, all data in the form required
to be maintained under any applicable governmental regulations). Such records
shall include books, records, reports, research notes, charts, graphs, comments,
computations, analyses, recordings, photographs, computer programs and
documentation thereof, computer information storage means, samples of materials
and other graphic or written data generated in connection with the development
activities pursuant to Development Plan. Each Party hereby grants the other
Party the right to inspect and copy such records upon reasonable advance notice
by the other Party for purposes of this Agreement.

      3.10 Manufacturing for Clinical Supply Requirements. CDS and/or its
Permitted Subcontractors shall use Commercially Reasonable Efforts to provide an
adequate and timely

                                      -23-
<PAGE>

supply to satisfy Clinical Supply Requirements, in such quantities and of such
type and specification as set forth in the Development Plan and all in
accordance with GMP and/or ISO standards, to the extent applicable for clinical
trials in the relevant country, and other applicable laws and regulations. The
Manufacturing Costs for such supply shall be Direct Development Costs.

      3.11 Technology Transfer by CDS. Upon the earlier of: (i) the
determination by the JDT and (ii) [*] prior to [*], CDS and/or its Permitted
Subcontractors shall be responsible for providing to Alimera all information,
support and materials reasonably necessary to enable Alimera and/or its
subcontractors to manufacture and perform quality testing on the Product to
satisfy Commercial Supply Requirements, all in accordance with the Development
Plan. CDS and/or its Permitted Subcontractors shall be responsible for the
following activities in accordance with the Development Plan: (a) oversee and
manage technology transfer to commercial manufacture site, (b) oversee and
manage manufacturing scale-up and validation activities, (c) transfer analytical
methods to commercial manufacture site for stability monitoring, and (d) procure
and oversee stability data necessary for IND and NDA filings. Alimera shall have
primary responsibility, with reasonable input and assistance from CDS, for the
preparation of the Chemistry, Manufacturing and Controls (the "CMC") section of
Alimera's IND and NDA filings. Technology transfer shall be effected in
accordance with GMP and ISO guidelines, to the extent applicable for
Commercialization in the relevant country.

                          ARTICLE 4 COMMERCIALIZATION

      4.1 Commercialization of Product(s) in the Collaboration Field. Alimera is
granted a license under this Agreement to market, distribute and/or sell any
Product in the Collaboration Field in the Territory, including, but not limited
to, the right to conduct marketing, reimbursement (e.g., seeking and maintaining
pricing and reimbursement approvals from Third Party payors), sales and
distribution activities. Alimera may subcontract with any Affiliate or Third
Party to perform any of the foregoing activities in accordance with Section 5.3.

      4.2 Commercialization Budget. Alimera shall have sole responsibility for
implementing Commercialization based on Alimera's commercially reasonable
expectations of the resources and expenses required to Commercialize each
Product in the Territory, taking into account industry standards and the
competitive environment in effect from time to time with regard to each Product.
Alimera shall prepare a budget ("Commercialization Budget") and consider in good
faith incorporating into the Commercialization Budget any comments made by CDS
prior to finalizing such budget. The Commercialization Budget shall set forth,
on a rolling two (2) year basis, the projected sales and the projected Direct
Commercialization Costs broken down on a calendar quarter-by-quarter and
Product-by-Product basis. Alimera shall prepare semi-annual updates to the
Commercialization Budget prior to June 30 and December 31 of each year in which
Alimera has a Commercialization Budget or engages in Commercialization of any
Products, and shall provide CDS with copies of such semi-annual updates. Prior
to finalizing the initial Commercialization Budget and prior to finalizing each
subsequent semi-annual updated Commercialization Budget, Alimera shall arrange
for the Parties to have an in-person meeting (or, at CDS' option, a meeting by
telephone, videoconference or other means), during which an executive from
Alimera shall present in reasonable detail its planned Commercialization


[*] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                      -24-
<PAGE>

activities and Commercialization Budget for the time period covered in the
subject Commercialization Budget and CDS shall have opportunities to ask
questions and to present its comments on the applicable Commercialization
Budget. It is understood and agreed that [*] shall have the right and ability to
[*]. Alimera shall provide an initial draft Commercialization Budget to CDS for
its review as soon as it is available, but in no event later than the earlier of
(a) [*] prior to [*] or (b) [*] prior to incurring Direct Commercialization
Costs estimated to be in excess of [*] in the aggregate.

      4.3 Diligence. Alimera shall use Commercially Reasonable Efforts to
Commercialize each Product in [*] (collectively, the "Major Markets") and in
all countries outside the Major Markets, except for any country outside the
Major Markets as to which Alimera has made an election pursuant to Section
4.3.9. For purposes of this Section 4.3 (including Subsections 4.3.1- 4.3.9),
the term "Alimera" shall include Alimera and any of its Affiliates, sublicensees
and subcontractors. Without limiting the foregoing, Alimera agrees to the
following specific obligations:

            4.3.1. Alimera shall effect a First Commercial Sale in the United
States of the first Product to receive Approval in the United States (the
"Alimera First Product") no later than [*] after obtaining such Approval.
Alimera's nonperformance of an obligation in this Section 4.3.1 shall be excused
to the extent directly attributable to a disruption in Commercial Supply
Requirements, but only to the extent that such disruption and the impact thereof
is outside the control of Alimera.

            4.3.2. With respect to Commercialization of the Alimera First
Product, Alimera shall expend not less than [*] in Direct Commercialization
Costs (excluding Manufacturing Costs) on or before [*], provided that if Alimera
is making Commercialization expenditures substantially in accordance with a
Commercialization Budget designed to provide for such level of expenditures and
the FDA provides Approval sooner than reasonably contemplated by the
Commercialization Budget, then the failure to spend at least [*] in Direct
Commercialization Costs (excluding Manufacturing Costs) on or before [*] shall
be excused.

            4.3.3. With respect to Commercialization of the Alimera First
Product, Alimera shall expend not less than [*] in Direct Commercialization
Costs (excluding Manufacturing Costs, but including expenditures referred to in
Section 4.3.2) on or before [*].

            4.3.4. With respect to Commercialization of the Alimera First
Product, Alimera shall expend not less than [*] in Direct Commercialization
Costs (excluding Manufacturing Costs) between [*] and [*].

            4.3.5. Alimera shall cause Gross Sales of Products in the United
States during the [*] period referred to in Section 4.3.4 to be at least [*]
more than Gross Sales of Products in the United States during the immediately
preceding [*] period. Alimera's


[*] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                      -25-
<PAGE>

nonperformance of an obligation in this Section 4.3.5 shall be excused to the
extent directly attributable to (1) one or more of the following events, but
only to the extent that such event is outside the control of Alimera: a breach
of this Agreement by CDS, a disruption in Commercial Supply Requirements, or a
Product Recall, or (2) one or more of the following events, but only to the
extent that such event materially and adversely affects the market for the first
Product: FDA action or regulatory guidance affecting Product, a change in
reimbursement rates or policies relating to Product, or the introduction of one
or more competitive products or services that provide for superior dosing,
safety or efficacy.

            4.3.6. If Alimera fails to meet any spending obligation set forth in
Sections 4.3.2, 4.3.3 or 4.3.4 and such nonperformance is not excused, Alimera
may cure such failure by paying to CDS an amount equal to [*]. Alimera's right
to cure under this Section 4.3.6 shall terminate upon a Change of Control of
Alimera.

            4.3.7. If Alimera fails to achieve the Gross Sales obligation set
forth in Section 4.3.5, Alimera may cure such failure by paying to CDS an amount
equal to [*] (the "Extrapolated Net Profits"). For purposes of this Section
4.3.7, the Extrapolated Net Profits for the [*] period referred to in Section
4.3.4 shall be determined by the following formula: [*]. Alimera's right to cure
under this Section 4.3.7 shall terminate upon a Change of Control of Alimera.

            4.3.8. If Alimera fails to meet any of its obligations under
subsections 4.3.1 - 4.3.5 and does not cure such failure in accordance with this
Agreement within thirty (30) days of receiving a written notice from CDS
requesting Alimera to cure such failure, then CDS may choose one of the
following two options: (a) terminate this Agreement, or (b) terminate this
Agreement only with respect to the Alimera First Product. In the event of
termination pursuant to this Section 4.3.8, Alimera shall not, for a period of
[*] from the date of such termination, Develop or Commercialize, or license or
otherwise assist an Affiliate or a Third Party to Develop or Commercialize, any
product that is Approved or designed to be Approved (1) to [*] or (2) to deliver
a [*]. For purposes of this Section 4.3.8, the term "Develop" shall mean
performance of human clinical trials for a product. In the event of termination
of this Agreement with respect to the Alimera First Product, CDS shall no longer
be bound by Section 5.1.2(1), (2), (3) or (4) with respect to such Product.
After termination pursuant to this Section 4.3.8 and in the event that CDS (i)
makes a First Commercial Sale of the Alimera First Product in the United States
and (ii) reaches the CDS Profitability Date for the Alimera First Product, CDS
shall thereafter pay Alimera [*] of CDS Net Income realized by CDS in the United
States with respect to such Product until such time as the sum of all such
payments plus the revenues otherwise realized by Alimera with respect to such

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                      -26-
<PAGE>
Product in the United States equal the amount of Direct Development Costs and
Direct Commercialization Costs previously incurred, on a cash basis, or
reimbursed by Alimera with respect to such Product in the United States;
provided, however, that in the event that there are CDS Net Losses in any
calendar quarter after the CDS Profitability Date, any payment to Alimera shall
be offset by such CDS Net Losses.

            4.3.9. For clarification, Alimera may elect not to engage in
Commercialization in any country outside the Major Markets. If Alimera
determines not to engage in Commercialization of any Product in any country
outside the Major Markets, Alimera shall so notify CDS. At any time after
receipt of such notice, CDS may by written notice to Alimera, effective upon the
giving of such notice, terminate Alimera's license(s), and rights to
Commercialize, in such country. Thereafter CDS may, in its sole discretion,
directly or through an Affiliate or Third Party, Commercialize the relevant
Product(s) in such country. In the event of such termination with respect to a
country, CDS shall no longer be bound by Section 5.1.2(1), (2), (3) or (4) with
respect to such country.

            4.4 Costs of Commercialization. Regardless of the Profitability Date
for a Product, Alimera shall have sole responsibility for paying all costs and
expenses incurred in connection with Commercializing such Product in the
Collaboration Field in the Territory, including, but not limited to, Direct
Commercialization Costs; with the exception that CDS shall be responsible for
paying: (a) the CDS Patent Costs paid after the first Product Profitability
Date, subject to Section 7.1.2, (b) all UKRF Costs and (c) insurance premiums
paid by CDS to maintain insurance required by Section 10.4 to the extent such
insurance relates to Product (i.e., if insurance covers risks other than risks
related to Commercialization of Products, then only an appropriate portion of
such premiums shall be reimbursed). Alimera shall reimburse CDS for [*] of the
amount described in clauses (a), (b) and (c) of the preceding sentence within
thirty (30) days after the date of invoice from CDS; provided, however, that the
amount of the [*] that Alimera reimburses CDS in any calendar year shall not
exceed [*]. The costs set forth in (a), (b) and (c) of this Section 4.4 for
which Alimera has a reimbursement responsibility shall be collectively referred
to herein as the "CDS Commercialization Costs". In the event that Alimera fails
to reimburse CDS within the time period specified above, any future payment to
CDS shall be increased by an amount that is calculated as follows: the amount of
the non-reimbursed CDS Commercialization Costs is multiplied by [*], and that
amount is compounded annually at the compounding rate of [*] per annum, for any
period in which any portion of such costs remains non-reimbursed. Alimera may
pay all or any portion of the unpaid CDS Commercialization Costs plus any
interest accrued and due at any time. Notwithstanding the foregoing, CDS may
exercise its rights pursuant to Section 11.2 of this Agreement.

      4.5 Manufacturing for Commercial Supply Requirements. Alimera shall use
Commercially Reasonable Efforts to provide an adequate and timely supply to
satisfy Commercial Supply Requirements. Subject to the terms of this Agreement,
Alimera shall have the right to manufacture, itself or through any Third Party,
any Product, under the licenses granted to Alimera pursuant to Article 5 and in
accordance with Section 5.3. Alimera shall be responsible for ensuring that all
such manufacturing is carried out in accordance with GMP and/or ISO standards to
the extent applicable for Commercialization in the relevant country.

      4.6 Product Recalls. Alimera shall have the sole right and responsibility
and authority to carry out any Product Recall, whether or not such Recall is
required or requested by a

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                      -27-
<PAGE>

governmental authority. If any governmental authority having jurisdiction
requires or reasonably requests Alimera to Recall a Product due to a defect in
the manufacture, processing, packaging or labeling of the Product or for any
other reason whatsoever, Alimera shall immediately notify CDS. Alimera shall be
responsible for carrying out any Recall as expeditiously as possible and in such
a way designed to cause the least disruption to the sales of the Product and to
preserve the goodwill and reputation attached to the Product and to the names of
Alimera and CDS. Alimera agrees to maintain the appropriate records and
procedures to permit a Product Recall. All Direct Costs associated with any
Product Recall, to the extent such costs are not covered by insurance, shall be
Direct Commercialization Costs; provided, however, that in the event that the
Product Recall is required due to Alimera's negligence or misconduct (including
a manufacturing quality defect in the Product) or any other reason within
Alimera's control, all such expenses shall be borne solely by Alimera and, in
such event, shall not be Direct Commercialization Costs.

                           ARTICLE 5 GRANT OF RIGHTS

      5.1 Grant of License by CDS.

            5.1.1. License to First Product. Subject to the terms and conditions
of this Agreement, CDS hereby grants to Alimera an exclusive (even as to CDS)
right and license under CDS' interest (i.e. subject to the UKRF Licenses) in the
CDS Technology, solely to make, have made, use, offer to sell, sell, and import
First Product in the Collaboration Field in the Territory.

            5.1.2. License to Products Other Than First Product. Subject to the
terms and conditions of this Agreement and the B&L Agreement (wherein CDS
granted certain rights to the CDS Technology), CDS hereby grants to Alimera a
non-exclusive right and license under CDS' interest (i.e. subject to the UKRF
Licenses) in the CDS Technology, solely to make, have made, use, offer to sell,
sell, and import Products other than First Product in the Collaboration Field in
the Territory, provided that during the Term of this Agreement, and subject to
the terms and conditions of this Agreement and the B&L Agreement, (1) CDS shall
not grant a license to any Affiliate or Third Party under CDS' interest in the
CDS Technology to make, have made, use, offer to sell, sell, or import Products
in the Collaboration Field in the Territory, (2) CDS shall not itself use the
CDS Technology to make, have made, use, offer to sell, sell, or import Products
in the Collaboration Field in the Territory, (3) CDS shall not grant a license
to any Affiliate or Third Party under CDS' interest in the CDS Technology to
make, have made, use, offer to sell, sell, or import in the Collaboration Field
in the Territory any product that otherwise meets the definition of Product
under Section 1.77 except that such product is Approved or designed to be
Approved to deliver [*] and (4) CDS shall not itself use the CDS
Technology to make, have made, use, offer to sell, sell, or import in the
Collaboration Field in the Territory any product that otherwise meets the
definition of Product under Section 1.77 except that such product is Approved or
designed to be Approved to deliver [*]

            5.1.3 License to Exhibit 1.11B Patents. Subject to the terms and
conditions of this Agreement and only to the extent permitted by the B&L
Agreement, CDS hereby grants to

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Alimera a non-exclusive right and license under any interest CDS may have from
time to time in the United States and foreign patents and patent applications
listed in Exhibit 1.11B, solely to make, have made, use, offer to sell, sell,
and import Products in the Collaboration Field in the Territory, except for
products that would fall under the definition of Licensed Products in the B&L
Agreement.

      5.2 Grant of License by Alimera. Subject to the terms of this Agreement,
Alimera hereby grants to CDS a right and license under Alimera's interest in the
Alimera Know-How as necessary for CDS to perform its obligations under this
Agreement, including, but not limited to, its obligations under the Development
Plan.

      5.3 Sublicenses and Subcontracts. Subject to the terms and conditions of
this Agreement, Alimera may grant sublicenses and subcontracts to its Affiliates
or to Third Parties to perform Commercialization activities for Products under
the licenses granted pursuant to Sections 5.1.1 and 5.1.2 of this Agreement,
provided that for sublicenses and subcontracts under which (1) some or all of
Alimera's rights to a Product, including, but not limited to, marketing rights
and/or distributing rights, are sold, licensed or otherwise transferred and/or
(2) consideration owed by Alimera exceeds [*] Alimera shall obtain CDS'
prior written consent, which consent shall not be unreasonably withheld or
delayed. In the event of a proposed sublicense or subcontract that requires CDS'
prior written consent as described in the foregoing, Alimera shall present CDS
with a summary of the principal terms of the proposed transaction, including the
identity of the proposed subcontractor or sublicensee. CDS shall promptly
consent or provide justification for its objection and negotiate in good faith
with Alimera regarding terms that would be satisfactory. Each sublicense or
subcontract shall be consistent with the terms and conditions of this Agreement,
shall be at arm's length and shall include such terms as are necessary to permit
Alimera to fulfill its obligations hereunder. Alimera shall be responsible for
the operations of any sublicensee or subcontractor relative to this Agreement as
if such operations were carried out by Alimera itself, including, but not
limited to, any payment provided for hereunder, regardless of whether the terms
of any sublicense or subcontract provide for such payment to be paid by the
sublicensee or subcontractor directly to CDS. Alimera shall provide CDS with a
copy of each such sublicense or subcontract promptly after its execution;
provided, however, that Alimera may redact such copies in order to protect the
confidential information of the Third Party. The terms of any sublicense or
subcontract, or proposed sublicense or subcontract, shall be deemed to be
Confidential Information of Alimera. CDS acknowledges that Alimera intends to
grant a sublicense of rights to one or more Third Parties for the development
and Commercialization of Product in [*]. For avoidance of doubt, CDS'
acknowledgement in the preceding sentence shall not constitute CDS' consent,
which is required before Alimera enters into such a sublicense pursuant to this
Section 5.3. Each sublicensee or subcontractor and its employees, contractors,
consultants, clinical investigators and agents shall be required to assign all
Improvements to Alimera pursuant to Section 7.3.

      5.4 Ownership of and Rights to Inventions. Except as otherwise provided
under this Agreement, ownership of all Inventions made by either Party shall be
governed by applicable United States patent law. Alimera hereby assigns and
agrees to assign to CDS a co-ownership interest in Alimera's interest in any
Alimera Improvements, excluding any rights to any trademarks. Subject to Section
5.5, each Party shall have worldwide rights to use, practice and

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sublicense any such Alimera Improvements, without any accounting to, reporting
to, or other obligation to, or consent from, the other Party. If a Party
licenses or otherwise transfers to a Third Party any Alimera Improvements, the
other Party shall cooperate and give such consent to such Party to enter into
such license or transfer as may be required to permit such Party to license or
transfer the Alimera Improvements to the Third Party without a duty to account
to such other Party.

      5.5 Limitation on Use. Notwithstanding any other provisions of this
Agreement, neither Alimera nor any of its Affiliates, subcontractors or
sublicensees shall use Alimera Improvements for any product that falls within
the definition of CDS Core Technology, except for (1) Products (other than any
Product(s) for which Alimera's license(s) have been terminated pursuant to
Sections 4.3.8, 4.3.9 or 11.5 of this Agreement) during the Term of this
Agreement, (2) any Product(s) for which CDS has granted a license to Alimera
pursuant to Section 11.5.1, during the term of such license, and (3) Option
Products for which CDS has granted a license to Alimera pursuant to Section
5.8.2, during the term of such license. Alimera shall ensure that any agreement
it enters into with a licensee, sublicensee, acquirer, acquiree, transferee or
merger or consolidation partner of or with Alimera, or acquirer or transferee of
substantially all of the assets or stock of Alimera, or of the assets or
business relating to this Agreement or the Alimera Improvements, includes the
same limitation of use as set forth in this Section 5.5, and any such party
shall be bound by such limitation.

      5.6 Reservation of Rights.

            5.6.1. Reservation of Rights by CDS. All rights and interests not
expressly granted to Alimera are reserved by CDS (the "Reserved Interests") for
itself, its Affiliates and partners (other than Alimera) and other licensees and
sublicensees, including, but not limited to, the rights to use and grant
licenses under the CDS Technology or any other technology owned or controlled by
CDS to make, have made, use, offer to sell, sell, have sold and import products
(other than Products for so long as Alimera has a license to such Products under
this Agreement). It shall not be a breach of this Agreement for CDS, acting
directly or indirectly, to exploit its Reserved Interests in any manner anywhere
in the Territory, whether or not such activity is competitive with the
activities of Alimera, including, but not limited to, the research, development
and Commercialization or licensing of others to research, develop and
Commercialize products (other than Products for so long as Alimera has a license
to such Products under this Agreement). Except as otherwise expressly provided
in this Agreement, for the avoidance of doubt, CDS shall be free to enter into
an agreement with any Third Party or Third Parties under the CDS Technology or
any other technology owned or controlled by CDS or its Affiliate or a Third
Party, to research, develop and Commercialize any and all products (other than
Products for so long as Alimera has a license to such Products under this
Agreement), including, but not limited to, products that potentially compete in
the same indication or product market as a Product, and products that use or
include any or all compounds that are not, at the time of such agreement, the
subject of a license granted pursuant to Section 5.8.3.

            5.6.2. Reservation of Rights by Alimera. Except as otherwise
expressly provided in this Agreement, for the avoidance of doubt, Alimera shall
be free to enter into an agreement with any Third Party or Third Parties under
the Alimera Know-How, the Alimera-Prosecuted Patent Rights or any other
technology owned or controlled by Alimera or its Affiliate or a Third

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Party, to research, develop and Commercialize any and all products, including,
but not limited to, products that potentially compete in the same indication or
product market as a Product.

      5.7 No Grant of Other Technology or Patent Rights. Except as otherwise
expressly provided in this Agreement, under no circumstances shall a Party
hereto, as a result of this Agreement, obtain any ownership interest or license
in or other right to any technology, Know-How, patents, patent applications,
products, or biological materials of the other Party, including, but not limited
to, items owned, Controlled or developed by the other Party, at any time
pursuant to this Agreement. This Agreement does not create, and shall under no
circumstances be construed or interpreted as creating, an obligation on the part
of either Party to grant any license to the other Party other than as expressly
set forth herein. Any further contract or license agreement between the Parties
shall be in writing.

      5.8 Options to Licenses in the Collaboration Field.

            5.8.1. Options. Subject to the terms and conditions of this
Agreement and the B&L Agreement, CDS hereby grants to Alimera three (3) options
to obtain a non-exclusive right and license under CDS' interest (i.e. subject to
the UKRF Licenses) in the CDS Technology, solely to make, have made, use, offer
to sell, sell and import an Option Product in the Collaboration Field (each
option relating to a particular compound is referred to herein as an "Alimera
Compound Option," and the three (3) options are collectively referred to herein
as the "Alimera Compound Options"). Each license granted in connection with an
Alimera Compound Option will provide that during the term of such license, and
subject to the B&L Agreement, CDS shall not (a) grant a license to any Affiliate
or Third Party under CDS' interest in the CDS Technology to make, have made,
use, offer to sell, sell, or import such Option Product in the Collaboration
Field in the Territory, and (b) itself use the CDS Technology to make, have
made, use, offer to sell, sell, or import such Option Product in the
Collaboration Field in the Territory during the term of such license.

            5.8.2. Exercise of Options. Alimera may exercise, in accordance with
this Section 5.8, an Alimera Compound Option at any time during the Option Term,
by submitting a written request to CDS indicating its intent to exercise such
option and specifying the specific compound as to which it wishes to exercise
the option. CDS shall have [*] Business Days, after it receives such
notice, in which to notify Alimera in the event that CDS, acting in good faith,
has already entered into an agreement or term sheet with a Third Party that
includes the specific compound specified by Alimera. In that event, Alimera may
not exercise the Alimera Compound Option with respect to that specific compound;
provided, however, that if CDS and such Third Party fail to consummate a license
or other agreement relating to such compound or such agreement is terminated
during the Option Term, CDS shall promptly notify Alimera that such compound is
no longer subject to any Third Party rights and Alimera may exercise the Alimera
Compound Option with respect to such compound in accordance with this Section
5.8.2. If CDS has not notified Alimera within the time period set forth above,
then Alimera shall be permitted to exercise the Alimera Compound Option with
regard to that specific compound.

            5.8.3. Grant of License. Upon the exercise of any Alimera Compound
Option under Section 5.8.2, CDS may choose one of the following two options: (a)
the Parties will enter into a collaboration agreement (the "Option Collaboration
Agreement") to develop and

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Commercialize the Option Product on the same terms as this Agreement (including,
but not limited to, the same economic terms, including license fee, milestone
payment and profit split) and Alimera shall reimburse CDS for [*] of all costs
and expenses CDS incurred (excluding any CDS Patent Costs related to Existing
CDS Patent Rights or costs that are Development Costs or otherwise reimbursed by
Alimera under this Agreement) with respect to the Option Compound and the Option
Product from the Effective Date of this Agreement until the effective date of
the Option Collaboration Agreement; or (b) CDS shall grant Alimera a license
under the CDS Technology, as then in effect, to make, have made, use, offer to
sell, sell and import the Option Product in the Collaboration Field in the
Territory, under the following terms: (A) CDS shall receive a royalty of [*] of
Net Sales of the Option Product in the Territory, and (B) Alimera shall
reimburse CDS [*] with respect to the Option Compound and the Option Product
from the Effective Date of this Agreement until the effective date of such
license, and (C) such other non-financial terms and conditions as set forth on
Exhibit 5.8.3 and other customary terms and conditions. If the Parties have not
entered into an agreement under (a) or (b), as CDS chooses, within [*] Business
Days after Alimera exercises an Alimera Compound Option, then the matter shall
be referred to dispute resolution in accordance with Section 12.7 hereof, and
the terms of such agreement shall be consistent with those specified above in
(a) or (b), as applicable.

            5.8.4. Reservation of Rights by CDS. The existence of the Alimera
Compound Options under Section 5.8.1 shall not limit the reservation of rights
by CDS pursuant to Section 5.6, and CDS shall have no obligation to refrain from
including any or all compounds in a license with a Third Party or Third Parties,
except to the extent of any license that is actually granted to Alimera pursuant
to Section 5.8.3 or to the extent restricted by Sections 5.1.1 and 5.1.2, from
and after the date of such license. In the event that CDS grants Alimera a
license to one or more Option Products pursuant to Section 5.8.3, the
reservation of rights by CDS will remain the same as set forth in Section 5.6.1,
except that the phrase "Products and Option Products for which CDS has granted a
license to Alimera" shall be substituted in place of "Products" wherever it is
used in Section 5.6.1 during the term of any such license.

      5.9 Clinical IP.

            5.9.1. Right of Access to Clinical IP. Alimera and CDS shall jointly
own all Clinical IP and shall provide each other with a Right of Access to
Clinical IP. Each Party may exercise this right of access for itself, its
Affiliates and any licensees, sublicensees or any other Third Party without the
consent of the other Party.

            5.9.2. Cooperation. Each Party shall use Commercially Reasonable
Efforts, and shall reasonably cooperate with the other Party, to provide the
other Party with such waivers, irrevocable cross reference letters, assignments,
and/or other reasonable documentation as may be necessary or useful for the
other Party's full exercise of any Right of Access to Clinical IP granted
pursuant to this Section 5.9.

      5.10 Section 365(n) of the Bankruptcy Code. All rights and licenses
granted under or pursuant to any section of this Agreement are rights to
"intellectual property" as defined in Section 101(35A) of the Bankruptcy Code.
CDS acknowledges and agrees that in connection

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ACT OF 1934, AS AMENDED.

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with such rights and licenses Alimera is hereby granted a right of access and a
right to obtain possession of and to benefit from (i) copies of research data,
(ii) laboratory samples, (iii) product samples and inventory, (iv) formulas, (v)
laboratory notes and notebooks, (vi) data and results related to clinical
trials, (vii) copies of regulatory filings and Approvals, (viii) rights of
reference in respect of regulatory filings and Approvals, (ix) preclinical
research data and results, and (x) marketing, advertising and promotional
materials, all of which constitute "embodiments" of intellectual property
pursuant to Section 365(n) of the Bankruptcy Code and (xi) all other embodiments
of such intellectual property, whether any of the foregoing are in CDS'
possession or control or in the possession and control of Alimera or Third
Parties. CDS agrees not to interfere with Alimera's exercise of rights and
licenses to intellectual property licensed hereunder and embodiments thereof in
accordance with this Agreement.

          ARTICLE 6 COSTS & REVENUES - PRE AND POST PROFITABILITY DATE

      6.1 License Fee. If this Agreement is not terminated pursuant to Section
11.4, then the [*] in principal plus all accrued interest due under the
Earnest Money Loan shall thereafter be treated as paid in full as the payment of
a license fee, and the security interest under the Security Agreement (the
"Security Agreement") made by CDS in favor of Alimera and effective as of
October 19, 2004, as amended on November 18, 2004, shall terminate, and Alimera
shall execute and deliver to CDS such documents as CDS may reasonably request to
evidence such termination pursuant to Section 4 of the Security Agreement. If
this Agreement is terminated pursuant to Section 11.4, then the Security
Agreement and the promissory notes issued in respect of the Earnest Money Loan
shall remain in full force and effect.

      6.2 Milestone Payment. Alimera shall make an additional payment of [*]
("Milestone Payment") to CDS upon [*]. For purposes of this Section 6.2, the
Parties agree that [*].

      6.3 Direct Development Costs. Each Party shall pay [*] of the total Direct
Development Costs of a Product incurred in accordance with the Development
Budget.

            6.3.1. Monthly Reporting, Sharing and Reconciling of Direct
Development Costs. During the course of implementing the Development Plan,
within fifteen (15) calendar days after the end of each calendar month, each
Party shall report in writing to the other Party a detailed itemization
(including copies of any third party invoices) of the actual Direct Development
Costs incurred, on a cash basis, by each Party in the preceding calendar month.
The Parties shall reconcile amounts owed for actual Direct Development Costs on
a monthly basis as follows: to the extent (i) a Party incurred, on a cash basis,
Direct Development Costs in a calendar month that are within (and do not exceed)
the costs allocated to be incurred by that Party in the Development Budget and
(ii) the amounts in (i) exceed the Direct Development Costs incurred, on a cash
basis, by the other Party in that calendar month that are within (and do not
exceed) the costs allocated to be incurred, on a cash basis, by the other Party
in the Development Budget, the Party that paid the greater amount of budgeted
Direct Development Costs shall issue an invoice to the other Party for [*] of
the excess and the other Party shall pay

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TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
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ACT OF 1934, AS AMENDED.

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to the invoicing Party the amount of such invoice (the "Development Payment")
within thirty (30) calendar days after delivery of the invoice.

            6.3.2. Non-Payment. In the event that a Party (the "Non-Paying
Party") fails to make timely payment to the other Party (the "Owed Party") for
all or a portion of its Development Payment for a Product pursuant to Section
6.3, then any distribution of Net Profits and the Milestone Payment to CDS shall
be adjusted by an amount that is calculated as follows: the amount of the unpaid
Development Payment is multiplied by [*], and that amount is compounded annually
at the compounding rate of [*] per annum (the total amount is called the
"Compounded Development Payment"), for any period in which any portion of the
Compounded Development Payment remains outstanding. Specifically, if Alimera is
the Owed Party, then any Net Profits Payment and the Milestone Payment to CDS
shall be reduced by the Compounded Development Payment due from CDS to Alimera
until the amount of such Net Profits Payment and the Milestone Payment to CDS is
[*] and any remaining balance of the Compounded Development Payments that CDS
owes to Alimera shall be carried forward until the amount of such Compounded
Development Payments are paid off. If CDS is the Owed Party, then any Net
Profits Payment to CDS shall be increased by the Compounded Development Payment
due from Alimera to CDS up to [*] of Alimera's share of Net Profits and any
remaining balance of the Compounded Development Payments that Alimera owes to
CDS shall be carried forward and offset against Alimera's share of Net Profits
in subsequent periods until such Compounded Development Payments are paid off.
All or any portion of the unpaid Compounded Development Payment may be paid at
any time for such Product. Notwithstanding the foregoing, the Owed Party may
exercise its rights pursuant to Section 11.3 or 11.5 of this Agreement.

            6.3.3. Dispute over Direct Development Costs. Pursuant to the
process described in Section 3.2.2, in the event that the JDT and/or the Parties
cannot reach an agreement over direct development costs proposed by a Party to
implement the Development Plan, the issue shall be referred to the senior
management of the Parties in accordance with Section 12.7.1. In the event that
the senior management of the Parties cannot reach an agreement over such
proposed costs (the "Disputed Costs"), such dispute may be resolved through
arbitration in accordance with Section 12.7.2. In the meantime, while the matter
is in arbitration, the Party that proposed the Disputed Costs may, in its sole
discretion, incur such costs, in addition to those allocated to such Party in
the Development Budget, and the Parties otherwise would proceed in accordance
with the then existing Development Plan and Development Budget until the matter
is resolved.

            (a) If the Disputed Costs, or any portion thereof, are determined
through arbitration in accordance with Section 12.7.2 to be Direct Development
Costs that are reasonably necessary to develop the Product and the proposing
Party has paid such costs in accordance with the preceding sentence (the
"Determined Disputed Costs"), then the non-proposing Party shall pay to the
proposing Party an amount that is calculated as follows: an amount that
corresponds to [*] of the Determined Disputed Costs is multiplied by [*] and
that amount is compounded annually at the compounding rate of [*] per annum (the
total amount is called the "Compounded Disputed Costs"), for the period
commencing on the date the determination is made by the dispute resolution
procedure for so long as any portion of the Compounded Disputed Costs remain
outstanding. In the event that the non-proposing Party fails

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ACT OF 1934, AS AMENDED.

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 to pay the Compounded Disputed Costs, any distribution of Net Profits and the
Milestone Payment for that Product to CDS shall be adjusted by the Compounded
Disputed Costs according to the following: (i) if CDS owes Compounded Disputed
Costs to Alimera, then any Net Profits Payment and Milestone Payment to CDS
shall be reduced by the Compounded Disputed Costs due from CDS to Alimera until
the amount of such Net Profits Payment to CDS is [*] and any remaining balance
of the Compounded Disputed Costs that CDS owes to Alimera shall be carried
forward until such Compounded Disputed Costs are paid off, or (ii) If Alimera
owes Compounded Disputed Costs to CDS, then any Net Profits Payment to CDS shall
be increased by the Compounded Disputed Costs due from Alimera to CDS up to [*]
of Alimera's share of Net Profits and any remaining balance of the Compounded
Disputed Costs that Alimera owes to CDS shall be carried forward and offset
against Alimera's share of Net Profits in subsequent periods until such
Compounded Disputed Costs are paid off. All or any portion of the unpaid
Compounded Disputed Costs may be paid at any time for such Product.
Notwithstanding the foregoing, the Owed Party may exercise its rights pursuant
to Section 11.3 or 11.5 of this Agreement.

            (b) If the Disputed Costs are determined pursuant to Section 2.4 or
through the dispute resolution procedure in accordance with Section 12.7 not to
be Direct Development Costs that are reasonably necessary to develop the
Product, and the proposing Party has paid such costs, then the proposing Party
shall bear the Disputed Costs and the non-proposing Party shall have no
obligation to pay.

      6.4 Revenues Prior to Profitability Date. Prior to the Profitability Date
for each Product, Alimera shall retain all Gross Sales generated from such
Product in the Collaboration Field in the Territory.

      6.5 Costs and Revenues After the Profitability Date.

            6.5.1. Net Profits. From and after the Profitability Date for each
Product and subject to (b) below, each Party shall be entitled to [*] of Net
Profits for that Product, calculated on a calendar quarter-by-quarter and
country-by-country basis. Such Net Profits Payment to CDS shall be deemed
royalty for licenses granted by CDS to Alimera under Article 5, provided that
Alimera has a right to recoup from such royalty to CDS any Compounded
Development Payment and Compounded Disputed Costs that CDS owes Alimera pursuant
to Sections 6.3.2 and 6.3.3 as pre-payments of such royalty.

            (a) Reporting; Reconciliation of Net Profits. After the incurrence
of Commercialization costs by Alimera, Alimera shall be responsible for issuing
a written report to CDS within [*] calendar days (or as the Parties
may otherwise agree) after the end of each calendar quarter, which such report
shall include the following calculations:

                        (i) Direct Commercialization Costs incurred, on a cash
                  basis, by Alimera for each Product in the preceding calendar
                  quarter and, in the event that there are Net Profits in such
                  preceding calendar quarter, Direct Commercialization Costs
                  incurred in prior quarters to the extent such costs are taken
                  into account in calculating Net Losses that are offset from
                  such Net Profits pursuant to Section 6.5.1 (b);

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TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

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                        (ii) the quantity of each Product sold in the preceding
                  calendar quarter;

                        (iii) for each calendar quarter with Net Losses, the
                  calculation of Gross Sales, Net Sales and Net Losses;

                        (iv) for each calendar quarter with Net Profits, the
                  calculation of Gross Sales, Net Sales, Net Profits; and in the
                  event that Net Profits are offset by Net Losses previously
                  realized pursuant to Section 6.5.1(b), such Net Losses; and

                        (v) the amount of Net Profits, if any, to which each
                  Party is entitled for such calendar quarter.

All of the reports and payments in this Section 6.5 shall be made in U.S.
dollars. If any currency conversion is required in connection with the
calculation of Gross Sales, Net Sales and Net Profits hereunder, such conversion
shall be made in accordance with GAAP.

            (b) Net Profits Payment. Alimera shall pay to CDS the amount of Net
Profits to which CDS is entitled for such calendar quarter within [*] calendar
days after the end of such calendar quarter (the "Net Profits Payment");
provided that Alimera may offset [*] of the Net Losses previously realized by
Alimera (plus interest as described below, if applicable) on a
Product-by-Product and country-by-country basis up to a maximum offset of [*] of
the amount of Net Profits Payment to which CDS is otherwise entitled for such
calendar quarter until [*] of such Net Losses previously realized by Alimera
(plus interest as described below if applicable) are offset. In the event that
Alimera incurs Net Losses, Alimera shall be entitled to recover under the
preceding offset an amount equal to [*] of the amount of the Net Losses
previously realized by Alimera plus interest, compounded annually at the
compounding rate of [*] per annum from the time that such Net Losses are
incurred until the time such Net Losses (plus interest), or portion thereof,
have been offset pursuant to this paragraph. [*] Notwithstanding the foregoing,
CDS may, at any time, elect to permit Alimera to retain [*] of Net Profits until
[*] of the Net Losses previously realized by Alimera have been offset. If CDS
makes such an election, then no interest charge shall accrue with respect to the
Net Losses between the time CDS makes such election and the time they are
recovered by Alimera by operation of the offset. In the event that, during any
calendar quarter, Alimera makes Commercial sales of two Products that are
otherwise identical except that they are Approved for two different indications
(the first Product for which Alimera has made Commercial sales shall be called
"Product 1" and the second Product for which Alimera has made Commercial sales
shall be called "Product 2"), so that it is not reasonably possible to allocate
Net Sales attributable to each such Product, then Net Profits and Net Losses for
such Products shall be determined as follows for periods in which there are
Commercial sales of both Product 1 and Product 2:

      The "Product 2 Profitability Date" shall be deemed to be the first day of
the first calendar quarter (i) that begins at least [*] after [*] and (ii) in

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.
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which the aggregate of Net Sales of Product 1 and Product 2 exceed the aggregate
of Direct Commercialization Costs for Product 1 and Product 2. Before the
Product 2 Profitability Date, Net Profits for Product 1 shall be the aggregate
of Net Sales of Product 1 and Net Sales of Product 2 minus the Direct
Commercialization Costs of Product 1, and such Net Profits shall be distributed
as provided in the foregoing in this Section 6.5.1(b). After the Product 2
Profitability Date, Net Sales and Direct Commercialization Costs of Product 1
and Product 2 shall be aggregated for the purpose of determining Net Profits and
Net Losses for Product 1 and Product 2, such that (i) to the extent the
aggregate Net Sales for Product 1 and Product 2 exceeds the Direct
Commercialization Costs of Product 1 and Product 2, such amount of difference
shall be the aggregate Net Profits for Product 1 and Product 2, and (ii) to the
extent the Direct Commercialization Costs of Product 1 and Product 2 exceeds the
aggregate Net Sales for Product 1 and Product 2, such amount of difference shall
be the aggregate Net Losses for Product 1 and Product 2, provided that all
Direct Commercialization Costs incurred by Alimera for Product 2 prior to the
Product 2 Profitability Date (plus interest as described above, if applicable),
shall be treated as aggregate Net Losses for Product 1 and Product 2; further
provided that to the extent it is not possible to separately track Direct
Commercialization Costs for Product 1 and Product 2, such Direct
Commercialization Costs shall be reasonably allocated between Product 1 and
Product 2. The distribution of such aggregate Net Profits and offset of such
aggregate Net Losses shall be as provided in the foregoing in this Section
6.5.1(b). In the event that, during any calendar quarter, Alimera makes
Commercial sales of three or more Products that are otherwise identical except
that they are Approved for three or more different indications so that it is not
reasonably possible to allocate Net Sales attributable to each such Product, the
Parties agree to work together in good faith to extend the principles reflected
in the foregoing method of calculation to include such third or additional
Products.

            (c) Non-Payment. In the event that Alimera fails to make timely
payment to CDS for all or a portion of a Net Profits Payment pursuant to this
Section 6.5.1, CDS shall provide written notice to Alimera and Alimera shall
have fifteen (15) business days in which to cure the nonpayment. If after such
notice, Alimera fails to cure the nonpayment within such fifteen (15) business
day period, the portion of the unpaid Net Profits Payment shall increase any
future Net Profits Payments to CDS for any future period by an amount that is
calculated as follows: the amount of the unpaid Net Profits Payment is
multiplied by [*], and that amount is compounded annually at the rate of [*] per
annum (the total amount is called the "Compounded Net Profits Payment"), for the
period in which any portion of the Net Profits Payment remain outstanding.
Alimera shall have the right to pay all or any portion of the unpaid Compounded
Net Profits Payment plus any interest accrued and due at any time.
Notwithstanding the foregoing, CDS may exercise its rights pursuant to Section
11.2 of this Agreement.

            (d) Consideration for Net Profits Payments. In consideration of all
rights granted, and information provided by CDS to Alimera, and the amount of
Direct Development Costs paid by CDS under this Agreement with respect to
Product(s), the Parties agree that the amount of Net Profits Payments set forth
in Section 6.5 reflects the value of all such rights granted, information
provided and costs paid, and such Net Profits Payments shall be paid whether or
not such Product is covered by a Valid Claim in the CDS Patent Rights, and
whether or not such Net Profits Payments under this Section 6.5 extend beyond
the term of any CDS Patent Rights containing Valid Claims covering such Product.

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                      -37-
<PAGE>
            6.5.2. Net Losses. In the event that there are Net Losses in a
calendar quarter, Alimera shall be solely responsible for bearing such Net
Losses, subject to Alimera's right to recover [*] of such Net Losses as provided
for in Section 6.5.1.

      6.6 Revenues from Third Party Agreements. In the event that Alimera enters
into a sublicense or other agreement, or otherwise agrees, with a Third Party,
before or after the Profitability Date for a Product, to sell or otherwise
transfer some or all of Alimera's rights to a Product, including, but not
limited to, marketing rights and/or distribution rights, and Alimera obtains any
form of consideration in connection therewith, CDS shall be entitled to receive
[*] of the excess of (i) such consideration (excluding any amounts paid for
equity securities of Alimera other than amounts that exceed the fair market
value of such securities) over (ii) Alimera's reasonable out-of-pocket costs
that are directly and solely incurred to secure such Third Party agreement,
promptly after any such consideration is received by Alimera, provided that (1)
the fair market value of such securities shall be determined by mutual agreement
of both Parties, and (2) in the event that the Parties fail to reach such mutual
agreement, the matter shall be resolved by arbitration in accordance with
Section 12.7.2 herein. The amount of payment that CDS is entitled to receive
from Alimera pursuant to the foregoing shall be deemed royalty for licenses
granted by CDS to Alimera under Article 5, provided that Alimera shall have the
right to recoup from all or any portion of such payment to CDS any Compounded
Development Payment, Compounded Disputed Costs or other amount then owed by CDS
to Alimera under this Agreement as pre-payments of royalty.

      6.7 Records; Audits.

            6.7.1. Each Party shall keep, and shall cause its Affiliates, agents
and sublicensees to keep, full and accurate records and books of account
containing all particulars that may be necessary for the purpose of calculating
Direct Development Costs, Direct Commercialization Costs, Gross Sales, Net
Sales, and Net Profits or Net Losses for Products to be received or borne by the
Parties pursuant to this Agreement, including, but not limited to, inventory,
purchase and invoice records, manufacturing records, sales analysis, general
ledgers, financial statements, and tax returns relating to Products. Such books
of account, with all necessary supporting data, shall be kept by each Party at
its place of business for the three (3) years next following the end of the
calendar year to which each shall pertain. Each Party (the "Audited Party")
shall permit an independent accounting firm selected by the other Party (the
"Auditing Party") and reasonably acceptable to the Audited Party, which
acceptance shall not be unreasonably withheld or delayed, to have access during
normal business hours to such records as may be reasonably necessary to verify
the accuracy of the Audited Party's reports of Direct Development Costs, Direct
Commercialization Costs, Gross Sales, Net Sales, and Net Profits or Net Losses
as provided herein. All such verifications shall be conducted at the expense of
the Auditing Party and not more than once in each calendar year. In the event
such audit concludes that adjustments should be made in the Auditing Party's
favor, then any appropriate payments (plus accrued interest at a rate announced
by the Bank of America as its prime rate in effect on the date that such payment
was first due plus three percent (3%) for the period starting from the date the
payment was first due ending on the date the payment was made) shall be paid by
the Audited Party within thirty (30) days of the date the Audited Party receives
the Auditing Party's accounting firm's written report so concluding, unless the
Audited Party shall have a good faith dispute as to the conclusions set forth in
such written report, in which case the audited Party shall

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                      -38-
<PAGE>

provide written notice to the Auditing Party within such thirty (30) day period
of the nature of its disagreement with such written report. The Parties shall
thereafter, for a period of sixty (60) days, attempt in good faith to resolve
such dispute and if they are unable to do so then the matter will be submitted
to dispute resolution in accordance with Section 12.7 hereof. The fees charged
by such accounting firm shall be paid by the Auditing Party unless the audit
discloses that adjustments in favor of the Auditing Party for the period are
five percent (5%) or more of the aggregate amount paid or payable by the Audited
Party to the Auditing Party during the period, in which case the Audited Party
shall pay the reasonable fees and expenses charged by such accounting firm. The
Parties agree that all information subject to review under this Section 6.7 is
confidential and that it shall cause its accounting firm to retain all such
information subject to the confidentiality restrictions of Article 8 hereof.

            6.7.2. In addition to the foregoing, Alimera shall permit an
independent certified public accountant retained by UKRF to inspect the records
and books of account described in Section 6.7.1 during normal business hours and
upon reasonable notice to the extent required by the UKRF Licenses. Such right
of inspection shall last for two (2) years following the end of the calendar
quarter to which such records and books of account pertain, shall be limited
solely to those matters directly related to CDS royalty obligations under the
UKRF Licenses, and shall be allowed no more than once a year.

                        ARTICLE 7 INTELLECTUAL PROPERTY

      7.1 CDS-Prosecuted Patent Rights.

            7.1.1. Filing, Prosecution and Maintenance. CDS shall have primary
responsibility for and control over the preparation, filing, prosecution and
maintenance of (a) any of the CDS Existing Patent Rights, (b) any Patent Rights
included within the CDS Improvements, and (c) any Patent Rights included within
the Alimera Improvements that fall within the definition of or relate to the CDS
Core Technology (collectively, the "CDS-Prosecuted Patent Rights"). For
CDS-Prosecuted Patent Rights, CDS shall have the authority to select patent
counsel, and to determine the form and content of such prosecution documents and
to make all decisions regarding whether to file, prosecute and maintain patents
and patent applications, and in which countries to do so.

            7.1.2. CDS Patent Costs. Alimera shall be responsible for
reimbursement of CDS Patent Costs only in the jurisdictions identified in
Exhibit 1.15 as follows: the CDS Patent Costs in such jurisdictions paid up to
the first Product Profitability Date shall be Direct Development Costs, as
provided in Section 1.34, and shall be paid by CDS and split between CDS and
Alimera in accordance with Section 6.3. The CDS Patent Costs paid after the
first Product Profitability Date shall be paid by CDS and Alimera shall
reimburse CDS [*] for all such costs paid by CDS within thirty
(30) days after the date of invoice by CDS in accordance with Section 4.4. The
list of countries identified in Exhibit 1.15 may be amended (i.e., to add or to
drop one or more countries) only upon mutual agreement by the Parties. If, after
the Effective Date of this Agreement, CDS grants to any Third Party a license to
any of the CDS-Prosecuted Patent Rights for which Alimera has continuing
reimbursement obligations, thereafter Alimera's share of costs for those
particular CDS-Prosecuted Patent Rights shall be reduced on a per capita basis
during the term of such license (by way of example, if CDS grants

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.
                                      -39-
<PAGE>

a license to one Third Party to any of the CDS-Prosecuted Patent Rights,
Alimera's share of costs for those particular CDS-Prosecuted Patent Rights shall
be [*]).

            7.1.3. Communication. CDS shall provide Alimera with copies of all
official correspondence (including, but not limited to, applications, office
actions, responses, etc.) relating to prosecution and maintenance of
CDS-Prosecuted Patent Rights in countries identified in Exhibit 1.15. Alimera
may provide comments and CDS will give good faith consideration thereto. In
order to facilitate Alimera's rights to comment, CDS shall provide copies of all
such official correspondence and any proposed responses by CDS at least ten (10)
business days prior to any filing or response deadlines. In the event that the
Parties have a material disagreement relating to the prosecution or maintenance
of any of the CDS-Prosecuted Patent Rights (other than a determination by CDS to
abandon any CDS-Prosecuted Patent Rights as described below), CDS shall have the
right to decide on the course of action. Thereafter, Alimera may choose not to
pay any portion of the CDS Patent Costs associated with the applicable
CDS-Prosecuted Patent Rights. In the event that Alimera chooses not to pay for
one or more countries, then, with respect to such countries, (a) the license for
the applicable CDS-Prosecuted Patent Rights shall automatically terminate, and
(b) CDS shall no longer be bound by Section 5.1.2(1), (2), (3) or (4).

      7.2 Abandonment. CDS shall not abandon prosecution or maintenance of any
CDS-Prosecuted Patent Rights already pending in any country identified in
Exhibit 1.15 without notifying Alimera in a timely manner of CDS' intention and
reason therefore and providing Alimera with reasonable opportunity to comment
upon such abandonment and to assume responsibility for prosecution or
maintenance of such Patent Rights as set forth below. For avoidance of doubt,
for CDS-Prosecuted Patent Rights, CDS has the sole discretion to decide whether
or not to file in a country, and a decision not to file in a country shall not
be deemed as abandonment of CDS-Prosecuted Patent Rights in that country for
purpose of this Article 7. In the event that CDS abandons prosecution or
maintenance of CDS-Prosecuted Patent Rights in any country identified in Exhibit
1.15 at any time during the Term of this Agreement, Alimera may assume
prosecution responsibility therefor in the name of CDS, and such patent costs
shall be paid by Alimera and CDS may reimburse Alimera for [*] of such patent
costs within thirty (30) days after the date of invoice from Alimera (the "CDS
Reimbursement Amount"). In the event that CDS fails to reimburse Alimera within
the time period as specified above, any future payment to CDS shall be decreased
by an amount that is calculated as follows: the amount of the non-reimbursed CDS
Reimbursement Amount is multiplied by [*], and that amount is compounded
annually at the compounding rate of [*] per annum, for any period in which any
portion of such costs remains non-reimbursed. CDS may pay all or any portion of
the unpaid CDS Reimbursement Amount plus any interest accrued and due at any
time.

      7.3 Alimera-Prosecuted Patent Rights.

            7.3.1. Filing, Prosecution and Maintenance. Alimera shall have
primary responsibility for and control over the preparation, filing, prosecution
and maintenance of any Patent Rights included within Alimera Improvements that
are not CDS-Prosecuted Patent Rights ("Alimera-Prosecuted Patent Rights"). For
Alimera-Prosecuted Patent Rights, Alimera shall have the authority to select
patent counsel, and to determine the form and content of such

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                      -40-
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prosecution documents and to make all decisions regarding whether to file,
prosecute and maintain patents and patent applications, and in which countries
to do so. Alimera shall be solely responsible for Alimera Patent Costs and such
costs shall be neither Direct Development Costs nor Direct Commercialization
Costs. Alimera shall provide CDS with copies of all official correspondence
(including, but not limited to, applications, office actions, responses, etc.)
relating to prosecution and maintenance of Alimera-Prosecuted Patent Rights.

            7.3.2. Abandonment. Alimera shall not abandon prosecution or
maintenance of any Alimera-Prosecuted Patent Rights in the Territory without
notifying CDS in a timely manner of Alimera's intention and reason therefore and
providing CDS with reasonable opportunity to comment upon such abandonment and
to assume responsibility for prosecution or maintenance of such
Alimera-Prosecuted Patent Rights. For avoidance of doubt, for Alimera-Prosecuted
Patent Rights, Alimera has the sole discretion to decide whether or not to file
in a country, and a decision not to file in a country shall not be deemed as
abandonment of Alimera-Prosecuted Patent Rights in that country for purpose of
this Article 7. In the event that Alimera abandons prosecution or maintenance of
Alimera-Prosecuted Patent Rights in any country in the Territory, CDS may assume
prosecution responsibility for such Patent Rights in that country, and
thereafter such Patent Rights will cease to being Alimera-Prosecuted Patent
Rights and will become CDS-Prosecuted Patent Rights. Notwithstanding the
foregoing, if Alimera, acting in good faith, grants a Third Party prosecution
rights with respect to any Alimera-Prosecuted Patent Rights, then CDS' rights
under this Section 7.2.2 shall be subject to the rights granted to such Third
Party.

      7.4 Information Disclosure; Cooperation. Each Party shall disclose and
make available to the other Party all material information controlled by such
Party that is reasonably necessary for the other Party to perform its
obligations and exercise its rights under this Article 7, including the
preparation, filing, prosecution and maintenance of patents and patent
applications pursuant to this Article 7. All such information shall be disclosed
to the other Party reasonably promptly after it is first developed or learned or
its significance is first appreciated. Without limiting the foregoing, each
Party agrees to disclose and make available to the other Party all Alimera
Improvements and CDS Improvements, as applicable. Neither Alimera or CDS shall
publicly disclose any Alimera Improvements before the Party responsible for
filing and prosecuting such Improvements has an opportunity to make appropriate
patent filings. Each Party agrees to cooperate with the other Party with respect
to the preparation, filing, prosecution and maintenance of patents and patent
applications pursuant to this Article 7.

      7.5 Employees and Sublicensees Assignment of Inventions. Each Party shall
cause all of its employees, Affiliates, contractors, sublicensees, consultants,
clinical investigators and agents, acting under authority from such Party or its
sublicensees, (i) to enter into written agreements pursuant to which each such
person or entity assigns to such Party all Improvements and other Inventions
that such individual or entity discovers, develops, creates, conceives or
reduces to practice in the course of their relationship with such Party or its
sublicensees; and (ii) to execute such other documents and take such other
actions as may be necessary to effectuate the foregoing assignments. Each Party
agrees to undertake to enforce the agreements referenced in this Section 7.3
(including, where appropriate, by legal action).

      7.6 Infringement

                                      -41-
<PAGE>

            7.6.1. Notification. Each party shall promptly report in writing to
the other Party during the Term of this Agreement any known infringement or
suspected infringement of any of its Patent Rights that covers a Product and
shall provide the other Party with all available evidence supporting said
infringement or suspected infringement.

            7.6.2. Prosecution. CDS shall have the initial right, but not the
obligation, to initiate or prosecute an infringement or other appropriate suit
or action against any Third Party who at any time has infringed or is suspected
of infringing (an "Infringer"), any of the CDS Patent Rights covering a Product.
CDS shall give Alimera sufficient advance notice of its intent to file said suit
and the reasons therefore, and shall provide Alimera with an opportunity to make
suggestions and comments regarding such filing; provided, however, that Alimera
shall provide any such comments sufficiently in advance of any filing dates to
allow for consideration by CDS, and further provided that it shall be within
CDS' sole discretion whether to incorporate such suggestions or comments. CDS
shall keep Alimera reasonably informed of the status and progress of the
litigation. CDS shall have the sole and exclusive right to select counsel for
any such suit and action and shall pay [*] including, but not limited to,
attorneys' fees and court costs. If CDS has not taken legal action or been
successful in obtaining cessation of the infringement within (a) ninety (90)
days from the date of notice by Alimera under Section 7.4.1; (b) thirty (30)
days after Alimera notifies CDS that Alimera would like to move for injunctive
relief; or (c) ten (10) days before the expiration of a period of time set by
applicable law in which action must be taken with respect to the alleged
infringement (e.g., as may be required under the Hatch-Waxman Act and 35 USC
Section 271), then subject to any rights granted to B&L under the B&L Agreement,
to enforce or prosecute any Patent Rights owned or Controlled by CDS, Alimera
shall have the right to bring suit against an Infringer at Alimera's own
expense. This right of Alimera to bring suit, as well as to continue an existing
suit, is also conditioned on all of the following requirements:

                        (i) The allegedly infringing product, device or method
                  (collectively, the "Accused Device") falls within the
                  definition of Product;

                        (ii) If Alimera owns (or has licensed from a Third Party
                  and has the right to enforce) any patent(s) that reads on the
                  Accused Device practiced by the Infringer, Alimera will
                  include in the complaint one or more claims alleging
                  infringement of all such other patent(s);

                        (iii) Alimera has provided evidence to CDS that there is
                  a good faith basis to believe that the Accused Device is being
                  prepared for Commercialization or is already Commercialized;

                        (iv) Alimera shall keep CDS reasonably and timely
                  informed of the pre-litigation and litigation issues and
                  strategy (including, without limitation, furnishing copies of
                  communications, pleading, and other documents and keeping CDS
                  informed of settlement efforts and developments), and shall
                  obtain suggestions and strategy from CDS, including during
                  pre-trial motions and discovery;

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

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                        (v) In the instance of litigation issues and strategies
                  pertaining to defenses or setting strategy for the scope of
                  claims, Alimera shall incorporate all reasonable suggestions
                  and strategy from CDS as may be deemed appropriate in the
                  reasonable business judgment of CDS; and

                        (vi) Except for joining the legal actions described in
                  this Section 7.4.2 as a party at Alimera's request and matters
                  discussed in the following paragraph, CDS shall have no
                  obligation regarding such actions unless required to
                  participate by law or contract. However, CDS shall have the
                  right to participate in any such actions through its own
                  counsel and at its expense.

Upon request of the other Party, either Party shall join as a party to the suit,
at its own expense, and shall offer reasonable assistance to the other Party in
connection therewith at its own expense. Any damages, royalties, settlement fees
or other consideration for infringement resulting from such suit shall be
distributed as follows: (i) first, each Party shall be reimbursed for its
reasonable out-of-pocket costs paid in connection with the proceeding; and (ii)
thereafter, shall be [*]. Neither Party shall settle any such action or
otherwise consent to an adverse judgment in any such action that adversely
affects the rights or interests of the other Party under this Agreement,
including, without limitation, issues of validity of the CDS Patent Rights,
without the prior written consent of the other Party.

            7.6.3. Notification of Third Party Claim. Each Party shall promptly
report in writing to the other Party during the Term of this Agreement any claim
or allegation by any Third Party that the development or Commercialization of
any Product infringes the intellectual property rights of any Third Party and
shall provide the other Party with all available evidence supporting said
infringement or suspected infringement.

            7.6.4. Responsibility. Subject to any rights granted to B&L under
the B&L Agreement, Alimera shall have the initial right, but not the obligation,
to defend any suit or action initiated by any Third Party alleging solely that a
Product developed or Commercialized hereunder has infringed, or is suspected of
infringing any Third Party intellectual property rights. Upon Alimera's request,
CDS shall offer reasonable assistance to Alimera in connection therewith at
Alimera's expense. Alimera shall give CDS advance notice of its intent to defend
any said suit and shall provide CDS with an opportunity to make suggestions and
comments regarding such defense; provided, however, that CDS shall provide any
such comments sufficiently in advance of any filing dates to allow for
consideration by Alimera, and further provided that it shall be within Alimera's
sole discretion whether to incorporate such suggestions or comments. Alimera
shall keep CDS reasonably informed of the status and progress of the litigation.
Alimera shall have the sole and exclusive right to select counsel for any such
suit and action and shall pay all expenses of the suit, including, but not
limited to, attorneys' fees and court costs. Alimera shall have the right to
settle any such litigation and shall specifically have the right, whether or not
litigation commences, to negotiate a license or other rights from any Third
Party authorizing the use of Third Party intellectual property rights in
connection with Products; provided, however, that Alimera shall not settle any
such action, or otherwise consent to an adverse judgment in any such action, or
make any admission in any such license and negotiation that adversely affects
the rights or interests of CDS under this Agreement, including,

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                      -43-
<PAGE>

without limitation, issues of validity of the CDS Patent Rights, without the
prior written consent of CDS. Any such license shall be at arm's length and
otherwise on terms and conditions as may be deemed appropriate in the reasonable
business judgment of Alimera. Alimera shall provide CDS with a copy of any such
license promptly after its execution. All reasonable costs incurred in
connection with such litigation and any amounts payable to the Third Party
relating to Products under such license shall constitute Direct
Commercialization Costs as follows: (i) any litigation, negotiation or
settlement-related costs and expenses or up-front payments shall be deemed to be
a Direct Commercialization Cost of Product or Products as reasonably allocated
by Alimera in good faith, subject to the dispute resolution procedures provided
for in Section 12.7; (ii) any royalties on net sales or similar payments
calculated by reference to sales shall be allocated to Products on a
Product-by-Product and country-by-country basis; (iii) any other amounts (e.g.,
milestone payments or patent reimbursement fees) shall be reasonably allocated
by Alimera to one or more Products in good faith, subject to the dispute
resolution procedures provided for in Section 12.7. If Alimera recovers any
damages or any other payments, by way of settlement or otherwise, in connection
with any counterclaim made by it in any such actions, such damages shall be
considered "Net Sales" for purposes of this Agreement.

      If Alimera does not defend a claim, suit or proceeding as set forth above
within ninety (90) days of the date Alimera was reasonably aware or notified of
the Third Party claim alleging infringement (or within such shorter period as
may be necessary for submitting or filing a response), then CDS may, in its sole
discretion, elect to defend such claim, suit or proceeding, using counsel of its
own choice and the provisions of Section 7.6.4 shall apply as if the term "CDS"
were changed to "Alimera" and the term "Alimera" were changed to "CDS."

      7.7 Marking. Alimera and any Affiliates or sublicensees shall mark all
Products with the numbers of all patents included in CDS Technology that cover
the Products. Without limiting the foregoing, all Products shall be marked in
such a manner as to conform with the patent laws of the country to which such
Products are shipped or in which such products are sold, including, but not
limited to, the requirements of 35 U.S.C. Section 287.

      7.8 Trademarks. Alimera shall be free to adopt, use and register in any
trademark offices any trademarks for use with a Product in its sole discretion.
Subject to Section 11.5.2, Alimera shall own all right, title and interest in
and to any such trademark in its own name during and after the Term of this
Agreement.

            7.8.1. The "Medidur" Mark. CDS hereby grants to Alimera a
royalty-free non-exclusive right and license, with right to sublicense, to use
the "MEDIDUR" mark Controlled by CDS on or in connection with any Products
marketed, distributed or sold pursuant to this Agreement. Alimera shall not use
the "MEDIDUR" mark in direct association with another mark such that the two
marks appear to be a single mark or in any other composite manner with any marks
of Alimera or any Third Party. Alimera shall cause to appear on all items
bearing the "MEDIDUR" mark such legends, markings and notices as may be required
by applicable law or reasonably requested by CDS to establish, perfect, defend
or exploit the proprietary character of the "MEDIDUR" mark. Alimera shall not
grant, attempt to grant, or record anywhere, a security interest in the
"MEDIDUR" mark. Alimera hereby assigns and will assign any goodwill associated
with its use of the "MEDIDUR" mark to CDS. CDS has the right to control the
quality of the Products Commercialized in connection with the commercial

                                      -44-
<PAGE>

exploitation of the MEDIDUR Mark as follows: (1) CDS may, in its sole
discretion, request and carry out periodic inspections of the operation of
Alimera, its Affiliates, subcontractors and sublicensees, and (2) Alimera agrees
to reasonably cooperate, and to cause its Affiliates, subcontractors and
sublicensees to cooperate, with such periodic inspections of its operations upon
reasonable prior written notice by CDS. Alimera acknowledges and agrees that the
"MEDIDUR" mark shall remain the property of CDS. ALIMERA ACKNOWLEDGES AND AGREES
THAT THE "MEDIDUR" MARK IS PROVIDED ON AN "AS IS" BASIS AND THAT CDS MAKES NO
REPRESENTATIONS AND EXTENDS NO WARRANTIES WHATSOEVER, EXPRESS, IMPLIED OR
STATUTORY, WITH RESPECT THERETO INCLUDING WITHOUT LIMITATION ANY IMPLIED
WARRANTIES OF TITLE, VALIDITY, ENFORCEABILITY OR NON-INFRINGEMENT. CDS is not
obligated to (i) file any application for registration of the "MEDIDUR" mark, or
to secure any rights in the "MEDIDUR" mark, (ii) to maintain the "MEDIDUR" mark,
or (iii) to police or pursue (including for infringement) any Third Parties
using the "MEDIDUR" mark.

      7.9 UKRF Licenses and B&L Agreement. CDS shall not amend or modify any of
the UKRF Licenses or the B&L Agreement, or waive any right thereunder, in any
manner that would adversely affect Alimera's rights hereunder without the prior
written authorization of Alimera.

                           ARTICLE 8 CONFIDENTIALITY

      8.1 Confidentiality. Except as otherwise provided in this Article 8, each
Party shall maintain Confidential Information of the other Party in confidence
and shall not disclose Confidential Information of the other Party to any Third
Party and shall not use Confidential Information of the other Party except as
expressly authorized under this Agreement. "Confidential Information" shall mean
any and all information (whether in written, electronic, visual, verbal or other
form) received from the other Party or its representatives, including, but not
limited to, all information relating to any technology, product, method, process
or intellectual property of such disclosing Party (including, but not limited
to, Patent Rights, and other owned or licensed intellectual property rights,
data, Know-How, samples, technical and non-technical materials and
specifications), as well as any business plan, financial information, research
data or results, or other confidential commercial information of or about such
disclosing Party; provided, however, that Confidential Information shall not
include any information that: (a) is or becomes part of the public domain other
than by unauthorized acts or omissions of the Party obligated not to disclose
such Confidential Information or its employees, directors, officers, or agents
(collectively, the "Receiving Party"); (b) can be shown by written documents to
have been disclosed to the Receiving Party by a Third Party; provided, however,
that such Third Party had no obligation of confidentiality or non-use to the
disclosing party with respect to such Confidential Information; (c) can be shown
by written documents to have been in the possession of the Receiving Party prior
to disclosure by the disclosing Party; provided, however, that such Confidential
Information was not obtained directly or indirectly from the other Party to this
Agreement pursuant to a confidentiality agreement; or (d) is required to be
disclosed by the Receiving Party pursuant to interrogatories, requests for
information or documents, subpoena, civil investigative demand issued by a court
or governmental agency or as otherwise required by law; provided, however, that
in connection with this clause (d) the Receiving Party shall notify the other
Party immediately upon receipt thereof and give such other Party sufficient
advance

                                      -45-
<PAGE>

notice to permit it to seek a protective order or other similar order with
respect to such Confidential Information; and provided, further, that the
Receiving Party furnishes only that portion of the Confidential Information that
it is advised by counsel is legally required whether or not a protective order
or other similar order is obtained by the other Party. Notwithstanding any other
provisions of this Article, (1) Alimera Know-How shall be Confidential
Information of Alimera and CDS Technology shall be Confidential Information of
CDS; and (2) each Party shall treat the terms and conditions of this Agreement
as Confidential Information of the other Party.

      8.2 Disclosure. To the extent that it is reasonably necessary, a Party may
disclose Confidential Information it is otherwise obligated under this Article 8
not to disclose to its employees on a need-to-know basis and on condition that
such employees agree in writing to non-use and non-disclosure obligations
essentially the same as those set forth herein and to keep the Confidential
Information confidential to the same extent as such Party is required to keep
the Confidential Information confidential. In addition, a Party may disclose
such Confidential Information: (a) to government or other regulatory authorities
to the extent that such disclosure is required by law, regulation or order (i)
in connection with the filing, prosecution or maintenance of patents for which
the Party disclosing the Confidential Information has responsibility or is
permitted under this Agreement to file, prosecute and maintain, or (ii) to
obtain authorizations to conduct clinical trials of, and to Commercialize,
Products pursuant to this Agreement; (b) to any applicable securities exchange
or the National Association of Securities Dealers ("NASD"), as required by
applicable law or any listing agreement with, or the rules and regulations of,
any applicable securities exchange or NASD, provided, that, the Party who makes
the filing will seek confidential treatment for such filing; (c) in confidence,
to lawyers, accountants and sources of funding of a Party and (d) to
sublicensees in connection with any sublicense of the technology or intellectual
property, or portion thereof, licensed hereunder as permitted under this
Agreement. In addition, a Party may disclose the terms of this Agreement to any
investors or potential investors, lenders, and other potential financing
sources, or to a Third Party in connection with a merger or acquisition or
proposed merger or acquisition or a license or proposed license of the
technology or intellectual property licensed hereunder, and to Affiliates,
attorneys, accountants, stockholders, investment bankers, advisers or other
consultants of the foregoing, in each case provided that the Person to which
such disclosure is made is obligated by written agreement to keep such
information confidential on essentially the same terms as set forth herein and
to use such Confidential Information solely to evaluate such investment,
financing, acquisition, merger or license.

                    ARTICLE 9 REPRESENTATIONS AND WARRANTIES

      9.1 Representations and Warranties of CDS. CDS represents and warrants as
of the Effective Date that:

            (a) CDS is a corporation duly organized, validly existing and in
corporate good standing under the laws of Delaware;

            (b) CDS has the legal right, authority and power to enter into this
Agreement, and to extend the rights and licenses granted to Alimera in this
Agreement;

                                      -46-
<PAGE>

            (c) CDS has taken all necessary action to authorize the execution,
delivery and performance of this Agreement;

            (d) upon the execution and delivery of this Agreement, this
Agreement shall constitute a valid and binding obligation of CDS enforceable in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' and contracting parties' rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law);

            (e) the performance of its obligations under this Agreement will not
conflict with its charter documents or result in a breach of any agreements,
contracts or other arrangements to which it is a party;

            (f) CDS is the sole and exclusive owner or the licensee of CDS
Existing Patent Rights;

            (g) to the best of CDS' knowledge, no claim has been threatened or
asserted that the practice of any patent or patent application listed in Exhibit
1.11A infringes patent rights of any Third Party;

            (h) CDS has not received any complaint, demand or notice from a
Third Party in writing challenging the validity or enforceability of any patent
listed in Exhibit 1.11A;

            (i) CDS has no present intention [*] any patent listed in Exhibit
1.11A and has not instructed its patent counsel or taken any other actions [*]
any patent listed in Exhibit 1.11A;

            (j) CDS is in compliance in all material respects with the UKRF
Licenses and the B&L Agreement; to CDS' knowledge, there is no noncompliance by
UKRF or B&L under the UKRF Licenses and the B&L Agreement, respectively, other
than noncompliance that would not adversely affect Alimera's rights hereunder;
and

            (k) neither CDS nor any of its Affiliates has initiated for CDS a
filing for protection under the bankruptcy laws, an assignment for the benefit
of creditors, appointment of a receiver or trustee over its property or any
similar undertaking.

      9.2 Representations and Warranties of Alimera. Alimera represents and
warrants as of the Effective Date that:

            (a) Alimera is a corporation duly organized, validly existing and in
corporate good standing under the laws of Delaware.

            (b) Alimera has the legal right, authority and power to enter into
this Agreement, and to extend the rights and licenses granted to CDS in this
Agreement;

            (c) Alimera has taken all necessary action to authorize the
execution, delivery and performance of this Agreement;

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.
                                     -47-

<PAGE>

            (d) upon the execution and delivery of this Agreement, this
Agreement shall constitute a valid and binding obligation of Alimera enforceable
in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws,
affecting creditors' and contracting parties' rights generally and except as
enforceability maybe subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law);

            (e) the performance of its obligations under this Agreement will not
conflict with Alimera's charter documents or result in a breach of any
agreements, contracts or other arrangements to which it is a party; and

            (f) to the knowledge of Alimera, Alimera is the sole and exclusive
owner of the Alimera Know-How.

      9.3 Warranty Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS
AGREEMENT, NEITHER PARTY MAKES ANY WARRANTY WITH RESPECT TO ANY CDS TECHNOLOGY,
CDS KNOW-HOW, ALIMERA IMPROVEMENTS, ALIMERA KNOW-HOW, GOODS, SERVICES OR OTHER
SUBJECT MATTER OF THIS AGREEMENT AND HEREBY DISCLAIMS WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, VALIDITY, SCOPE AND
NON-INFRINGEMENT WITH RESPECT TO ANY AND ALL OF THE FOREGOING.

      9.4 Limited Liability. EXCEPT FOR THEIR RESPECTIVE OBLIGATIONS UNDER
ARTICLE 8 or ARTICLE 10, NEITHER CDS NOR ALIMERA WILL BE LIABLE WITH RESPECT TO
ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT
LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR ANY PUNITIVE, EXEMPLARY,
INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES OR LOST PROFITS.

                              ARTICLE 10 INDEMNITY

      10.1 Cross Indemnity. Each Party (the "Indemnifying Party") agrees to
defend, indemnify and hold the other party (the "Indemnified Party"), its
Affiliates and their respective directors, officers, employees and agents and
their respective heirs and assigns harmless from all Third Party claims,
actions, losses, damages, liabilities or expenses (including, but not limited
to, reasonable attorneys' fees) (each, a "Loss") arising as a result of (a) a
breach by the Indemnifying Party of any of its representations, warranties or
obligations under this Agreement, (b) actual or asserted violations of any
applicable law or regulation by the Indemnifying Party or any of its employees,
Affiliates, sublicensees, consultants, or other agents in connection with the
research, development, manufacture, distribution, marketing, promotion, sale, or
use of Products, or the reporting requirements for Products, including, but not
limited to, any allegation or determination that a Product has been adulterated,
misbranded, mislabeled or otherwise is not in compliance with any applicable law
or regulation, or (c) except as provided in Section 7.4.4 or 10.5, bodily
injury, death, property damage or other harm or damage attributable to the
research, development, manufacture, distribution, marketing, promotion, sale or
use of any Products by the Indemnifying Party or its employees, Affiliates,
sublicensees, consultants, or other agents.

                                     -48-

<PAGE>

      10.2 Limitation on Indemnity Obligations. A Party, its Affiliates and
their respective directors, officers, employees and agents shall not be entitled
to the indemnities set forth in Sections 10.1 to the extent the Loss for which
indemnification is sought was caused by the negligence, or by the reckless or
intentional misconduct or omission, of such Party or its directors, officers,
employees or agents.

      10.3 Procedure. If an Indemnified Party intends to claim indemnification
under Article 10, the Indemnified Party shall notify the Indemnifying Party of
any Loss in respect of which the Indemnified Party intends to claim such
indemnification, and the Indemnifying Party shall assume the defense thereof
with counsel mutually satisfactory to the Parties. The failure to deliver notice
to the Indemnifying Party within a reasonable time after the commencement of any
such action, shall relieve such Indemnifying Party of liability to the
Indemnified Party under Article 10 only to the extent that the delay adversely
affects Indemnifying Party's rights or ability to defend such claim or action,
but the failure so to deliver notice to the Indemnifying Party will not relieve
the Indemnifying Party of any liability that it may have to any Indemnified
Party otherwise than under Article 10. The Indemnified Party under Article 10
shall provide reasonable assistance to the Indemnifying Party and its legal
representatives, at the Indemnifying Party's expense, in the investigation of
any action, claim or liability covered by this indemnification. The Indemnifying
Party shall additionally be liable to pay the reasonable legal costs and
attorneys' fees incurred by the Indemnified Party in establishing its claim for
indemnity. Except as provided in the last sentence of this Section 10.3, the
indemnity agreement in this Article 10 shall not apply to amounts paid in
settlement of any Loss if such settlement is effected without the consent of the
Indemnifying Party, which consent shall not be withheld unreasonably or delayed.
Indemnifying Party shall not, without the written consent of Indemnified Party,
settle or compromise any Loss or consent to the entry of any judgment with
respect to any Loss (a) that does not release Indemnified Party from all
liability with respect to such Loss or (b) which may materially adversely affect
Indemnified Party or under which Indemnified Party would incur any obligation or
liability, other than one as to which Indemnifying Party has an indemnity
obligation hereunder. If Indemnifying Party, within ten (10) days of receiving
notice of a Loss or such shorter period as may be necessary for submitting or
filing a response, fails to assume the defense of such Loss or fails to notify
Indemnified Party that is assuming such defense, Indemnified Party shall have
the right to assume the defense, compromise or settlement of such Loss at the
risk and expense of Indemnifying Party.

      10.4 Insurance. Each Party shall maintain, and shall cause its Affiliates
and each sublicensee conducting activities under this Agreement to maintain, at
such Party's, an Affiliate's, or sublicensee's sole expense, appropriate product
liability insurance coverage in amounts reasonably determined by the Party from
time to time but at least sufficient to insure against claims which may arise
from the performance of obligations or exercise of rights granted under this
Agreement or from indemnification obligations under this Article 10, but in no
event shall a Party's insurance coverage be in an amount less than $5,000,000
per occurrence and $10,000,000 annual aggregate. The policy of insurance shall
contain a provision of non-cancellation except upon the provision of thirty (30)
days notice to the other Party. The policy of insurance with respect to any
Product that would, absent the licenses herein, infringe a Valid Claim under a
patent licensed under one or more of the UKRF Licenses shall contain an
endorsement naming UKRF, and the University of Kentucky (and its Board of
Trustees, agents, officers, and employees) as additional insureds. Each Party
shall maintain such insurance

                                     -49-

<PAGE>

commencing on the Effective Date and for so long as it continues to research,
produce, develop, manufacture, distribute, sell or use the Products, and
thereafter for so long as each Party maintains insurance for itself covering
such manufacture or sales.

      10.5 Product Liability Claims. If either Party incurs any losses, costs,
damages (including amounts paid in settlement of claims), fees (including
reasonable attorneys' fees) or expenses arising out of any Third Party claim
relating to injuries or death resulting from the use of any Product developed or
Commercialized pursuant to this Agreement, then such losses, costs, damages,
fees or expenses that are not attributable to the gross negligence and/or
willful misconduct of a Party and are not covered by an insurance policy
("Product Liability Losses") shall be Direct Commercialization Costs. If CDS
incurs Product Liability Losses, Alimera shall reimburse CDS for [*] of the
Product Liability Losses within forty-five (45) days of receipt of a request for
reimbursement for such Product Liability Losses. If either Party incurs any
losses, costs, damages (including amounts paid in settlement of claims), fees
(including reasonable attorneys' fees) or expenses arising out of any Third
Party claim relating to injuries or death resulting from the use of any Product
developed or Commercialized pursuant to this Agreement, then to the extent such
losses, costs, damages, fees or expenses are attributable to the gross
negligence and/or willful misconduct of a Party, such Party shall bear [*] of
such losses, damages, fees or expenses.

                        ARTICLE 11 TERM AND TERMINATION

      11.1 Term. If not earlier terminated as provided in this Article 11, the
term of this Agreement (the "Term") shall commence on the Effective Date and
expire upon the later of (i) ten (10) years after the Effective Date, or (ii)
the expiration or abandonment of the last Valid Claim included in the CDS Patent
Rights, or (iii) as long as Alimera, any Affiliate of Alimera or any sublicensee
is selling a Product in any part of the Territory.

      11.2 Termination for Default by Either Party. Either Party may terminate
this Agreement (i) upon the occurrence of a breach of a material term of this
Agreement (other than a material breach described in clause (ii) below or in
Section 11.3, 11.4 or 11.5) if the breaching Party fails to remedy such breach
within thirty (30) days after notice thereof by the non-breaching Party or, with
respect to a breach (other than a failure to make a payment) that cannot be
cured within such period, then such longer period (up to 90 days) as may be
reasonably necessary, using Commercially Reasonable Efforts, to cure the breach,
or (ii) if the other Party files for protection under the bankruptcy laws, makes
an assignment for the benefit of creditors, appoints or suffers appointment of a
receiver or trustee over its property, files a petition under any bankruptcy or
insolvency act or has any such petition filed against it and such proceeding
remains undismissed or unstayed for a period of more than sixty days. Upon
termination, the non-breaching Party shall, subject to the dispute resolution
procedures set forth in Section 12.7, have the right, in its sole discretion, to
seek any other rights or remedies available to it at law or in equity.

      11.3 Termination for Non-Payment of Development Payment. Either Party (the
"Terminating Party") may terminate this Agreement upon the other Party's failure
to make a timely payment of all or a portion of any of its Development Payments,
or if the other Party has outstanding Compounded Development Payments and/or
Compounded Disputed Costs under

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                     -50-

<PAGE>
 Section 6.3 (the "Non-Terminating Party"); provided, however, that the
Terminating Party gives notice of termination to the Non-Terminating Party, and
the Non-Terminating Party fails to pay all such payments under this Agreement
within thirty (30) days of receiving such notice (provided that each Party has a
one-time right to use sixty (60) days to cure hereunder). The Terminating
Party's sole and exclusive remedy for the Non-Terminating Party's failure to
make any of its Development Payments, Compounded Development Payments and/or
Compounded Disputed Costs, shall be the following: (i) the Terminating Party may
terminate this Agreement under this Section 11.3, (ii) the amounts of Compounded
Development Payments plus Compounded Disputed Costs owed by each Party shall be
determined, as of the date of termination (provided that solely for purposes of
this Section 11.3, the amounts of Compounded Development Payments and Compounded
Disputed Costs shall be calculated as set forth in Sections 6.3.2 and 6.3.3
except that the words [*] shall be substituted in place of [*] in Sections 6.3.2
and 6.3.3) and the Party with the larger total amount of such costs shall pay
the other Party the difference between the paying Party's total amount of such
costs and the other Party's total amount of such costs (the "Termination
Amount"), provided that, from and after the date of termination, interest on any
unpaid Termination Amount shall accrue at [*] compounded annually, until the
full Termination Amount plus accrued interest has been paid; further provided
that the accrual of such interest or payment shall not preclude the Terminating
Party from seeking full payment of amounts owed under this Section 11.3, and
(iii) if (A) CDS is the Terminating Party, (B) Alimera has paid more than [*]
pursuant to Sections 6.1-6.3, and (C) CDS terminates this Agreement pursuant to
this Section 11.3 and thereafter directly or through an Affiliate or a Third
Party Commercializes any Product that was under development pursuant to the
Development Plan at the time of termination, then (x) CDS shall, after the CDS
Profitability Date, on a quarterly basis, pay Alimera [*] of CDS Net Income
realized by CDS that is attributable to such Product, until the aggregate amount
of such payments equals [*] of the total amount of Development Payments and
Determined Disputed Costs paid by Alimera pursuant to Sections 6.1-6.3
(provided, however, that such total amount of Development Payments and
Determined Disputed Costs paid by Alimera shall exclude (1) any amount Alimera
paid to CDS upon termination pursuant to this Section 11.3, and (2) any amount
Alimera paid to CDS solely due to the [*] multiplier and the [*] annual
compounding pursuant to Sections 6.3.2 and 6.3.3); further provided that in the
event that there are CDS Net Losses in any calendar quarter after the CDS
Profitability Date, any payment to Alimera shall be offset by such CDS Net
Losses, and (y) Alimera shall not, for as long as CDS makes, or is obligated to
make, payment to Alimera pursuant to the foregoing, Develop or Commercialize, or
license or otherwise assist an Affiliate or a Third Party to Develop or
Commercialize, any product that is Approved or designed to be Approved (1) to
treat DME or (2) to deliver a corticosteroid by injection, implantation or other
direct delivery method to the posterior portion of the eye. Solely for purposes
of the preceding sentence, the term "Develop" shall mean performance of human
clinical trials for a product.

      11.4 Termination for Failure to Approve an Initial Development Plan.
Either Party may terminate this Agreement in the event that an initial
Development Plan is not approved within 30 days after the Effective Date. If
either Party chooses to terminate this Agreement under this Section 11.4, such
termination shall be the sole and exclusive remedy for each Party for failure to
approve an initial Development Plan, provided that CDS shall repay to Alimera
[*] in accordance with the terms of the Secured Promissory Notes from CDS to
Alimera dated October 19, 2004, November 18, 2004 and December 22, 2004.

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                     -51-

<PAGE>

      11.5 Termination for Abandonment. For purposes of this Section 11.5,
"Abandonment" by a Party or to "Abandon" shall mean either (i) delivery of a
written election by a Party to abandon this Agreement with respect to a Product
or (ii) the event in which the aggregate amount of a Party's overdue Development
Payments and/or overdue Determined Disputed Costs exceeds [*] with respect to
such Product in the Territory, and the Non-Paying Party fails to pay all
Compounded Development Payments and Compounded Disputed Costs then owing related
to such Product in the Territory under this Agreement within thirty (30) days of
receiving written request of payment of such outstanding Compounded Development
Payments and Compounded Disputed Costs from the other Party. If a Party Abandons
a Product pursuant to this Section 11.5, then the other Party's sole remedy
shall be termination with respect to such Product pursuant to this Section 11.5.
Solely for purposes of this Section 11.5 (including 11.5.1 and 11.5.2), the term
"Product" shall have the meaning set forth in Section 1.77 except that in (E)
and (4) the words "in a particular country" shall be omitted, in the next to
last sentence the words "in each country" shall be omitted, and in the last
sentence example (ii) shall be omitted.

      11.5.1. Effect of Abandonment by CDS. In the event that CDS Abandons a
Product, Alimera shall terminate this Agreement with respect to that Product in
the Territory for Abandonment of that Product by CDS under this Section 11.5.
Upon such termination, Alimera shall choose one of the following two options:
(1) the Parties will enter into a license agreement under which CDS grants
Alimera an exclusive license under the CDS Technology to make, have made, use,
offer to sell, sell, and import such Product in the Collaboration Field, and, in
consideration of the grant of such license, CDS shall receive a royalty of [*]
of Net Sales of such Product in the Territory (after recovery by Alimera of all
Development Payments and Determined Disputed Costs owed by CDS to Alimera
pursuant to Sections 6.3.2 and 6.3.3 as pre-payments of royalty, without giving
effect to the [*] multiplier or the [*] annual compounding otherwise provided
for in Sections 6.3.2 and 6.3.3) and the license shall include those other terms
and conditions set forth on Exhibit 11.5.1, or (2) CDS shall pay to Alimera any
Compounded Development Payments or Compounded Disputed Costs that CDS owes
Alimera as of the date of termination, after deducting the amounts of any
outstanding Compounded Development and/or Compounded Disputed Costs that Alimera
owes CDS as of that date (the "CDS Abandonment Amount") (provided that solely
for purposes of this Section 11.5.1 and Section 11.5.2, the amounts of
Compounded Development Payments and Compounded Disputed Costs shall be
calculated as set forth in Sections 6.3.2 and 6.3.3 except that the words [*]
shall be substituted in place of [*] in Sections 6.3.2 and 6.3.3) further
provided that, from and after the date of termination, interest on any unpaid
CDS Abandonment Amount shall accrue at [*] (rather than at [*]), compounded
annually, until such costs have been paid. In the event that the Parties enter
into a license agreement pursuant to this Section 11.5.1(a), upon execution of
such license agreement and at Alimera's request: (a) any and all Confidential
Information and materials solely related to such Product provided by Alimera
pursuant to this Agreement shall be promptly returned by CDS to Alimera, (b) CDS
shall promptly deliver to Alimera copies of all Clinical IP owned or Controlled
by CDS and necessary or useful to the development or Commercialization of such
Product and CDS shall not use any such Clinical IP thereafter for any regulatory
applications or filings for such Product, provided that the foregoing shall not
prevent CDS from using such Clinical IP for other Products or from performing
preclinical and clinical studies or other research of any nature, including
research that reproduces data contained in the Clinical IP, or from using the
results of

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.
                                     -52-

<PAGE>

such research in regulatory applications or filings or for any other purpose,
(c) any regulatory filings for such Product which have been submitted in CDS'
name which have not been transferred to Alimera, subject to FDA approval, will
be transferred to Alimera's name, and (d) CDS will assign to Alimera all of its
right, title and interest in any trademark under which CDS shall solely have
marketed such Product or registered for use solely with such Product together
with the goodwill associated therewith. Termination of this Agreement with
respect to such Product and the options described this Section 11.5.1 with
respect to such Product shall be Alimera's sole and exclusive remedy for
Abandonment of such Product by CDS. In the event that, (x) Alimera chooses
option (2) upon termination with respect to a Product and CDS pays to Alimera
the amounts described therein, and (y) at the time of such termination, no
Product designed for treating DME is being developed pursuant to a Development
Plan or being Commercialized pursuant to the Commercialization Budget, then CDS
shall no longer be bound by Section 5.1.2(1), (2), (3) or (4) with respect to
that Product.

      11.5.2. Effect of Abandonment by Alimera. In the event that CDS terminates
this Agreement with respect to a Product in the Territory for Abandonment of
that Product by Alimera under this Section 11.5, the rights and licenses granted
to Alimera pursuant to Article 5 shall terminate with respect to that Product in
the Territory and the Parties shall negotiate in good faith a license agreement
under which Alimera shall grant to CDS a non-exclusive license to any Alimera
Know-How related to such Product. After termination with respect to such Product
as set forth in this Section 11.5 and at CDS' request: (a) any and all
Confidential Information and materials solely related to such Product provided
by CDS pursuant to this Agreement shall be promptly returned by Alimera to CDS,
(b) Alimera shall promptly deliver to CDS copies of all Clinical IP owned or
Controlled by Alimera and necessary or useful to the development or
Commercialization of such Product and Alimera shall not use any such Clinical IP
thereafter for any regulatory applications or filings for such Product, provided
that the foregoing shall not prevent Alimera from using such Clinical IP for
other Products or from performing preclinical and clinical studies or other
research of any nature, including research that reproduces data contained in the
Clinical IP, or from using the results of such research in regulatory
applications or filings or for any other purpose, (c) if Alimera has applied for
or obtained any Approvals in any country for the Product, then Alimera shall, to
the extent legally permissible, take all additional action reasonably necessary
to assign all of its right, title and interest in and transfer possession and
control to CDS of such applications or Approvals, (d) any regulatory filings for
the Product which have been submitted in Alimera's name, subject to FDA
approval, will be transferred to CDS' name, (e) Alimera will assign to CDS all
of its right, title and interest in any trademark under which Alimera shall
solely have marketed the Product or registered for use solely with such Product
together with the goodwill associated therewith, and (f) CDS shall no longer be
bound by Section 5.1.2(1), (2), (3) or (4) with respect to the Product Abandoned
by Alimera. Termination of this Agreement with respect to the Product shall be
CDS' sole and exclusive remedy for Abandonment of that product by Alimera,
except that Alimera shall promptly pay to CDS all Compounded Development
Payments and/or Compounded Disputed Costs that Alimera owes CDS as of the date
of termination, after deducting the amounts of any outstanding Compounded
Development and/or Compounded Disputed Costs that CDS owes Alimera as of that
date (the "Alimera Abandonment Amount"), provided that, from and after the date
of termination, interest on any unpaid Alimera Abandonment Amount shall accrue
at [*] (rather than at [*]), compounded annually, until such costs
have been paid; further

                                     -53-

[*]- Indicates material that has been omitted and for which confidential
treatment has been requested. All such information has been filed with the
Commission pursuant to Rule 24b-2 promulgated under the Securities and Exchange
Act of 1934, as amended.

<PAGE>

provided that the accrual of such interest or payment shall not preclude CDS
from seeking full payment of amounts owed under this Section 11.5.2.

            11.6 Effect of Expiration or Termination of the Agreement. Except as
expressly provided herein, the expiration or termination of this Agreement shall
not relieve the Parties of any obligation accruing prior to such expiration or
termination and all rights and licenses granted under this Agreement shall be
terminated. In the event of termination of this Agreement pursuant to Section
11.2, (a) any and all Confidential Information and materials provided by the
non-breaching Party to the breaching Party pursuant to this Agreement shall be
promptly returned by the breaching Party to the non-breaching Party, and (b) the
breaching Party shall not use any Clinical IP arising from the activities
conducted under this Agreement at any time thereafter; provided that the
foregoing shall not prevent the breaching Party from performing preclinical and
clinical studies or other research of any nature, including research that
reproduces data contained in the Clinical IP, or from using the results of such
research in regulatory applications or filings or for any other purpose.

            11.7 Survival of Provisions Upon Expiration or Termination. The
provisions of Articles 8, 10 and 11, and Sections 5.2 (in the event of
termination of this Agreement by CDS under Section 11.5.2), 5.4, 5.5, 5.6, 5.9,
9.3, 9.4, 11.5.1 (in the event of termination of this Agreement by Alimera under
Section 11.5), 11.5.2 (in the event of termination of this Agreement by CDS
under Section 11.5), 11.6, 12.5, 12.6 and 12.7 shall survive the expiration or
termination of this Agreement for any reason.

                            ARTICLE 12 MISCELLANEOUS

      12.1 Interpretation.

            (a) If an ambiguity or a question of intent or interpretation arises
with respect to this Agreement, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any provisions
of this Agreement.

            (b) Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase "but not
limited to." The word "will" shall be construed to have the same meaning and
effect as the word "shall." Unless the context requires otherwise, (A) any
definition of or reference to any agreement, instrument or other document herein
shall be construed as referring to such agreement, instrument or other document
as from time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein
or therein), (B) any reference to any laws herein shall be construed as
referring to such laws as from time to time enacted, repealed or amended, (C)
any reference herein to any Person shall be construed to include the Person's
permitted successors and assigns, (D) the words "herein", "hereof and
"hereunder", and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof unless
specifically stated, (E) any reference herein to the words "mutually agree" or
"mutual written agreement" shall not impose any obligation on either Party to
agree to any terms relating thereto or to engage in discussions relating to such
terms except as

                                     -54-

<PAGE>

such Party may determine in such Party's sole discretion and
unless otherwise stated; and (F) all references herein to Articles, Sections or
Schedules shall be construed to refer to Articles, Sections and Schedules of
this Agreement unless otherwise noted.

      12.2 Assignment. This Agreement may not be assigned or otherwise
transferred by either Party without the consent of the other Party; provided,
however, that either Party may, without such consent, assign its rights and
obligations under this Agreement in connection with a Change of Control of such
Party; provided, however, that such Party's rights and obligations under this
Agreement shall be assumed by its successor in interest in any such transaction.
Any purported assignment in violation of the preceding sentence shall be void.
Any permitted assignee shall assume all obligations of its assignor under this
Agreement.

      12.3 Severability. Each Party hereby agrees that it does not intend to
violate any public policy, statutory or common laws, rules, regulations, treaty
or decision of any government agency or executive body thereof of any country or
community or association of countries. Should one or more provisions of this
Agreement be or become invalid, the Parties hereto shall substitute, by mutual
consent, valid provisions for such invalid provisions which valid provisions in
their economic effect are sufficiently similar to the invalid provisions that it
can be reasonably assumed that the Parties would have entered into this
Agreement with such valid provisions. In case such valid provisions cannot be
agreed upon, the invalidity of one or several provisions of this Agreement shall
not affect the validity of this Agreement as a whole, unless the invalid
provisions are of such essential importance to this Agreement that it is to be
reasonably assumed that the Parties would not have entered into this Agreement
without the invalid provisions.

      12.4 Notices. Any consent, notice or report required or permitted to be
given or made under this Agreement by one of the Parties hereto to the other
shall be in writing, delivered personally or by facsimile (and promptly
confirmed by personal delivery or courier) or courier, postage prepaid (where
applicable), addressed to such other Party at its address indicated below, or to
such other address as the addressee shall have last furnished in writing to the
addressor and shall be effective upon receipt by the addressee.

            If to CDS:           Control Delivery Systems, Inc.
                                 400 Pleasant Street
                                 Watertown, MA 02472
                                 Attention:  President
                                 Fax:  (617)-926-5050

            With a copy to:      Control Delivery Systems, Inc.
                                 400 Pleasant Street
                                 Watertown, MA 02472
                                 Attention:  General Counsel
                                 Fax: (617) 926-5050

            With a copy to:      Ropes & Gray LLP
                                 One International Place
                                 Boston, MA  02110
                                 Attention: Susan Galli, Esq.

                                     -55-

<PAGE>

                                 Fax: (617) 951-7050

            If to Alimera:       Alimera Sciences, Inc.
                                 6120 Windward Parkway, Suite 290
                                 Alpharetta, GA 30005
                                 Attention: President
                                 Fax: (678) 990-5744

            With a copy to:      Hutchison & Mason PLLC
                                 3110 Edwards Mill Road, Suite 100
                                 Raleigh, NC 26712
                                 Attention:  William N. Wofford
                                 Fax: (919) 829-9696

      12.5 Governing Law and Venue. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of New York,
without regard to any choice of law principle that would dictate the application
of the laws of another jurisdiction. Any suit brought by Alimera arising under
or relating to this Agreement shall be brought in a court of competent
jurisdiction in the Commonwealth of Massachusetts, and Alimera hereby consents
to the jurisdiction of the state and federal courts sitting in the Commonwealth
of Massachusetts. Any suit brought by CDS arising under or relating to this
Agreement shall be brought in a court of competent jurisdiction in the state of
Georgia, and CDS hereby consents to the jurisdiction of the state and federal
courts sitting in the state of Georgia. Each Party agrees not to raise any
objection at any time to the laying or maintaining of the venue of any such
action, suit or proceeding in any of the specified courts, irrevocably waives
any claim that such action, suit or other proceeding has been brought in any
inconvenient forum and further irrevocably waives the right to object, with
respect to such action, suit or other proceeding, that such court does not have
any jurisdiction over such Party.

      12.6 Compliance with Applicable Laws. The Parties shall use their best
efforts to comply with all provisions of any applicable laws, regulations, rules
and orders relating to the license granted and to the testing, production,
transportation, export, packaging, labeling, sale or use of Products. The
Parties shall use their best efforts to obtain written assurances regarding
export and re-export of technical data (including Products made by use of
technical data) as may be required by the Office of Export Administration
Regulations. Notwithstanding any other provision of this Agreement, each Party
(and each Affiliate and agent of the Party) may disclose the tax treatment and
tax structure of the transaction and all materials of any kind (including, but
not limited to, opinions and other tax analyses) that are provided to the Party
relating to such tax treatment and tax structure as contemplated by section
1.6011-4(b)(3)(iii) of the Code of Federal Regulations.

      12.7 Dispute Resolution. Any disputes, other than disputes regarding the
construction, validity or enforcement of patents (which disputes shall be
resolved by Section 12.5), arising between the Parties relating to, arising out
of or in any way connected with this Agreement or any term or condition hereof,
or the performance by either Party of its obligations hereunder, whether before
or after termination of this Agreement, shall be resolved as follows:

                                     -56-

<PAGE>

            12.7.1. Senior Management. If the dispute cannot be resolved by the
Primary Contact Persons in accordance with Section 3.4 hereof or then in
accordance with Section 2.4, the Primary Contact Persons shall promptly notify
the chief executive officer of each Party (or their designee), who shall meet in
person at a mutually acceptable time and location or by means of telephone or
video conference within sixty (60) days of such notice and attempt to negotiate
a settlement.

            12.7.2. Arbitration. If the chief executive officers are not able to
resolve the dispute within thirty (30) days of their first meeting or within
such extended period as they agree upon, either Party may submit the matter to
binding arbitration in accordance with this Section 12.7.2. Except as specified
below, the arbitration shall be conducted in accordance with the rules of, and
under the auspices of, the American Arbitration Association (the "AAA"). The
arbitration will be conducted by a single arbitrator with relevant technical
expertise who is jointly selected by the Parties or, if the Parties cannot
mutually agree, is selected by the AAA administrator and is not employed by and
does not have a material financial relationship with, a Party or any of its
Affiliates. If Alimera is the claimant, the location of the arbitration shall be
in the Boston, Massachusetts and if CDS is the claimant, the location of the
arbitration shall be in Atlanta, Georgia. This Agreement shall remain in effect
pending completion of the proceedings brought under this Section 12.7.2. Within
ten (10) Business Days after the arbitrator is selected, each Party shall submit
to the arbitrator that Party's proposed resolution of the dispute and
justification therefor. All arbitration proceedings must be completed within 30
days after the arbitration is convened. The Parties hereby agree that the
arbitrator has authority to issue rulings and orders regarding all procedural
and evidentiary matters that the arbitrator deems reasonable and necessary with
or without petition therefor by the Parties as well as the final ruling and
judgment. Rulings shall be issued by written order summarizing the arbitration
proceedings. Any judgment or award by the arbitrator in any dispute shall have
the same force and effect as the final judgment of a court of competent
jurisdiction. Nothing in this arbitration clause shall prevent either Party from
seeking a pre-award attachment of assets or preliminary relief to enforce its
rights in intellectual property or confidentiality obligations under this
Agreement, or to enjoin any event that might cause irreparable injury, in a
court of competent jurisdiction prior to an award on the merits by the
arbitrator.

      12.8 Use of Name/Publicity. Except as otherwise expressly permitted under
this Agreement, neither Party shall (i) use the name of the other in any press
releases, public announcements or other publicity or advertising materials, or
(ii) disclose the existence or terms of this Agreement, in each case, without
written approval of the other Party. The Parties agree that a public
announcement of the execution of this Agreement shall be made in the form of a
mutually acceptable press release within ten Business Days after the Effective
Date. Thereafter, each Party, with the prior written consent from the other
Party, shall have the right to publicly announce the achievement of any event
relating to Product deemed newsworthy by such Party and to publish results of
clinical trials and other publications relating to the Products, provided that
no such publications by one Party shall include Confidential Information of the
other Party.

      12.9 Entire Agreement. This Agreement, together with the Exhibits hereto,
contains the entire understanding of the Parties with respect to the subject
matter hereof. All express or implied agreements and understandings, either oral
or written, heretofore made are expressly merged in and made a part of this
Agreement. In the event of any conflict or inconsistency

                                     -57-

<PAGE>

between any provision of any Exhibits hereto and any provision of this
Agreement, the provisions of this Agreement shall prevail. This Agreement may be
amended, or any term hereof modified, only by a written instrument duly executed
by both Parties hereto. The Confidentiality Agreement between Alimera and CDS
with an effective date of August 17, 2004 remains effective until the Effective
Date of this Agreement, whereupon the provisions of such agreement shall survive
to the extent set forth in that agreement.

      12.10 Headings. The captions to the several Articles and Sections hereof
and Exhibits hereto are not a part of this Agreement, but are merely guides or
labels to assist in locating and reading the several Articles and Sections
hereof.

      12.11 Independent Contractors. It is expressly agreed that CDS and Alimera
shall be independent contractors and that the relationship between the two
Parties shall not constitute a partnership, joint venture or agency. Neither CDS
nor Alimera shall have the authority to make any statements, representations or
commitments of any kind, or to take any action, which shall be binding on the
other, without the prior consent of the other Party to do so.

      12.12 Waiver. The waiver by either Party hereto of any right hereunder or
the failure to perform or of a breach by the other Party shall not be deemed a
waiver of any other right hereunder or of any other breach or failure by said
other Party whether of a similar nature or otherwise.

      12.13 Counterparts. This Agreement may be executed by facsimile and/or in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

[signature page to follow]

                                     -58-

<PAGE>

IN WITNESS WHEREOF, the Parties have executed this Collaboration Agreement as of
the date first set forth above.

CONTROL DELIVERY SYSTEMS, INC.            ALIMERA SCIENCE, INC.

By:    /s/ Paul Ashton                    By:    /s/ Dan Myers
       ------------------------------            -------------------------------

Name:  Paul Ashton                        Name:  Dan Myers
       ------------------------------            -------------------------------

Title: CEO                                Title: President, CEO
       ------------------------------            -------------------------------


                                     -59-
<PAGE>

                                    EXHIBITS
<TABLE>
<S>                 <C>
EXHIBIT 1.11A:      CDS EXISTING PATENT RIGHTS

EXHIBIT 1.11B:      EXCLUDED CDS PATENTS AND PATENT APPLICATIONS

EXHIBIT 1.15:       CDS PATENT COST-SHARING COUNTRIES

EXHIBIT 1.42:       EXCLUDED PRODUCT SPECIFICATIONS/DRAWINGS

EXHIBIT 1.87:       UKRF LICENSES

EXHIBIT 3.2:        INITIAL DEVELOPMENT PLAN

EXHIBIT 5.8.3:      TERMS FOR OPTION LICENSE AGREEMENT

EXHIBIT 11.5.1      TERMS FOR THE [*] LICENSE AGREEMENT
</TABLE>

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                      -60-
<PAGE>

                                  EXHIBIT 1.11A

                           CDS EXISTING PATENT RIGHTS

[*]

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                      -61-
<PAGE>
                                 EXHIBIT 1.11B
                           EXCLUDED CDS PATENT RIGHTS

[*]

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

                                      -69-
<PAGE>

                                  EXHIBIT 1.42


                    EXCLUDED PRODUCT SPECIFICATIONS/DRAWINGS

                                    FIGURE 1

                                      [*]


                                    FIGURE 2

                                      [*]



[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.
<PAGE>

                                  EXHIBIT 1.87

                                  UKRF LICENSES

<TABLE>
<S>   <C>
A.    License Agreement dated October 20, 1991, as amended August 10, 1993,
      relating to U.S. Patent No. 5,378,475 (Application No. 07/658,695)

B.    License Agreement dated September 9, 1997 relating to U.S. Patent Nos.
      5,773,109 and 6,001,386 (Application No. 08/534,854)
</TABLE>

<PAGE>

                                   EXHIBIT 3.2

                            INITIAL DEVELOPMENT PLAN

[*]

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

<PAGE>

                                  EXHIBIT 5.8.3

                       TERMS FOR OPTION LICENSE AGREEMENT

<TABLE>
<S>                   <C>
                      Any terms not defined herein shall have those definitions set forth in the
                      Collaboration Agreement

LICENSE               Alimera shall have a non-exclusive license under the CDS Technology (as in
                      existence on the Option License Effective Date (as defined below), with the right
                      to sublicense, to make, have made, use, import, sell, and offer for sale the Option
                      Product in the Collaboration Field in the Territory.  During the term of this
                      option license, CDS shall not (a) grant a license to any Affiliate or Third Party
                      under CDS' interest in the CDS Technology to make, have made, use, offer to sell,
                      sell, or import such Option Product in the Collaboration Field in the Territory,
                      and (b) itself use the CDS Technology to make, have made, use, offer to sell, sell,
                      or import such Option Product in the Collaboration Field in the Territory.

                      Alimera shall have an exclusive royalty-free license to use the "MEDIDUR"
                      mark Controlled by CDS on or in connection with the Option Product marketed,
                      distributed or sold pursuant to this license.

ROYALTIES             During the option license term, Alimera shall pay to CDS on a quarterly basis
                      a royalty of [*] of Net Sales by Alimera or its Affiliates.

DILIGENCE             As provided in Section 4.3 of the Collaboration Agreement.

SUBLICENSES           Alimera shall have full rights to sublicense without
                      consent, provided that such sublicense shall be consistent
                      with the term of the option license. [*]

OWNERSHIP OF AND      As provided in Section 5.4 of the Collaboration Agreement.
RIGHTS TO
INVENTIONS

LIMITATION ON USE,    As provided in Section 5.5, 5.6 and 5.7 of the Collaboration Agreement.
RESERVATION OF
RIGHTS BY CDS, AND
NO GRANT OF OTHER
TECHNOLOGY OR
PATENT RIGHTS
</TABLE>


[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

<PAGE>
<TABLE>
<S>                   <C>
PATENT                As provided for in Article 7 of the Collaboration Agreement. Neither Party is
MAINTENANCE AND       obligated to pay for patent costs or enforcement costs under this license as
ENFORCEMENT           long as either the Collaboration Agreement or the [*] license pursuant to Section
                      11.5.1 of the Collaboration Agreement is in effect. If neither the Collaboration
                      Agreement nor the [*] license pursuant to Section 11.5.1 of the Collaboration
                      Agreement is in effect, then CDS shall have the primary control in filing, prosecution,
                      maintenance and enforcement of CDS Patent Rights. The Parties [*] patent
                      costs. Any amounts recovered as a result of any infringement action taken by the
                      Parties hereunder shall be first applied, on a pro-rata basis, to reimburse each
                      Party for its out-of-pocket expenses incurred in connection with such action and
                      the remainder, if any, shall be divided appropriately [*].

REGULATORY            All regulatory filings and/or Approvals related to the Option Product that are
                      subject of this license will be immediately transferred to Alimera and Alimera shall
                      own all such filings and Approvals.

PATENT MARKING        As provided in Section 7.7 of the Collaboration Agreement.

INDEMNITY             As provided for in Article 10, except that CDS shall not be responsible for product
                      liability claims as described in Section 10.5 arising based on acts or omissions
                      after the Option License Effective Date except to the extent the claims are
                      attributable to CDS' gross negligence or willful misconduct.

REPORTS               Alimera will provide to CDS a quarterly written account of the Net Sales of Option
                      Products together with any relevant sublicense revenues and royalty payments.

TERM; TERMINATION     Commences upon Alimera's exercise of its rights pursuant to Section
                      5.8.3 under the Collaboration Agreement (the "Option License Effective Date") and
                      expires upon the expiration or abandonment of the last Valid Claim included in the
                      relevant CDS Patent Rights.

                      Alimera may terminate the license at any time by giving CDS ninety (90) days written
                      notice. CDS may terminate the license if Alimera: (a) fails to make any payment due
                      under the license, unless Alimera makes such payments within sixty (60) days after
                      receipt of written notice from CDS, or (b) commits a material breach of any other
                      provision of the license, and such breach is not cured within ninety (90) days after
                      receipt of written notice from CDS.
</TABLE>

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.
<PAGE>
<TABLE>
<S>                   <C>
REPRESENTATIONS       As provided in Article 9 of the Collaboration Agreement.
AND WARRANTIES

CONFIDENTIALITY       As provided in Article 8 and Sections 12.1-12.8 and 12.10-12.13 of
AND MISCELLANEOUS     the Collaboration Agreement.
</TABLE>

<PAGE>

                                 EXHIBIT 11.5.1

                       TERMS FOR THE [*] LICENSE AGREEMENT

<TABLE>
<S>                   <C>
                      Any terms not defined herein shall have those definitions set forth in the
                      Collaboration Agreement

LICENSE               Alimera shall have a non-exclusive license under the CDS Technology (as in
                      existence on the License Effective Date (as defined below), with the right to
                      sublicense, to make, have made, use, import, sell, and offer for sale the Product
                      that CDS has abandoned pursuant to Section 11.5.1 of the Collaboration Agreement in
                      the Collaboration Field in the Territory.  During the term of the license, CDS
                      shall not (a) grant a license to any Affiliate or Third Party under CDS' interest
                      in the CDS Technology to make, have made, use, offer to sell, sell, or import such
                      Product in the Collaboration Field in the Territory, and (b) itself use the CDS
                      Technology to make, have made, use, offer to sell, sell, or import such Product in
                      the Collaboration Field in the Territory.

                      Alimera shall have an exclusive royalty-free license to use the "MEDIDUR"
                      mark Controlled by CDS on or in connection with any Products marketed, distributed or
                      sold pursuant to this license.

ROYALTIES             During the license term, Alimera shall pay to CDS on a quarterly basis a royalty of
                      [*] of Net Sales by Alimera or its Affiliates.

DILIGENCE             As provided in Section 4.3 of the Collaboration Agreement.

SUBLICENSES           and subcontracts Alimera shall have full rights to sublicense without consent,
                      provided that such sublicense shall be consistent with the term of this license.
                      [*]

CLINICAL IP/KNOW-     CDS shall have transferred, or shall transfer, to Alimera copies of all
HOW                   pre-clinical and clinical data that (1) relate to the Product that is the subject
                      of this license, and (2) are owned or Controlled by CDS as of the License Effective
                      Date.  Alimera shall have the exclusive right to use such preclinical and clinical
                      data to make, have made, use, import, sell, and offer for sale such Product in the
                      Field in the Territory.

OWNERSHIP OF AND      As provided in Section 5.4 of the Collaboration Agreement.
RIGHTS TO
INVENTIONS

PATENT                As provided for in Article 7 of the Collaboration Agreement.  Neither Party is
MAINTENANCE AND       obligated to pay for patent costs or enforcement costs under

</TABLE>

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.
<PAGE>
<TABLE>
<S>                   <C>
ENFORCEMENT           this license as long as the Collaboration Agreement is in effect.  Thereafter, CDS shall have the
                      primary control in filing, prosecution, maintenance and enforcement of CDS Patent
                      Rights.  The Parties shall [*] patent costs.  Any amounts recovered as a
                      result of any infringement action taken by the Parties hereunder shall be first
                      applied, on a pro-rata basis, to reimburse each Party for its out-of-pocket
                      expenses incurred in connection with such action and the remainder, if any, shall
                      be divided appropriately between the Parties [*].

PATENT MARKING        As provided in Section 7.7 of the Collaboration Agreement.

REGULATORY            Subject to applicable legal and regulatory requirements, all regulatory filings and/or
                      Approvals related to the Product that is the subject of this license will be
                      promptly transferred to Alimera and Alimera shall own all such filings and Approvals.

INDEMNITY             As provided for in Article 10, except that CDS shall not be responsible for product
                      liability claims as described in Section 10.5 arising based on acts or omissions
                      after the License Effective Date except to the extent the claims are attributable to
                      CDS' gross negligence or willful misconduct.

REPORTS               Alimera will provide to CDS a quarterly written account of the Net Sales of the
                      Products, together with any relevant sublicense revenues and royalty payments.

TERM; TERMINATION     Commences upon Alimera's exercise of its rights pursuant to Section
                      11.5.1 under the Collaboration Agreement (the "License Effective Date") and expires
                      upon the expiration or abandonment of the last Valid Claim included in the relevant
                      CDS Patent Rights.

                      Alimera may terminate the license at any time by giving CDS ninety (90) days written
                      notice. CDS may terminate the license if Alimera: (a) fails to make any payment due
                      under the license, unless Alimera makes such payments within sixty (60) days after
                      receipt of written notice from CDS, or (b) commits a material breach of any other
                      provision of the license, and such breach is not cured within ninety (90) days after
                      receipt of written notice from CDS.

REPRESENTATIONS       As provided in Article 9 of the Collaboration Agreement.
AND WARRANTIES

CONFIDENTIALITY       As provided in Article 8 and Sections 12.1-12.8 and 12.10-12.13 of
AND                   the Collaboration Agreement.
MISCELLANEOUS
</TABLE>

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

<PAGE>

                               AMENDMENT NO. 1 TO

                             COLLABORATION AGREEMENT

                                 BY AND BETWEEN

                         CONTROL DELIVERY SYSTEMS, INC.

                                       AND

                             ALIMERA SCIENCES, INC.

This Amendment No. 1 to the Collaboration Agreement by and between Control
Delivery Systems, Inc. and Alimera Sciences, Inc. dated as of February 11, 2005
(the "Agreement") is made as of February 23, 2005, and modifies certain terms of
the Agreement.

The undersigned Parties hereby agree as follows:

      1.    The fourth sentence of Section 3.2.4 (a) (i) of the Agreement is
            amended to read as follows:

                  As soon as practicable, CDS shall submit to the FDA a letter
                  in form and substance satisfactory to both Parties authorizing
                  a person designated by Alimera and reasonably acceptable to
                  CDS (initially [*]) to communicate directly with
                  the FDA regarding the CDS IND.

      2.    Section 6.2 of the Agreement is amended to read as follows:

       6.2 Milestone Payments. Alimera shall make an additional payment of
$750,000 to CDS ("Milestone Payment"), which shall be  disbursed as follows:

            (a)   [*] upon [*]

            (b)   [*] upon [*]

            (c)   [*] when [*]

            (d)   [*] upon [*] and

            (e)   [*] and any unpaid amounts from (a) through (d) above
                  upon the [*]

      3.    Except as otherwise set forth in this Amendment No. 1, the terms of
the Agreement shall remain in full force and effect.

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.
<PAGE>

IN WITNESS WHEREOF, the parties have caused this instrument to be executed by
their duly authorized representatives.

CONTROL DELIVERY SYSTEMS, INC.              ALIMERA SCIENCES, INC.

By: /s/ Paul Ashton                         By: /s/ Dan Myers
   ----------------------------                -----------------------------
Name: Paul Ashton                           Name: Dan Myers
     --------------------------                  ---------------------------
Title: Chief Executive Officer              Title: President, CEO
      -------------------------                   --------------------------


<PAGE>

                               AMENDMENT NO. 2 TO

                             COLLABORATION AGREEMENT

                                 BY AND BETWEEN

                         CONTROL DELIVERY SYSTEMS, INC.

                                       AND

                             ALIMERA SCIENCES, INC.

This Amendment No. 2 to the Collaboration Agreement by and between Control
Delivery Systems, Inc. and Alimera Sciences, Inc. dated as of February 11, 2005
and amended on February 23, 2005 (the "Agreement") is made as of May 11, 2005,
and modifies certain terms of the Agreement.

The undersigned Parties hereby agree as follows:

      1. Section 3.2.3 of the Agreement is hereby deleted in its entirety and
the following is substituted in place thereof:

            3.2.3. Allocation of Responsibility for Development Activities. The
Parties acknowledge and agree that each Development Plan shall allocate primary
responsibility for the various activities (and any related or ancillary
activities) listed below to be performed by the responsible Party as follows:

<TABLE>
<CAPTION>
                  Activity                                                             Responsible Party
------------------------------------------------------------------------               -----------------
<S>                                                                                    <C>
A.      Preclinical research and development, including Product
        design,formulation, preclinical safety studies and in                          CDS
        vivo pharmacology studies

B.      Technology transfer as described in Section 3.11                               CDS

C.      Phase I, Phase I/II, Phase II and Phase III Clinical Trials, as
        needed to procure data necessary for the acceptance of filing of
        an NDA                                                                         Alimera

D.      Preparation, filing and maintenance of regulatory filings                      Alimera

E.      Manufacturing for Clinical Supply Requirements                                 CDS

F.      Filing, prosecution and maintenance of CDS Patent Rights
        (subject to Alimera's rights in Article 7)                                     CDS
</TABLE>

For clarification, commercial manufacturing is Commercialization for which
Alimera has primary responsibility as set forth in greater detail in Article 4.

<PAGE>

      2. Section 3.2.4 (a) of the Agreement is hereby deleted in its entirety
and the following is substituted in place thereof:

            3.2.4 Regulatory Approvals.

            (a) Regulatory Filings. Unless otherwise agreed by the Parties,
Alimera shall be responsible for all U.S. and non-U.S. regulatory matters,
including filing an IND and NDA for the first Product, provided that no
regulatory filings by Alimera shall include any Pre-Existing Clinical IP.
Alimera shall be responsible for obtaining Approvals and for subsequent
maintenance of Approvals. For all regulatory filings made in the name of
Alimera, Alimera shall have the primary authority and responsibility, with input
from CDS, for submitting supplements, communications, annual reports, adverse
event reports, manufacturing changes, supplier designations and other related
filings, and for communicating with FDA. The Party responsible for submitting
regulatory filings (the "Regulatory Submission Party") shall provide the other
Party (the "Regulatory Non-Submission Party") with copies of all substantive
submissions to (which may be in draft form), and all correspondences from, the
FDA or other regulatory authorities. The Regulatory Non-Submission Party may
provide comments regarding such submission prior to such planned submission, and
the Regulatory Submission Party shall consider in good faith incorporating into
the planned submission any such comments. The Regulatory Non-Submission Party
shall supply Know-How necessary to obtain Approvals for each Product.

      3. Section 6.2 of the Agreement is hereby deleted in its entirety and the
following is substituted in place thereof:

      6.2 Milestone Payments. Alimera shall make an additional payment of
[*] to CDS ("Milestone Payment"), which shall be disbursed as follows:

            (a)   [*] upon [*]

            (b)   [*] upon execution of this Amendment No. 2; and

            (c)   [*] when a [*]

      4. Except as otherwise set forth in this Amendment No. 2, the terms of the
Agreement shall remain in full force and effect.

IN WITNESS WHEREOF, the parties have caused this instrument to be executed by
their duly authorized representatives.

CONTROL DELIVERY SYSTEMS, INC.              ALIMERA SCIENCES, INC.

    /s/ Michael J. Soja                         /s/ Daniel H. White
By:____________________________             By:_____________________________

      Michael J. Soja                             Daniel H. White
Name:__________________________             Name:___________________________

                                                   VP Finance and Corporate
       VP Finance                                  Development
Title:_________________________             Title:__________________________

[*]-INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.19
<SEQUENCE>5
<FILENAME>y16393exv4w19.txt
<DESCRIPTION>EX-4.19: COMMERCIAL SUBLEASE
<TEXT>
<PAGE>
                                                                    EXHIBIT 4.19

                               COMMERCIAL SUBLEASE

      THIS COMMERCIAL SUBLEASE (the "Sublease") is made this 6th day of April,
2005 (the "Commencement Date"), by and between Exergen Corporation, a
Massachusetts corporation having an address at 400 Pleasant Street, Watertown,
Massachusetts (the "Landlord"), and Control Delivery Systems, Inc., a Delaware
corporation, having its principal place of business at 400 Pleasant Street,
Watertown, Massachusetts (the "Subtenant").

                                   WITNESSETH:

      WHEREAS, by Commercial Building Lease dated as of the date hereof between
FHP, LLC, a Massachusetts limited liability company, as lessor (the
"Overlandlord"), and Landlord as lessee thereunder (the "Original Sublease"),
Overlandlord leased to Landlord the premises, together with the right to use all
sidewalks, parking areas, easements, rights of way and other means of access to
and from public ways and adjoining properties, being the entire premises now
known and numbered as 396-400 Pleasant Street, Watertown, Massachusetts (the
"Property"); and

      WHEREAS, Subtenant desires to sublease from Landlord and Landlord desires
to sublease to Subtenant, a portion of the Premises as shown on Exhibit A
attached hereto and described below on the terms and conditions set forth
herein.

      NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:

                                    ARTICLE I

                                     DEMISE

      Section 1. Landlord hereby leases the space shown on Exhibit A attached
hereto consisting of 13,411 square feet exclusive use space (the "Subleased
Premises"), together with the right to use in common with others entitled
thereto the approximately 1,038 square feet of common area space shown on
Exhibit A (the "Common Area") and other common walkways, hallways, driveways and
similar areas necessary for access to the Subleased Premises, situated in or
about the building (the "Building") located at the Property to Subtenant and
Subtenant hereby leases and takes the Subleased Premises from Landlord upon the
terms, provisions and conditions in this Sublease contained, and subject to any
easements, restrictions and conditions of record and all laws and ordinances
applicable to the Subleased Premises.

      Section 2. Subtenant acknowledges that Subtenant owned and occupied the
Building prior to the sale of the Building to Landlord by Subtenant on the date
hereof. As a result, Subtenant is thoroughly familiar with the condition of the
Building and agrees that it is leasing the Subleased Premises "as is" with no
representations or warranties by Landlord, including,

                                        1

<PAGE>

without limitation, any representations or warranties as to habitability or
fitness for a particular purpose.

                                   ARTICLE II

                                      TERM

      Section 1. The term of this Sublease shall commence on the Commencement
Date and shall continue for a period of eighteen (18) months, unless sooner
terminated or extended as herein provided (the "Term").

      Section 2. Landlord and Subtenant each shall have an option to extend the
Term for eighteen (18) months (the "Extension Period"), provided that the party
seeking to exercise such option shall not be in default under any of the
material terms of this Sublease at the time of the exercise. If either Landlord
or Subtenant elects to exercise this option, it shall do so by giving written
notice of such election to the other no later than six (6) months prior to the
end of the original Term. The Extension Period shall be upon the same terms and
conditions of this Sublease, except that during the Extension Period, Subtenant
shall pay Annual Base Rent equal to $23.00 per square foot for the Subleased
Premises and for Subtenant's Proportionate Share (as defined in Article III,
Section 3 below) of the Common Area.

                                   ARTICLE III

                                      RENT

      Section 1. Subtenant shall pay without demand, setoff or deduction as rent
at such place as Landlord from time to time may direct, annual base rent (the
"Annual Base Rent") equal to $22.00 per square foot for the Subleased Premises
and for Subtenant's Proportionate Share (as defined in Article III, Section 3
below) of the Common Area. As of the Commencement Date, the Subleased Premises
constitute 13,411 square feet and Subtenant's Proportionate Share of the Common
Area constitutes 386 square feet. Therefore, Subtenant shall pay as Annual Base
Rent the amount of Three Hundred Three Thousand Five Hundred Thirty Four Dollars
($303,534) in equal monthly installments of Twenty Five Thousand Two Hundred
Ninety Four Dollars ($25,294) on the first day of each calendar month; provided,
however, that the first calendar month's rent shall be paid on the Commencement
Date. If the Commencement Date falls on other than the first day of a calendar
month or if the Term ends on other than the last day of a calendar month, the
Annual Base Rent shall be prorated for the month in which the Term commences or
ends, as the case may be.

      Section 2. During the Term, in addition to Annual Base Rent, Subtenant
agrees to pay to Landlord, as additional rent (the "Additional Rent"),
Subtenant's Proportionate Share (as defined in Article III, Section 3 below) of
all Taxes (as defined in Article III, Section 4 below) and Operating Expenses
(as defined in Article III, Section 5 below) that accrue during the Term and
Subtenant's portion of Shared Utilities (as described in Article V, Sections 2
and 3 below) that accrue during the Term. On the Commencement Date and thirty
(30) days prior to the beginning


                                       2
<PAGE>

of each calendar year during the Term (including, if applicable, the Extension
Period), Landlord shall submit an estimate of the Additional Rent for the
ensuing calendar year and Subtenant shall pay Landlord such estimated amount of
Additional Rent in monthly installments on the first day of each calendar month
during the Term. At the end of each calendar year during the Term (including, if
applicable, the Extension Period) and at the termination of the Sublease, as
soon as Landlord can determine the actual amount of Additional Rent owed by
Subtenant for the preceding year (or, if applicable, portion thereof), Landlord
shall give Subtenant written notice of such amount (the "Additional Rent
Statement"). The Additional Rent Statement shall include an itemized statement
showing in reasonable detail the actual Taxes, Operating Expenses, and Shared
Utilities for the relevant period broken down by component expenses. Upon
request by Subtenant, Landlord also shall provide appropriate supporting
documentation.

If the actual amount of Additional Rent owed by Subtenant exceeds the estimated
amount paid by Subtenant, Subtenant shall pay such excess to Landlord within ten
(10) days of receipt by Subtenant of the Additional Rent Statement or the end of
the Dispute Period (as defined below). If the estimated amount of Additional
Rent paid by Subtenant exceeded the actual amount owed by Subtenant, Landlord
shall pay such excess to Subtenant within ten (10) days of receipt by Subtenant
of the Additional Rent Statement.

If Subtenant disputes the accuracy of the Additional Rent Statement, Subtenant
shall have thirty (30) days after receiving the Additional Rent Statement, or
such longer time as may be necessary, to audit Landlord's books and records
concerning the Additional Rent Statement at a mutually convenient time at
Landlord's offices. The books and records shall be kept in accord with generally
accepted accounting principles consistently applied. If the parties cannot
resolve the dispute within thirty (30) days after completion of the audit (the
"Dispute Period"), Subtenant shall still pay the amount shown owing within ten
(10) days of the end of the Dispute Period and Subtenant, in its sole
discretion, may commence alternative dispute resolution procedures or submit the
matter to a court of competent jurisdiction. Any such audit shall be conducted
at Subtenant's sole cost and expense. If a court, arbitrator or mediator
determines that the Additional Rent Statement overstated the Additional Rent by
three percent (3%) or more, Subtenant may recover the amount it spent on the
audit, the amount it paid in excess of the correct Additional Rent, and its
reasonable attorneys' fees and costs associated with the dispute. If a court,
arbitrator or mediator determines that the Additional Rent Statement overstated
the Additional Rent, but by an amount less than three percent (3%), then
Subtenant may recover only the amount it paid in excess of the correct
Additional Rent. If Subtenant does not commence alternative dispute resolution
procedures or submit the matter to a court of competent jurisdiction within
sixty (60) days after the end of the Dispute Period, then the Additional Rent
Statement shall be conclusive and final.

The provisions of this Article III, Section 2 shall survive expiration or
termination of the Sublease.


                                       3
<PAGE>

      Section 3. For all purposes of this Sublease, "Subtenant's Proportionate
Share" of the Building on and as of the Commencement Date shall be 37.19%.
Subtenant's Proportionate Share is calculated as follows:

                          sq. ft. of Subleased Premises

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

                 (sq. ft. of Building - sq. ft. of Common Area)

In the event that the square footage of any pertinent area changes for any
reason, Subtenant's Proportionate Share shall be automatically recalculated in
accordance with the above equation and using the same measurement techniques and
standards originally employed.

      Section 4. "Taxes" shall mean any and all governmental impositions and
taxes imposed upon the Building and/or the Property, including any fire service
or other charges for municipal services, and all betterment assessments, as well
as all ad valorem, license or other taxes imposed upon the Building and/or the
Property and/or imposed upon Landlord by reason of its ownership thereof or this
Sublease; provided, however, that "Taxes" shall not include (i) federal, state,
or local income taxes, (ii) franchise, gift, transfer, excise, capital stock,
estate, succession, or inheritance taxes, (iii) penalties or interest for late
payment of Taxes, or (iv) the portion of Taxes that is allocable to any capital
improvements made after the Commencement Date expect to the extent the
improvements benefit all tenants or at least benefit Subtenant. If at any time
during the Term the methods of taxation of real estate prevailing on the
Commencement Date shall be altered so that in lieu of, in addition to, or as a
substitute for, the whole or any part of the Taxes, there shall be levied,
assessed or imposed (x) a tax, assessment, levy, imposition or charge, wholly or
partially as capital levy or otherwise, on the rents received therefrom, (y) a
tax, assessment, levy, imposition or charge measured by or based in whole or in
part upon the Subleased Premises and imposed upon Landlord, or (z) a tax license
fee or the like measured by the rents payable from Subtenant to Landlord, then
all such taxes, assessments, levies, impositions, or charges, or the part
thereof so measured or based, shall be deemed to be included within the term
"Taxes" for the purposes hereof. In the event of a betterment assessment,
Landlord shall pay in accordance with the longest payment option offered

      Section 5. "Operating Expenses" shall mean any expenses, costs and
disbursements invoiced to Landlord by an unaffiliated entity (except as agreed
to by Subtenant) in connection with the maintenance, operation and repair of all
or any part of the Building, including the Common Area and the parking and other
common areas outside the Building on the Property (in connection with which
Operating Expenses shall include snow removal and landscaping). Landlord agrees
to maintain, operate and repair the Building and Property to a standard
consistent with Subtenant's former ownership thereof. "Operating Expenses" shall
not include (i) costs incurred due to maintenance, operation and repair of the
Building and/or Property to a standard in excess of Subtenant's former ownership
thereof, (ii) expenses, costs, and disbursements incurred in connection with
Shared Utilities (as defined in Article V, Section 2 below), (iii) Taxes (as
defined in Article III, Section 4 above), (iv) leasing commissions, costs,


                                       4
<PAGE>

disbursements, and other expenses incurred for leasing, renovating, or improving
space for Landlord or other tenants, (v) costs incurred by Landlord in
discharging its obligations under Article XXV, (vi) costs (including permit,
license, and inspection fees) incurred in renovating, improving, decorating,
painting, or redecorating vacant space or space for Landlord or other tenants,
(vii) costs incurred by Landlord for alterations that are considered capital
improvements and replacements under generally accepted accounting principles
consistently applied, (viii) depreciation and amortization on the Building
except as expressly permitted elsewhere in the Sublease, (ix) costs of a capital
nature including capital improvements, capital repairs, capital equipment, and
capital tools, as determined under generally accepted accounting principles
consistently applied, (x) costs incurred because Landlord or another tenant
violated the terms of any lease, (xi) interest on debt or amortization payments
on mortgages or deeds of trust or any other debt for borrowed money, (xii)
rentals and other related expenses incurred in leasing air conditioning systems
or other equipment ordinarily considered to be of a capital nature, but normal
maintenance shall be included, (xiii) items and services for which Subtenant
reimburses Landlord or pays third parties or that Landlord provides selectively
to one or more tenants of the Building other than Subtenant without
reimbursement, (xiv) advertising and promotional expenditures, (xv) repairs or
other work needed because of fire, windstorm, or other casualty or cause insured
against by Landlord or to the extent Landlord's insurance required under this
Sublease would have provided insurance, whichever is the greater coverage, (xvi)
nonrecurring costs incurred to remedy structural defects in original
construction materials or installations, (xvii) any costs, fines, or penalties
incurred because Landlord violated any governmental rule or authority, (xviii)
costs incurred to test, survey, cleanup, contain, abate, remove, or otherwise
remedy Hazardous Material (as defined in Article X, Section 2 below) in, on, or
under the Property unless and to the extent that the Hazardous Material was in,
on, or under the Property as a result of Subtenant's negligence or wrongful
acts, (xix) costs incurred to comply with the Americans with Disabilities Act
except to the extent compliance is required because of amendment(s) to such law,
which amendment(s) became effective after the Commencement Date, (xx) costs for
sculpture, paintings, or other art, and (xxi) other expenses that under
generally accepted accounting principles consistently applied would not be
considered normal maintenance, operation or repair expenses.

      Section 6. Subtenant agrees to make monthly Annual Base Rent installments,
Additional Rent payments, Security Payments (as described in Article XXIII,
Section 1 below) and, if applicable, Swap Payment repayments (as described in
Article XXVI, Section 1 below) to Landlord by automatic electronic transfer. If
Subtenant does not pay the Annual Base Rent, Additional Rent or any other
charges due hereunder within five (5) days of when due, Subtenant shall pay
Landlord a late charge equal to five percent (5%) of such payment; and, if such
payment shall be made more than ten (10) days after such five (5) day grace
period, Subtenant shall in addition pay Landlord interest on such payment at the
rate of one percent (1%) per month from the date due until the date paid.

                                   ARTICLE IV

                          USE OF THE SUBLEASED PREMISES


                                       5
<PAGE>

      Section 1. Subtenant shall use the Subleased Premises solely and
exclusively pursuant to the terms of this Sublease for office, research and
development, storage, or other activities incidental to and accessory to
Subtenant's business, and for no other purposes whatsoever without the written
consent of the Landlord.

      Section 2. Subtenant shall comply with all present and future laws, rules,
regulations, ordinances, requirements, and orders of public authorities relating
to Subtenant's use and occupancy of the Subleased Premises, including, without
limitation, building and zoning laws, requirements of Board of Health and
requirements of any other federal, state or local agencies having jurisdiction
of the Subleased Premises and the Building, including, without limitation, any
structural change required to be performed by Subtenant by any of the same.
Subtenant shall furthermore comply with all reasonable requirements of
Landlord's insurance carrier, and any Board of Fire Underwriters, or similar
bodies.

      Section 3. Subtenant shall be entitled to use Subtenant's Proportionate
Share of the parking areas on the Property as designated by Landlord.

                                    ARTICLE V

                                    UTILITIES

      Section 1. Subtenant shall pay all charges for utilities used exclusively
in the Subleased Premises (i.e., those utilities used in the Subleased Premises
that are not "Shared Utilities," as defined in Article V, Section 2 below)
whether such charges shall be made by a quasi-public or private utility company
or by a governmental authority or subdivision or department thereof. Subtenant
shall cause each such utility service to be separately metered to itself in its
name and shall be fully responsible for all costs in connection therewith. If
Landlord shall pay any of such charges on behalf of Subtenant, Subtenant shall
reimburse Landlord upon demand. Landlord shall not be responsible to Subtenant
for the failure or interruption of any such utilities unless such failure or
interruption is caused by the gross negligence or willful misconduct of Landlord
or his agents.

      Section 2. "Shared Utilities" shall mean utilities serving the Building as
a whole (e.g., gas, electricity and water) and the maintenance and repair of
related common mechanical systems and equipment (e.g., HVAC and electrical
systems). Landlord and Subtenant shall share responsibility for the expenses,
costs, and disbursements to third parties incurred in connection with Shared
Utilities. All Shared Utilities shall remain in Landlord's name and Landlord
shall pay the utility suppliers. Subtenant shall reimburse Landlord for its
portion of such expenses, costs, and disbursements as set forth in Article V,
Section 3. Landlord shall not be responsible to Subtenant for the failure or
interruption of any Shared Utilities unless such failure or interruption is
caused by the gross negligence or willful misconduct of Landlord or his agents.
Beginning promptly after the Commencement Date, and sooner if feasible, Landlord
shall retain and pay an energy consultant to develop a cost reduction strategy
for Shared Utilities and a contractor to


                                       6
<PAGE>

implement the energy consultant's recommended improvements. The parties estimate
that the total cost of such work will be approximately $40,000 ("Program
Costs"). In no event shall Program Costs exceed $50,000.

      Section 3. Subtenant's portion of expenses, costs, and disbursements to
third parties incurred in connection with Shared Utilities shall be determined
as set forth below. If at any time during the Term or the Extension Period, if
any, the cost of electricity or gas changes from the cost of such utilities
during the Reference Year (as defined below), Landlord and Subtenant agree to
make mutually acceptable appropriate changes to Exhibit B to preserve the
intended economics of this Article V, Section 3.

      (a)   First Six Months of Term.

            (1)   During the first six months of the Term, Subtenant shall make
                  monthly estimated payments to Landlord for Shared Utilities
                  ("Estimated Payments"). Each Estimated Payment shall be equal
                  to Subtenant's costs in the same calendar month as set forth
                  in Exhibit B. Exhibit B shows the amounts incurred by
                  Subtenant and Landlord respectively at their former properties
                  for the period December 1, 2003 through November 30, 2004 (the
                  "Reference Year"). By way of clarification, Subtenant's
                  Estimated Payment for May during the first six months of the
                  Term would be $18,295, which is the corresponding amount for
                  May in the Reference Year.

            (2)   Within fifteen (15) days of the end of the first six months of
                  the Term, Landlord shall determine the actual amount spent for
                  Shared Utilities (the "Actual Amount"). The Actual Amount then
                  shall be compared to the total Estimated Payments made by
                  Subtenant during the first six months of the Term plus
                  Landlord's total costs at his former property during the
                  corresponding six calendar months in the Reference Year as
                  shown in Exhibit B (together, the "Reference Amount"). By way
                  of clarification, if the first six months of the Term are May
                  2005 through October 2005, then the Reference Amount shall be
                  $165,903 (total costs incurred by both Landlord and Subtenant
                  during the months May 2004 through October 2004 at their
                  former properties).

                  (i)   If the Actual Amount is less than the Reference Amount,
                        the difference shall be deemed "Savings." Savings shall
                        first be applied to reimburse Landlord for the Program
                        Costs. If a balance remains after such reimbursement,
                        Landlord shall pay Subtenant fifty percent (50%) of such
                        balance.

                  (ii)  If the Actual Amount is greater than the Reference
                        Amount, the difference shall be deemed "Excess." In the
                        event of an Excess, Subtenant shall pay Landlord fifty
                        percent (50%) of the Excess.


                                       7
<PAGE>

      (b)   Second Six Months of Term.

            (1)   During the second six months of the Term, Subtenant shall make
                  monthly Estimated Payments to Landlord that are adjusted to
                  reflect the percentage of Savings realized by Subtenant in the
                  first six months of the Term ("Adjusted Estimate Payments").
                  Each Adjusted Estimated Payment shall be equal to Subtenant's
                  costs in the same calendar month as set forth in Exhibit B
                  reduced by a fraction the numerator of which is the Savings
                  from the first six months of the Term divided by two, and the
                  denominator of which is the total Estimated Payments made by
                  Subtenant during the first six months of the Term.

            (2)   Within fifteen (15) days of the end of the second six months
                  of the Term, Landlord shall determine the Actual Amount for
                  such period and compare it to the Reference Amount for such
                  period.

                  (i)   If the Actual Amount is less than the Reference Amount,
                        there shall be Savings for the second six months of the
                        Term. Landlord shall be entitled to fifty percent (50%)
                        of such Savings. Landlord shall subtract the following
                        from the other fifty percent (50%) and, if a balance
                        remains, shall pay such balance to Subtenant: (x) any
                        unpaid Program Costs; and (y) the difference between
                        Subtenant's Estimated Payments for the second six months
                        of the Term and the Adjusted Estimated Payments for the
                        same period.

                  (ii)  If the Actual Amount is greater than the Reference
                        Amount such that there is an Excess for the second six
                        months of the Term, Subtenant shall pay Landlord fifty
                        percent (50%) of such Excess.

      (c)   Third Six Months of Term.

            Determined using the methodology for the second six months of the
            Term.

      (d)   Extension Period.

            (1)   If there is an Extension Period, Subtenant shall make monthly
                  Estimated Payments to Landlord.

            (2)   Within fifteen (15) days of the end of each six months of the
                  Extension Period, Landlord shall determine the actual amount
                  spent for Shared Utilities during the applicable six month
                  period and deduct Landlord's total costs at his former
                  property during the corresponding six calendar months in the
                  Reference Year as shown in Exhibit B (the "Extension Actual
                  Amount"). The Extension Actual Amount then shall be compared
                  to the total Estimated


                                       8
<PAGE>

                  Payments made by Subtenant during the applicable six month
                  period (the "Extension Reference Amount").

                  (i)   If the Extension Actual Amount is less than the
                        Extension Reference Amount such that there are Savings
                        for the applicable six month period, Landlord pay
                        Subtenant one hundred percent (100%) of such Savings.

                  (ii)  If the Extension Actual Amount is greater than the
                        Extension Reference Amount such that there is an Excess
                        for the applicable six month period, Subtenant shall pay
                        Landlord one hundred percent (100%) of such Excess.

                                   ARTICLE VI

                                     REPAIRS

      Section l. Subject to the other terms of this Sublease, including Article
V, Section 2 and those terms relating to fire or other casualty, Landlord at its
expense shall keep the roof, structure, and mechanical systems in or on the
Building in good order and repair; provided, however, that Subtenant shall
reimburse Landlord for the reasonable cost of such repairs to the extent the
repairs are caused by the negligence or misconduct of Subtenant, its employees,
contractors, agents and guests, and to the extent that the cost of the repairs
are not covered by insurance that Landlord is required to maintain under this
Sublease. Notwithstanding anything to the contrary contained in this Sublease,
Subtenant shall be responsible, at its sole expense, for keeping any mechanical
systems that exclusively serve the Subleased Premises in good order and repair.

      Section 2. Throughout the Term, Subtenant agrees to maintain the Subleased
Premises and all additions and improvements made upon them in good order and
repair, reasonable wear and tear and damage by fire or other casualty excepted.

                                   ARTICLE VII

                          RULES, REGULATIONS AND SIGNS

      Section 1. Subtenant shall comply with all reasonable rules and
regulations from time to time promulgated in writing by Landlord, provided that
the same are applicable to all Subtenants and occupants of the Building and do
not conflict with any right expressly granted to Subtenant in this Sublease.
Without consent from Landlord, Subtenant shall not: (a) keep or permit any
outside display or sales, nor place, maintain or permit any signs, placards,
lettering, awnings, aerials, flagpoles, decorations or the like or other
installations upon the exterior or roof of the Building, except for (i) a sign
on or near the front entrance of the Building indicating the location


                                       9
<PAGE>

of the entrance to the Subleased Premises and (ii) a sign on or near the
entrance to the Subleased Premises indicating the same; or (b) make any holes in
or outside the Building, except as may be necessary for installation or removal
of any approved signs or approved alterations or trade fixtures and equipment
(Subtenant hereby agreeing that upon vacating the Subleased Premises it shall
repair any and all damage caused by any such installation or removals).

                                  ARTICLE VIII

                            ALTERATIONS BY SUBTENANT

      Section 1. Subtenant shall not make any alterations costing in excess of
$50,000 in the Subleased Premises without the prior written consent of Landlord,
which consent shall not be unreasonably withheld or delayed. Prior to the
commencement of any construction within the Subleased Premises, Subtenant shall
submit plans and specifications to Landlord for its approval. All work performed
by Subtenant shall be done in a good and workmanlike manner and in full
compliance with all laws and ordinances, and using materials of quality at least
equal to those employed in the rest of the Building. Upon completion of the
work, Subtenant shall deliver to Landlord sworn statements and lien waivers
evidencing that such work has been fully paid for. Subtenant shall indemnify and
hold Landlord harmless from all claims, liabilities and expenses (including
reasonable attorneys' fees) in connection with such work, including any mechanic
liens, and shall cause all such mechanic liens to be discharged, bonded or
insured over in a manner satisfactory to Landlord.

                                   ARTICLE IX

                       COVENANTS OF SUBTENANT AND LANDLORD

      Section 1. Subtenant shall throughout the Term hereof maintain the
Subleased Premises in safe condition and repair, reasonable wear and tear and
damage by fire or other casualty excepted, free from rubbish, dirt, refuse, or
garbage; store all trash and garbage in approved receptacles within the
Subleased Premises; handle all delivery and receiving of merchandise, supplies
and other materials to and from the Subleased Premises through service areas
provided for such use, if any; use the Common Area and other common areas in a
proper manner and with due regard to the rights of others; notify Landlord
promptly after the same shall come to the attention of Subtenant of the need for
any repairs or replacements to the Building.

      Section 2. Subtenant shall not during the Term hereof injure, overload or
deface the Subleased Premises or the Building, nor permit nor suffer any use of
the Subleased Premises, nor make any use of the Building or of the Subleased
Premises, that will be improper, offensive, or contrary to law, or liable to
invalidate any insurance, whether against risks of loss to persons or property,
or otherwise, or which will be injurious to any person or property or which will
constitute any waste or nuisance; and Subtenant shall pay any increase or extra
premium payable for such insurance resulting from any act done by Subtenant, or
any other increase in insurance premiums resulting from non-compliance of its
obligations under this Sublease. The statement of the insurer shall be
conclusive, as to the cause of such increased or extra premium, unless


                                       10
<PAGE>

Subtenant shall establish to Landlord's reasonable satisfaction that Subtenant
is not responsible for such increased or extra premium.

      Section 3. To a standard consistent with Subtenant's former ownership and
occupancy of the Property, Landlord shall during the Term ensure the provision
of gas, electricity, water, HVAC service, and other such utilities, and
landscaping, plowing, maintenance of the Common Area and other common areas, and
similar services to and for the benefit of the Subleased Premises.

                                    ARTICLE X

                              ENVIRONMENTAL MATTERS

      Section 1. Subtenant shall not violate and shall promptly remedy or
correct any violations by it of any federal, state or local laws, rules and
regulations now or hereafter in effect with respect to Hazardous Material, as
defined below, introduced to the Subleased Premises. Subtenant shall not use all
or any portion of the Subleased Premises for the generation, storage, treatment,
use or disposal of any Hazardous Material except in compliance with all
applicable laws. Without limitation, express or implied, upon any other
requirements of this Sublease, Subtenant shall pay all such sums and take all
such actions as may be required to avoid or discharge the imposition of any lien
on the Subleased Premises resulting from Subtenant's violation of Massachusetts
General Laws, Chapter 21E, Comprehensive Environmental Response, Compensation,
and Liability Act, 42 U.S.C. Section 9601 et seq., or any other federal, state,
local or other statute, law, ordinance, code, rule, regulation, order or decree
regulating, relating to or imposing liability or standards of conduct concerning
any Hazardous Material, and Subtenant shall indemnify and save harmless Landlord
and Landlord's mortgagee from any and all reasonable losses, claims, liabilities
and expenses, including, without limitation, reasonable attorneys' fees incurred
or suffered by Landlord by virtue of Subtenant's violation of the provisions
thereof as applied to the Subleased Premises. The provisions of this Article X,
Section 1 shall survive the termination of this Sublease.

      Section 2. For purposes of this Sublease, "Hazardous Material" means and
includes any hazardous substance or any pollutant or contaminant defined as such
in (or for purposes of) the federal, state, or local statute, law, ordinance,
code, rule, regulation, order, or decree regulating, relating to, or imposing
liability or standards of conduct concerning, any hazardous, toxic or dangerous
waste, substance or material, as may now or at any time in the future be in
effect, or any other hazardous, toxic or dangerous waste, substance, or
material.

                                   ARTICLE XI

                                LANDLORD'S ENTRY

      Section 1. Landlord shall have the right to enter upon the Subleased
Premises at all reasonable business hours upon reasonable notice (and at any
time in case of an emergency) for the purpose of inspecting or exhibiting the
same, or for the purpose of making repairs to the


                                       11
<PAGE>

Subleased Premises, or for any other purpose or purposes contemplated in this
Sublease; provided, however, that none of the same shall be construed to impose
upon Landlord any obligation or liability whatsoever for the care, supervision
or repair of the Subleased Premises other than as expressly provided in this
Sublease; and provided further, that, Landlord must be accompanied by an
employee of Subtenant during each such entry (except in the case of an emergency
as discussed below), shall abide by all safety and other rules and regulations
of Subtenant, and agrees to hold in confidence and not use for any purpose any
confidential or proprietary information of Subtenant received or observed during
such entry. Landlord shall not, by reason of any inspection, be deemed to have
received notice of any condition with respect to which Landlord is obligated to
take any action under this Sublease. If Subtenant or its employees shall not be
present to permit entry into said Subleased Premises and if at any time, due to
emergency, an entry therein shall be necessary, Landlord or its agents may enter
the Subleased Premises, forcibly, if necessary, to prevent injury to persons or
damage to property without in any way rendering Landlord or its agents liable
therefor or without affecting Subtenant's obligations contained in this
Sublease. Landlord shall use all reasonable efforts to minimize any material
inconvenience to Subtenant in exercising its rights hereunder.

                                   ARTICLE XII

                                 INDEMNIFICATION

      Section 1. To the fullest extent permitted by law, Subtenant agrees to
indemnify and save Landlord harmless against any and all bodily and personal
injury, loss, claim or damage to any person or property while on the Subleased
Premises, and from and against all bodily and personal injury, loss, claim or
damage to any person or property anywhere in the Building or on the Property
caused by any wrongful act or omission or the negligence of Subtenant or of
Subtenant's employees, agents, licensees, invitees or any other person for whom
Subtenant is responsible, or caused by a default in the proper performance of
Subtenant's obligation under the terms of this Sublease; provided, however, that
Subtenant shall have no such indemnification obligations to the extent that any
such injury, loss, claim or damage is caused by the wrongful act or omission or
the negligence of Landlord, or of Landlord's employees, agents, licensees,
invitees or any other person for whom Landlord is responsible, or caused by a
default in the proper performance of Landlord's obligation under the terms of
this Sublease.

      Section 2. To the fullest extent permitted by law, Landlord agrees to
indemnify and save Subtenant harmless against any and all bodily and personal
injury, loss, claim or damage to any person or property while on the Subleased
Premises, and from and against all bodily and personal injury, loss, claim or
damage to any person or property anywhere in the Building or on the Property
caused by any wrongful act or omission or the negligence of Landlord or of
Landlord's employees, agents, licensees, invitees or any other person for whom
Landlord is responsible, or caused by a default in the proper performance of
Landlord's obligation under the terms of this Sublease; provided, however, that
Landlord shall have no such indemnification obligation to the extent that any
such injury, loss, claim or damage is caused by the wrongful act or omission or
the negligence of Subtenant, or of Subtenant's employees, agents, licensees,
invitees or any other person for whom Subtenant is responsible, or caused by a
default in the proper performance of Subtenant's obligation


                                       12
<PAGE>

under the terms of this Sublease.

                                  ARTICLE XIII

                                    SURRENDER

      Section 1. At the expiration or prior termination of the Sublease,
Subtenant shall surrender the Subleased Premises in good condition, reasonable
wear and tear and damage by fire or other casualty excepted.

      Section 2. All personal property and trade fixtures owned by Subtenant
that can be removed without substantial physical injury to the Subleased
Premises shall remain the property of Subtenant and shall be removed by
Subtenant no later than the expiration or termination of the Sublease; provided,
however, that if Subtenant is in default under this Article XIII, Section 2 or
if any such property shall not be removed by the expiration or termination of
this Sublease, such property shall, at the express written election of Landlord,
be deemed to have become Landlord's property. Furthermore, in such event,
Landlord may dispose of any of Subtenant's property not so removed at
Subtenant's risk and expense. Subtenant shall repair any and all damage caused
by the removal of Subtenant's personal property and trade fixtures.

                                   ARTICLE XIV

                                    INSURANCE

      Section 1. During the Term, Subtenant shall maintain in full force and
effect the following insurance, written by one or more insurance companies
licensed to do business in the Commonwealth of Massachusetts having a Best
rating of A or better, class VIII or better:

      A. Workmen's compensation insurance covering all employees, and if
Subtenant shall contract with any independent contractor for the furnishing of
labor, materials or services to Subtenant, Subtenant shall require such
independent contractor to maintain workmen's compensation insurance covering all
its employees and all the employees of any subcontractors. Subtenant shall also
maintain employers liability insurance having limits of not less than
$1,000,000.

      B. Property insurance with standard extended coverage in an amount of not
less than one hundred percent (100%) of the full sound insurable value of all of
Subtenant's property and, if the Subleased Premises shall be sprinkled,
sprinkler insurance in an amount of not less than one hundred percent (100%) of
the full sound insurable value thereof. Said coverage shall include explosion
and boiler insurance if appropriate.

      C. Commercial general liability insurance with limits of $2,000,000 as
provided in the comprehensive general liability forms with contractual liability
endorsements attached, in companies qualified to do business in the Commonwealth
of Massachusetts, insuring against injury to persons and damage to property as
herein provided, naming Landlord and Landlord's


                                       13
<PAGE>

Mortgagee as additional insureds thereunder. Such insurance may be carried by
Subtenant under a blanket or umbrella coverage.

      D. Comprehensive automobile liability insurance covering all owned,
non-owned and hired vehicles, with limits of not less than $1,000,000 combined
single limit for personal injury and property damage.

      Section 2. During the Term, Landlord shall maintain in full force and
effect the following insurance, written by one or more insurance companies
licensed to do business in the Commonwealth of Massachusetts having a Best
rating of A or better, class VIII or better:

      A. Landlord shall, throughout the term of this Sublease, keep the Building
and all other improvements on the Property insured pursuant to one or more
policies of property insurance written on an "all risk" of physical loss or
damage basis in such amounts as would be equal to one hundred percent (100%)
replacement cost of the Building and all other improvements on the Property, as
is necessary to avoid co-insurance.

      B. Commercial general liability insurance with coverage for
premises/operations, personal injury, and contractual liability with combined
single limits of liability of not less than $2,000,000 for bodily injury and
property damage per occurrence. This limit can be made through a combination of
a primary commercial general liability policy and an umbrella policy or other
multi-property "blanket" coverage.

      Section 3. Each policy of insurance placed by Subtenant under this
Sublease shall provide that such policy may not be canceled without at least
thirty (30) days prior written notice to Landlord and Landlord's Mortgagee. Each
policy of insurance placed by Landlord under this Sublease shall provide that
such policy may not be canceled without at least thirty (30) days prior written
notice to Subtenant. Each party shall furnish such policy or a certificate by
the insurer as to the existence thereof to the other party at least thirty (30)
days prior to the Commencement Date and thereafter at least fifteen (15) days
prior to the expiration thereof or of any modification or renewal of such
policy. Each of said policies shall be written on an annual basis with premiums
to be prepaid yearly, and evidence of such payment shall be given to the other
party not less than fifteen (15) days prior to the expiration of such policy.

      Section 4. Each of Landlord and Subtenant hereby reSubleases the other
(and each person and legal entity claiming through each of them) from any and
all liability or responsibility to the other (and each person and legal entity
claiming through the other) by way of subrogation or otherwise for any loss or
damage to property caused by fire or any of the extended coverage casualties, or
by sprinkler leakage, even if such fire or other casualty or such leakage shall
have been caused by the fault or negligence of the other party, or anyone for
whom such party may be responsible. This mutual waiver precludes the assignment
of any such claim by subrogation to an insurance company (or any other person),
and Landlord and Subtenant each agree to give written notice of this waiver to
each insurance company that has issued or shall issue any property insurance
policy to it, and to have the policy properly endorsed with provisions that
either designate the other party as one of the insureds or deny to the insurer
acquisition by


                                       14
<PAGE>

subrogation of rights of recovery against the other party to the extent such
rights have been waived by the insured party, as set forth herein, insofar as,
and to the extent that such provisions may be effective without making it
impossible to obtain insurance coverage from responsible companies qualified to
do business in the Commonwealth of Massachusetts (even though extra premium may
result therefrom). Each party shall be entitled to have certificates of
insurance with respect to such policies containing such provisions. In addition,
and without limiting the foregoing, each of Landlord and Subtenant waives any
and every such claim against the other that would have been covered had the
insurance policies required to be maintained by such person by this Sublease
been in force, to the extent that such loss or damage would have been
recoverable under such policies, whether or not the same have been maintained.


                                   ARTICLE XV

                    DAMAGE OR DESTRUCTION BY FIRE OR CASUALTY

      Section 1. If so much of the Building shall be damaged or destroyed so
that the remainder of the Building becomes uneconomic for Landlord's use in the
good faith judgment of Landlord or if the time to repair the Building would
exceed one hundred eighty (180) days, Landlord may terminate this Sublease by
giving notice to Subtenant within thirty (30) days of such event.

      Section 2. If this Sublease shall not be so terminated, Landlord, within a
reasonable time, having in mind delays resulting from the settlement of any
insurance loss, preparation of plans and obtaining permits, shall commence to
restore the Subleased Premises. Landlord shall proceed reasonably diligently
with such restoration. Landlord shall not be obligated to expend more than
Landlord shall receive as insurance proceeds or otherwise on account of such
damage or destruction, before taking into account deductions for deductibles or
co-insurance. If Landlord fails to proceed with reasonable diligence or fails to
complete restoration within ninety (90) days of its estimated completion date,
Subtenant may, as its sole and exclusive remedy, terminate this Sublease by
written notice to Landlord.

      Section 3. If the Subleased Premises shall be damaged and if this Sublease
shall not be terminated as herein provided, then the Annual Base Rent and
Subtenant's Proportionate Share for all purposes shall be reduced for the
portion of the Subleased Premises that cannot be used as a result of such damage
until the Subleased Premises shall have been restored to its former condition.

                                   ARTICLE XVI

                                 EMINENT DOMAIN

      Section 1. If after the Commencement Date the whole or substantially all
of the Subleased Premises shall be taken under the power of eminent domain or by
purchase in lieu thereof by any public, quasi-public or private authority, or
condemned as unlawful, or suffer any


                                       15
<PAGE>

damage that shall entitle Landlord to make a claim for injury to the Building
arising to the level of a taking, direct or consequential, all herein referred
to as "Taking," then this Sublease shall, at the election of Landlord by written
notice to Subtenant, be terminated.

      Section 2. If after the Commencement Date:

      (i)   the aggregate of all reductions of the floor area of the Subleased
            Premises shall equal or exceed twenty (20%) or more of the original
            floor area of the Subleased Premises; or

      (ii)  the Building shall be permanently deprived of access by motor
            vehicle to and from a public street or private way,

then, in either such case, Subtenant shall have the right at its election to
terminate this Sublease by giving Landlord notice of its election within thirty
(30) days after such event; provided, however, in the case of (ii) that if
Landlord shall have undertaken to provide substitute access and Landlord shall
have completed the same within thirty (30) days, Subtenant's notice of
termination shall be void.

      Section 3. All damages awarded for any Taking, whether for the whole or a
part of the Subleased Premises, or the Building or otherwise, shall belong to
and be the sole property of the Landlord whether such damages shall be awarded
as compensation for diminishing the value of the Subleasehold, fee or otherwise,
and Subtenant does hereby assign to Landlord all of its right, title, and
interest thereto; provided, however, that Subtenant shall be entitled to receive
and retain any amounts which may be specifically awarded to it by reason of the
loss of its furniture or trade fixtures or for moving expenses. Subtenant agrees
to execute and deliver any document necessary or desirable to confirm Landlord's
rights under this Article XVI, Section 3.

      Section 4. If this Sublease shall not be terminated as provided in Article
XVI, Section 1, Landlord shall, within a reasonable period of time after such
damage, commence to restore the damage or destruction to the Subleased Premises.
Landlord shall proceed with reasonable diligence to the completion of such
restoration so that they shall have been restored as nearly as possible to the
condition they were in prior to such damage. If Landlord fails to proceed with
reasonable diligence or fails to complete restoration within ninety (90) days of
its estimated completion date, Subtenant may, as its sole and exclusive remedy,
terminate this Sublease by written notice to Landlord. If the net award after
all costs and expenses incurred by Landlord in the collection thereof shall not
be sufficient to restore the Building, Landlord may terminate this Sublease by
written notice to that effect to the Subtenant.

      Section 5. During the period of restoration, the Annual Base Rent reserved
hereunder shall be suspended or abated according to the proportion of the floor
area of the Subleased Premises rendered unusable and Subtenant's Proportionate
Share for all purposes shall be adjusted in accordance with Article III, Section
3. There shall be no abatement or suspension of Rent hereunder if there shall be
no actual physical damage to the Subleased Premises, nor, in any case shall
there be an abatement of Subtenant's obligation to pay other charges due under
this


                                       16
<PAGE>


Sublease. If Subtenant shall be permanently deprived of any portion of the floor
area of the Subleased Premises, the Annual Base Rent shall be proportionally
abated for the balance of the Term (including the Extension Period, if
applicable) to reflect the then size of the Subleased Premises and the Building
and Subtenant's Proportionate Share for all purposes shall be adjusted in
accordance with Article III, Section 3.

                                  ARTICLE XVII

                                SUBTENANT DEFAULT

      Section 1. Subtenant shall be deemed in default hereunder if, after
receipt from Landlord of the required notice and the expiration of the
applicable cure period (each as described more fully below), (a) Subtenant shall
neglect or fail to make any payment of Annual Base Rent, Additional Rent or
other payments to be made by it hereunder or shall neglect or fail to perform or
observe any of the other material covenants and agreements contained in this
Sublease and on its part to be performed or observed, (b) the estate created
hereby shall be taken upon execution, attachment, or any other process of law
and such process shall not be rendered inoperative within twenty (20) days
thereafter, (c) Subtenant shall be adjudged a bankrupt or insolvent, or if any
receiver or trustee of all or any part of the business or property of Subtenant,
wherever located, shall be appointed and shall not be discharged within ninety
(90) days after appointment, (d) Subtenant shall make any general assignment of
its property for the benefit of creditors, or if Subtenant shall file a
voluntary petition in bankruptcy or insolvency or shall apply for reorganization
or arrangement with its creditors under the bankruptcy or insolvency laws now in
force or hereinafter enacted, federal, state or otherwise, or if any such
petition shall be filed against Subtenant and shall not be discharged within
ninety (90) days after the filing, provided that the rent and all other monetary
obligations of Subtenant shall be paid, or (e) Subtenant shall seek a
composition with its creditors by trust mortgage or otherwise. Anything herein
contained to the contrary notwithstanding, Subtenant shall not be in default
until it receives written notice from Landlord of one or more of (a) through (e)
above, as applicable, and is given the opportunity to cure the same, as follows.
If such potential default shall relate to the payment of money, Subtenant shall
have five (5) days to make payment. If such potential default shall be other
than the payment of money, Subtenant shall have thirty (30) days to cure,
provided that if the potential default complained of is of such character that
it reasonably requires more than thirty (30) days to cure the same, Subtenant
shall have a reasonable period of time, not to exceed sixty (60) days,
subsequent to such thirty (30) day period, provided that Subtenant shall
commence to cure such potential default within such thirty (30) day period and
proceed diligently until completion of such cure. Landlord shall not exercise
any remedy hereunder if Subtenant shall complete the cure of any potential
default within the time periods allowed above.

      Section 2. If Subtenant shall be in default under this Sublease as
specified in Article XVII, Section 1 above, then in any such case Landlord may
terminate this Sublease upon notice to Subtenant, and this Sublease shall come
to an end on the date of such notice (or such other date specified for
termination therein) as fully and completely as if such date were the date
herein originally fixed for the expiration of the Term, and Subtenant will then
quit and surrender the Subleased Premises to Landlord, but Subtenant shall
remain liable as hereinafter provided. If


                                       17
<PAGE>

Subtenant is in default hereunder, Landlord also shall have the right when it
delivers notice of termination or at any time thereafter, to enter upon the
Subleased Premises or any part thereof in the name of the whole and repossess
the same as of its former estate and expel Subtenant and those claiming by,
through or under it, and remove their goods and effects without being deemed
guilty of any manner of trespass and without prejudice to any remedies which
might otherwise be used for arrears of rent or other payments or preceding
breach of covenant.

      Section 3. In the event of termination under Article XVII, Section 2,
Subtenant shall pay to Landlord, as liquidated current damages, the Annual Base
Rent, Additional Rent and other sums that would be payable hereunder for the
remainder of the Term, or the Extension Period if the option under Article II,
Section 2 was already exercised, if such termination had not occurred, less the
net proceeds, if any, of any reletting of the Subleased Premises, after
deducting all reasonable expenses in connection with such reletting, including,
without limitation, all repossession costs, brokerage commissions, legal
expenses, attorneys' fees, and advertising for such reletting. Subtenant shall
pay the liquidated current damages to Landlord monthly on the days when the
Annual Base Rent would have been payable hereunder if this Sublease had not been
terminated. Landlord shall apply the Security Payments provided for in Article
XVII, Section 2 to the liquidated current damages.

      Section 4. If Subtenant shall be in default hereunder, Landlord may, at
its option, without waiving any claim for breach of agreement, at any time
thereafter cure such default for the account of Subtenant, and Subtenant shall
reimburse Landlord for any amount paid and any expense or contractual liability
so incurred, including reasonable attorneys' fees. Landlord may cure the default
of Subtenant prior to the expiration of the cure period, but only after notice,
which notice need not be in writing if confirmed forthwith by notice in writing
to the Subtenant if it is necessary to protect the real estate or the interest
of Landlord therein or to prevent injury or damage to persons or property. Any
amount payable by Subtenant to Landlord pursuant to the provisions of this
Article XVII, Section 4 shall be paid as part of and at the time for payment of
the next installment of Annual Base Rent thereafter coming due.

                                  ARTICLE XVIII

                               LANDLORD'S DEFAULT

Section 1. Landlord's failure to perform or observe any of its Sublease
obligations after a period of thirty (30) business days or the additional time,
if any, that is reasonably necessary to promptly and diligently cure the failure
after receiving notice from Subtenant, or such lesser time as expressly provided
elsewhere in this Sublease, is a default. The notice shall give in reasonable
detail the nature and extent of the failure and identify the Sublease
provision(s) containing the obligation(s). If Landlord commits a default,
Subtenant may pursue any remedies given in this Sublease or under the law,
provided, however, that in no event (unless otherwise specified herein) shall
Subtenant have a right to offset Annual Base Rent or Additional Rent as a result
of an alleged default hereunder.


                                       18
<PAGE>

                                   ARTICLE XIX

                            ASSIGNMENT AND SUBLETTING

      Section 1. Except as herein expressly set forth, Subtenant shall not
assign this Sublease nor any estate of interest therein, nor sublet or license
the whole or any part of the Subleased Premises, all of which are herein
referred to as a "Transfer," without the prior written consent of Landlord, not
to be unreasonably withheld or delayed. Subtenant may Transfer its interest to
any parent corporation or wholly-owned subsidiary corporation or wholly-owned
subsidiary of any parent corporation without such consent, provided that in each
case Subtenant shall give notice of such Transfer to Landlord. Each such
assignee shall assume the obligations of the Subtenant hereunder. Subtenant
shall remain liable to Landlord during the Term (including the Extension Period,
if applicable) for the payment of rent and the performance of all obligations of
Subtenant hereunder. Consent by Landlord to one or more Transfers shall not
operate to exhaust Landlord's right to refuse consent to any future Transfer.
Subtenant shall notify Landlord promptly of any proposed Transfer.

                                   ARTICLE XX

                            OVERSUBLEASES, MORTGAGES

      Section 1. At the election of Landlord, or any future mortgagee, or any
person who is or shall become the owner of the fee of the Building and who has
or shall Sublease the same to Landlord, herein "Overlessor," which election may
be changed from time to time, this Sublease and the Subtenant's rights hereunder
shall be subject and subordinate to such mortgage or OverSublease; provided that
such mortgagee or Overlessor shall first enter into a written instrument in
recordable form and otherwise in form reasonably satisfactory to Subtenant,
which provides that so long as no default, after the giving of any required
notice and expiration of all grace or cure periods, is continuing hereunder: (i)
this Sublease will not be affected and will continue as a direct Sublease
between Subtenant and any such mortgagee or Overlessor and their assignees,
nominees or successors (including, but not limited to, purchasers at a
foreclosure sale) taking title to the Building or the Property or otherwise
succeeding to the interest of Landlord hereunder, (ii) such mortgagee or
Overlessor shall be prospectively bound to Subtenant under the terms of this
Sublease (including Subtenant's right to extend the Term hereof), (iii)
Subtenant's possession hereunder will not be disturbed by any default in,
termination, foreclosure of, exercise of any remedy under such mortgage or
OverSublease and/or any conveyance in lieu of the exercise thereof, as the case
may be and (iv) Subtenant shall attorn to such mortgagee or Overlessor hereunder
upon such mortgagee or Overlessor or their assignees, nominees or successors
(including, but not limited to, purchasers at a foreclosure sale) taking title
to the Building or the Property or otherwise succeeding to the interest of
Landlord hereunder. Subtenant shall, upon request of Landlord, such mortgagee,
or Overlessor, execute any documents which may be necessary to evidence or
confirm such subordination.


                                       19
<PAGE>

      Section 2. Subtenant shall, upon receipt of written notice from any such
mortgagee, Overlessor, or other person to whom Landlord may from time to time
assign the rents or other payments due hereunder, make payment of such rents or
other payment to such person and shall be fully protected in making such
payment. Landlord shall advise Subtenant in writing if Landlord shall hereafter
grant a mortgage or OverSublease or otherwise assign the rents hereunder.

                                   ARTICLE XXI

                                     BROKER

      Section 1. Landlord and Subtenant warrant and represent to each other that
neither has dealt with any broker or agent in connection with this Sublease
except Meredith & Grew Incorporated and Richards Barry Joyce & Partners, and
that no other broker or agent has been instrumental in this transaction. Both
parties agree to indemnify the other against any claim, loss, damage, cost or
liability for any brokerage commission or fee which may be asserted against
either party in connection with this Sublease by any other broker with whom
either party has dealt.

                                  ARTICLE XXII

                                     NOTICES

      Section 1. Except as specifically otherwise provided in this Sublease, all
notices and other communications authorized or required hereunder shall be in
writing and shall be given by mailing the same by certified or registered mail,
return receipt requested, postage prepaid, or by expedited overnight courier
utilizing receipt, or by facsimile confirmed in one of the foregoing methods,
and any such notice shall be deemed to have been given when so mailed. If
intended for Landlord, the same shall be mailed to Landlord at:

                        Dr. Frank Pompei
                        C/o Exergen Corporation
                        51 Water Street Watertown.
                        MA 02472

with a copy contemporaneously sent to:

                        Walter H. McLaughlin, Jr., Esq.
                        Gilman, McLaughlin & Hanrahan LLP
                        101 Merrimac Street
                        P.O. Box 9601
                        Boston, Massachusetts 02114-9601


                                       20
<PAGE>

with copies to such other parties as Landlord shall designate, and if intended
for Subtenant, the same shall be mailed to Subtenant at:

                        Control Delivery Systems, Inc.
                        400 Pleasant Street
                        Watertown, Massachusetts 02472
                        Attention: Cristin L. Rothfuss, Corporate Counsel

with a copy contemporaneously sent to:

                        Mary Weber, Esq.
                        Ropes & Gray, LLP
                        One International Place
                        Boston, MA 02110-2624

      All notices shall be effective upon receipt or the third business day
after deposit with the United States Post Office, postage paid.

                                  ARTICLE XXIII

                                SECURITY DEPOSIT

      Section 1. As security for its full and faithful performance of this
Sublease during the original Term, Subtenant shall make the following payments
(each a "Security Payment"): for each of the first six (6) months of the Term,
Subtenant shall make an $18,000 Security Payment to Landlord and commencing on
the seventh month of the Term and continuing until the total Annual Base Rent
for the original Term is paid in full, Subtenant shall make a $20,000 Security
Payment to Landlord each month. Each Security Payment shall be paid in
conjunction with and be in addition to Subtenant's monthly installment of Annual
Base Rent and Additional Rent. The first such Security Payment shall be applied
against the monthly installment of Annual Base Rent due for the eighteenth
(18th) month of the Term. The second such Security Payment shall be applied
against the balance for the monthly installment of Annual Base Rent due for the
eighteenth (18th) month of the Term, and the remainder shall be applied against
the monthly installment of Annual Base Rent due for the seventeenth (17th) month
of the Term. Other Security Payments shall be applied in the same manner (i.e.,
against the latest unpaid Annual Base Rent installment). Subtenant shall
continue to make such payments and such payments shall continue to be applied in
this manner until the total Annual Base Rent for the original Term is paid in
full.

      Section 2. In the event that this Sublease is terminated prior to the end
of the original Term, and so long as Subtenant is not in default under any of
the terms, provisions or conditions of this Sublease on the termination date,
Landlord shall refund to Subtenant any amounts paid by Subtenant in excess of
the Annual Base Rent due for the actual term length by virtue of the Security
Payment mechanism described in Article XXIII, Section 1.


                                       21
<PAGE>

                                  ARTICLE XXIV

                                  MISCELLANEOUS

      Section 1. In any case where either party hereto is required to do any
act, other than the making of any payment of rent or other monetary sum due
Landlord hereunder, the time for performance thereof shall be extended for a
period equal to any delay caused by or resulting from any act of God, war, civil
commotion, fire casualty, labor difficulties, shortages of labor, materials or
equipment, governmental regulations or other causes beyond such party's
reasonable control, whether such time be designated by a fixed date, a fixed
time, or a "reasonable time." In no event shall the parties inability to pay a
monetary sum be affected by this clause.

      Section 2. Failure of either party to complain of any act or omission on
the part of the other party, no matter how long the same may continue, shall not
be deemed to be a waiver by said party of any of its rights hereunder. No waiver
by either party at any time shall be effective unless in writing and signed by
the party adversely affected by the breach with respect to which waiver is
asserted to have been made. No waiver of any breach of any provision of this
Sublease shall be deemed a waiver of a breach of any other provision of this
Sublease or a consent to any subsequent breach of the same or any other
provision. If any action by either party shall require the consent or approval
of the other party, the other party's consent to or approval of such action on
any one occasion shall not be deemed a consent to or approval of said action on
any subsequent occasion or a consent or approval of any other action on the same
or any subsequent occasion. Each and every right and remedy which either party
may have under this Sublease or by operation of law, either at law or in equity,
with respect to any breach, shall be distinct and separate from every other such
right and remedy; all such rights and remedies shall be cumulative, and none of
them shall be deemed inconsistent with any other, no such right or remedy
whether or not exercised, shall be deemed to be in exclusion of any other, and
any two or more or all of such rights and remedies may be exercised at the same
time or successively, except where in this Sublease otherwise expressly
provided.

      Section 3. If any term or provision of this Sublease or the application
thereof to any person or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Sublease, or the application of such term
or provisions to Persons or circumstances other than those as to which it is
held invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Sublease shall be valid and be enforced to the fullest extent
permitted by law.

      Section 4. Except as herein otherwise provided, the terms and provisions
of this Sublease shall be binding upon and inure to the benefit of the heirs,
legal representatives, successors, and assigns respectively of Landlord and
Subtenant. This Article XXIV, Section 4 shall not be deemed to be any consent by
Landlord to an assignment hereof by Subtenant.

      Section 5. The headings used for the various Articles of this Sublease are
used only as a matter of convenience for reference, and are not to be construed
as part of this Sublease or to be


                                       22
<PAGE>

used in determining the intent of the parties to this Sublease.

      Section 6. This instrument constitutes the entire and only agreement
between the parties and no oral statements or representations or prior written
matters not contained in this Sublease shall have any force and effect. Except
as expressly provided in this Sublease, none of the exhibits herein referred to
or attached hereto shall in any way constitute any representation or warranty in
respect to the Building, the Subleased Premises, location of construction and
location of Buildings and improvements, occupancy by other Subtenants,
continuation of occupancy by other Subtenants, use by other Subtenants, nor
limitation on the construction of additional Buildings or additions to Building
by Landlord whether on the roof, if any, of the Subleased Premises, or
elsewhere. No subsequent amendments, changes, or additions to this Sublease
shall be binding upon Landlord or Subtenant unless reduced to writing and duly
executed by Landlord and Subtenant. Any pronoun shall be read in the singular or
plural in such gender as the context may require or permit.

      Section 7. Subtenant shall from time to time, upon request of Landlord,
furnish to Landlord or to any designee of Landlord, certifications as to the
status of this Sublease, the existence or non-existence of default on the part
of Landlord, or any state of fact or facts requested to be certified to by
Subtenant with reference to this Sublease.

      Section 8. Except as otherwise expressly set forth herein, this Sublease
is a net Sublease, and shall be interpreted to the end that the Annual Base Rent
and Additional Rent shall be payable to Landlord without offset or deduction in
any and all events, except as herein expressly set forth. Landlord shall have no
obligation hereunder except as expressly set forth in this Sublease.

      Section 9. So long as Subtenant shall not be in default, Subtenant may
peaceably and quietly occupy and enjoy the Subleased Premises and the use
thereof, without molestation of any person or any claims by, through or under
Landlord.

      Section 10. This Sublease may be executed in counterparts, each of which
shall be deemed an original and all of which, taken together, shall be deemed to
be one and the same instrument.

      Section 11. The liability of Landlord hereunder shall be limited solely to
the equity of Landlord in the Building and any sales or insurance proceeds
realized therefrom, and in no case shall Landlord or any partner or agent of
Landlord ever be personally liable beyond the extent of his or their equity in
the Building or such proceeds for the obligations of Landlord, except that any
of the same may be named in order to obtain jurisdiction of Landlord in any
litigation. Each Landlord hereunder shall be liable for the obligations of
Landlord only during such time as such person shall be Landlord and with respect
only to items occurring during such period of ownership.

      Section 12. The terms of this Sublease shall be not be disclosed by either
party to any


                                       23
<PAGE>

third party; provided, however, that each party may disclose such terms to its
financial advisors and potential investors or in connection with a potential
merger or acquisition, in each case under the auspices of a confidentiality
agreement.

                                   ARTICLE XXV

                                   WORK LETTER

      Section 1. Subtenant enters into this Sublease subject to Landlord's
agreement to complete certain demising work and improvements no later than sixty
(60) days after the Closing Date. In particular, Landlord agrees to complete all
work specified in Exhibit C. Landlord shall be responsible for all costs
associated with upgrading the bathrooms, as specified in Exhibit B. In addition,
Landlord shall be responsible for the first $25,000 of completing all other work
specified in Exhibit B and any Additional Work, as defined below. Landlord and
Subtenant shall each be responsible for fifty percent (50%) of the balance for
completing all other work specified in Exhibit B and any Additional Work.

      Section 2. Until the work associated with upgrading the bathrooms is
completed, Subtenant's employees and guests shall be entitled to use the
bathrooms in Landlord's portion of the Building. Landlord shall use all
reasonable efforts to minimize disruption to Subtenant's business during
performance of the work.

      Section 3. If, no later than six (6) months after the Commencement Date, a
local, state or federal governmental body having appropriate authority orders
Landlord to perform demising work beyond that specified in Exhibit B
("Additional Work"), Landlord shall complete the same. Landlord and Subtenant
shall be responsible for the cost of the Additional Work as set forth above. In
the event that Subtenant is responsible for any part of the cost of the
Additional Work, Landlord agrees to pay Subtenant's fifty percent (50%) share
and Subtenant agrees to increase each monthly payment of Annual Base Rent during
the remainder of the Term by an amount equal to such fifty percent (50%) share
divided by the remaining number of Annual Base Rent payments.

      EXECUTED as a Sealed Instrument on the day, month and year first above
written.


SUBTENANT:                              LANDLORD:

CONTROL DELIVERY SYSTEMS, INC.          EXERGEN CORPORATION


By: /s/ Michael J. Soja                 By: /s/ Francesco Pompei
   ----------------------------------      -------------------------------------
   Name:   Michael J. Soja                 Francesco Pompei, President
   Office: VP and CFO                      Hereunto duly authorized
   Hereunto duly authorized


                                       24
<PAGE>

Overlandlord hereby consents to this Sublease.

FHP, LLC

By: /s/ Francesco Pompei
   ------------------------------------
   Francesco Pompei, Manager


                                       25
<PAGE>

                                    EXHIBIT A

                                   FLOOR PLAN



                                       26
<PAGE>

                                    EXHIBIT B

                                 REFERENCE YEAR

AMOUNTS INCURRED BY LANDLORD AT HIS FORMER PROPERTY

<TABLE>
<CAPTION>
           Water/sewer    Maint. Contracts   Electric       Gas         TOTAL
           ---------------------------------------------------------------------
<S>        <C>            <C>                <C>         <C>          <C>
Dec-03     $     --                          $  3,275    $     962    $   4,237
Jan-04           --                             3,622        1,345        4,968
Feb-04           --                             2,655        1,102        3,756
Mar-04           --                             3,513        1,054        4,566
Apr-04           --                             3,513          418        3,931
May-04           --                             3,776           94        3,870
Jun-04           --                             6,796           93        6,889
Jul-04           --                             5,737           99        5,836
Aug-04           --                             6,924           94        7,018
Sep-04           --                             6,394           90        6,484
Oct-04           --                             6,394          366        6,761
Nov-04           --                             4,342          366        4,708
           ---------------------------------------------------------------------
Total      $     --          $      --       $ 56,941    $   6,084    $  63,025
           ---------------------------------------------------------------------
</TABLE>

AMOUNTS INCURRED BY SUBTENANT AT ITS FORMER PROPERTY

<TABLE>
<CAPTION>
           Water/sewer  Maint. Contracts    Electric         Gas          TOTAL
           ---------------------------------------------------------------------
<S>        <C>          <C>                 <C>           <C>           <C>
Dec-03      $    175        $  1,333        $ 11,139      $  6,931      $ 19,578
Jan-04           175           1,333          11,239         6,562        19,309
Feb-04           175           1,334          10,233         7,367        19,110
Mar-04           175           1,333           9,922         7,402        18,832
Apr-04           175           1,333          10,322         5,820        17,650
May-04           175           1,334          11,182         5,604        18,295
Jun-04           175           1,333          15,149         4,683        21,340
Jul-04           175           1,333          17,082         4,730        23,321
Aug-04           175           1,334          17,053         4,220        22,782
Sep-04           175           1,333          13,376         4,747        19,631
Oct-04           175           1,333          17,623         4,545        23,676
Nov-04           175           1,334           9,264         5,107        15,880
           ---------------------------------------------------------------------
Total       $  2,100        $ 16,000        $153,585      $ 67,717      $239,402
           ---------------------------------------------------------------------
</TABLE>


                                       27
<PAGE>


                                    EXHIBIT C

                                    WORK PLAN

<TABLE>
<S>    <C>                                                            <C>
1.
       Bottom of Ramp in entrance front of building, straighten
       approx. 20' of wall 10'h removing existing double swing
       door and reinstall in another location. Wall single
       thickness 5/8" sheet rock T.J.P.                               $   4,000

2.
       Back section of building straighten wall approx. 17'L x
       10'H. Removing existing doors and not reinstall with
       single 5/8 sheet rock T.J.P.                                   $   2,800

3.
       Building divider wall 34-6" x 10'h with two framed doors
       and hardware, to form a corridor to bath rooms. Includes
       drop ceiling, lighting, VT flooring. T.J.P with base cover.
       (Does not include sprinkler system)                            $   8,200

4.
       In same area cut open in existing wall to gain access to
       area, and baths. Includes, framing 36"x84" opening for
       frame and door with all hardware.                              $   1,400
5.
       Build diagonal wall at bottom of ramp with frame 36" crash
       bar door to match existing doors wall approx. 9'Lx10'H
       single 5/8 sheet rock both sides T.J.P.                        $   3,200
7.
       Install drop ceiling in space 34.5'x16' + 12"x16" adjacent
       to divider wall to baths includes; installing track for
       drop ceiling 2"x4" all ceiling tile and six 2'x4' light
       panels and switching.  Excluding flooring.                     $   4,200

8.     Frame and install sheet rock T.J.P. 6'x8' opening to divide
       office space in front of building                              $   1,000

9.     Ramp outside extend to 18'L. Build with pressure treated
       lumber and pipe rail.                                          $   2,800
                                                                      ---------
                                SUBTOTAL                              $  27,600

                   Contractor mark-up20%                              $   5,520
                                                                      ---------
                                TOTAL                                 $  33,120
                                                                      ---------
</TABLE>


                                       28
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.20
<SEQUENCE>6
<FILENAME>y16393exv4w20.txt
<DESCRIPTION>EX-4.20: AMENDED AND RESTATED CONTROL DELIVERY SYSTEMS, INC. CHANGE OF CONTROL AGREEMENT
<TEXT>
<PAGE>
                                                                    Exhibit 4.20

                              AMENDED AND RESTATED
                         CONTROL DELIVERY SYSTEMS, INC.
                           CHANGE OF CONTROL AGREEMENT

     AGREEMENT made this 17th day of August, 2004, by and between Paul Ashton
("Executive") and Control Delivery Systems, Inc. (the "Company").

     Whereas, the Board of Directors of the Company (the "Board") recognizes
that, as is the case with many corporations, the possibility of a Change of
Control (as defined in Exhibit A) may exist and that such possibility, and the
uncertainty and questions which it may raise among management personnel, may
result in the departure or distraction of management personnel to the detriment
of the Company and its stockholders;

     Whereas, the Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's management, including Executive, to their duties, to assisting the
Board in assessing proposals with respect to a Change of Control and to advising
the Board as to the best interests of the Company and its shareholders with
respect to such potential Change of Control, without distraction and conflict
arising from the possibility of a Change of Control; and

     Whereas, the Board wishes to induce Executive and other members of
management to remain in the employ of the Company and to assure them of fair
severance should the employment of any of them terminate in specified
circumstances following a Change of Control of the Company;

     NOW, THEREFORE, in consideration of the premises and the mutual promises,
terms and conditions contained herein, the parties hereto agree as follows:

     1. Severance Benefits Following a Change of Control

          (a) Entitlement to Severance Benefits. If during that period starting
     on the date of a Change of Control and ending on the second anniversary of
     the Change of Control, the Company terminates Executive's employment
     without Cause, or if Executive terminates his employment for Good Reason,
     the Company will, subject to Section 2 below, provide severance benefits to
     Executive as set forth below in this Section 1.

          "Good Reason" means (i) failure by the Company to maintain Executive
     in the position of Chief Executive Officer and President including holding
     the title of and serving as Chief Executive Officer and President of the
     Company and having responsibility for performing all duties typically
     undertaken by such offices or assignment to Executive of duties materially
     inconsistent with such positions, (ii) the diminution in any material
     respect of Executive's positions or authority, excluding for this purpose
     an isolated, insubstantial and inadvertent action not taken in bad faith
     and which is remedied by the Company promptly after receipt of notice
     thereof given by Executive, (iii) failure by the Company to provide
     Executive with Base Salary as well as

<PAGE>

     with the compensation (including without limitation bonus and other
     incentive compensation) Executive was receiving immediately prior to the
     Change of Control and with Benefits, or (iv) relocation of Executive's
     principal place of work to a location more than 30 miles from its current
     location without Executive's consent. For purposes of this definition of
     Good Reason, "Company" means Control Delivery Systems and any successor of
     Control Delivery Systems, provided if any such successor has a parent, then
     Company shall mean the ultimate parent corporation.

          "Cause" means only (a) willful malfeasance or gross negligence in the
     performance by Executive of his or her duties, resulting in material harm
     to the Company, (b) fraud or dishonesty by Executive with respect to the
     Company, or (c) Executive's conviction of any felony involving deception,
     fraud or moral turpitude. The Company may treat a termination of
     Executive's employment as termination for Cause only after (i) giving
     Executive written notice of the intention to terminate for Cause and of his
     or her right to a hearing by the Board, (ii) at least 30 days after giving
     the notice, conducting a hearing by the Board at which Executive may be
     represented by counsel, and (iii) giving Executive 30 days' written notice
     of the results of the hearing, which shall require a vote of a majority of
     the Directors then in office other than Executive. For purposes of this
     definition of Cause, no act or omission shall be considered to have been
     "willful" unless it was not in good faith and Executive had knowledge at
     the time that the act or omission was not in the best interest of the
     Company. Any act or failure to act based on authority given pursuant to a
     resolution duly adopted by the Board or based on the advice of counsel of
     the Company shall be conclusively presumed to be done, or omitted to be
     done, by Executive in good faith and in the best interest of the Company.
     Cause shall not include willful failure due to incapacity resulting from
     physical or mental illness or any actual or anticipated failure after
     Notice of Termination for Good Reason.

          "Base Salary" means $250,000, provided that in the event the Board in
     its sole discretion increases Executive's Base Salary above $250,000, the
     Base Salary as so increased will be referred to as "Base Salary."

          "Benefits" means the following plans, policies and arrangements (or in
     any successor or supplemental plans, policies or arrangements), if and to
     the extent maintained by the Company, in each case at a level appropriate
     to Executive's position as determined by the Board and in each case in
     accordance with the terms of the pertinent plan, policy or arrangement:

          (i) the Company's 2001 Incentive Plan;

          (ii) the Company's group medical plan;

          (iii) life insurance arrangements or disability plan arrangements
     provided to executive-level employees of the Company;


                                       -2-

<PAGE>

          (iv) all the Company's equity plans in which executives of the Company
     participate;

          (v) the Company's normal expense reimbursement policies; and

          (vi) ordinary vacation arrangements provided to executive-level
     employees of the Company, including at least four weeks paid vacation in
     addition to Company holidays per year.

          (b) Severance Benefits Following a Change of Control. The Company will
     provide severance benefits to Executive as follows:

          (i) The Company will pay to Executive within 30 days of the
     termination a lump-sum cash amount equal to 200% of the sum of (x) Base
     Salary, plus (y) the greater of (1) 100 percent of his bonus for the
     completed year immediately preceding the Change of Control, and (2) 100
     percent of his bonus for the immediately preceding employment year.

          (ii) The Company will also pay to Executive within 30 days of the
     termination a pro-rata portion of his maximum bonus for the year of
     termination.

               (A) For purposes of this Section 1(b), the maximum bonus payable
          in such year will be calculated assuming all bonus targets or formulas
          for determining the bonus in such year had been met if Executive and
          Board had, prior to the termination of Executive's employment, agreed
          on such targets or formulas.

               (B) If no such targets or formulas have been set as of such
          termination date, then the maximum bonus shall be deemed to be the
          greater of (x) 100 percent of his bonus for the completed year
          immediately preceding the Change of Control, and (y) 100 percent of
          his bonus for the immediately preceding employment year.

          (iii) The Company will continue for a period of two years from the
     date of termination to provide Executive with medical benefits under the
     Company's group medical plan and life insurance arrangements and disability
     arrangements provided to executive level employees of the Company. To the
     extent the Company is unable to provide such benefits to Executive under
     its existing plans and arrangements, it will either arrange to provide
     Executive with substantially similar benefits upon comparable terms or pay
     Executive cash amounts equal to Executive's cost of obtaining such
     benefits.

          (iv) All options to purchase Company stock held by Executive will
     automatically and immediately vest and become exercisable upon such
     termination and remain exercisable for a period of one year following such
     termination, and all restricted stock held by Executive under restricted
     stock plans and arrangements of the Company shall automatically and
     immediately vest and no longer be subject to forfeiture upon such


                                       -3-

<PAGE>

     termination. The Company agrees that it will not exercise any right that
     the Company has to purchase, repurchase or reacquire all or any part of
     such vested stock.

     2. Taxes on Severance Benefits.

     2.1 Withholding. All payments required to be made by the Company hereunder
to Executive or his dependents, beneficiaries, or estate will be subject to the
withholding of such amounts relating to tax and/or other payroll deductions as
may be required by law.

     2.2 Section 4999 Excise Taxes. In the event that it is determined that any
payment or benefit provided by the Company to or for the benefit of Executive,
either under this Agreement or otherwise, will be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code or any successor
provision(s) ("Section 4999"), the Company will, prior to the date on which any
amount of the excise tax must be paid or withheld, make an additional lump-sum
payment (the "Gross-up Payment") to Executive in an amount sufficient, after
giving effect to all federal, state and other taxes and charges (including
interest and penalties, if any) with respect to the gross-up payment, to make
Executive whole for all taxes (including withholding taxes) and any associated
interest and penalties, imposed under or as a result of Section 4999.

     2.3 Selection of Accounting Firm. Determinations under this Section 2 will
be made by PricewaterhouseCoopers, LLP or if PricewaterhouseCoopers, LLP is
unable or unwilling to serve or if the Company and Executive otherwise
determine, by another firm mutually agreed to by the Company and Executive (the
"Firm"). The determinations of the Firm will be binding upon the Company and
Executive except as the determinations are established in resolution (including
by settlement) of a controversy with the Internal Revenue Service to have been
incorrect. All fees and expenses of the Firm will be paid by the Company.

     2.4 IRS Claims. If the Internal Revenue Service asserts a claim that, if
successful, would require the Company to make a Gross-up Payment or an
additional Gross-up Payment, the Company and Executive will cooperate fully in
resolving the controversy with the Internal Revenue Service. The Company will
make or advance such Gross-up Payments as are necessary to prevent Executive
from having to bear the cost of payments made to the Internal Revenue Service in
the course of, or as a result of, the controversy. The Firm will determine the
amount of such Gross-up Payments or advances and will determine after final
resolution of the controversy whether any advances must be returned by Executive
to the Company. The Company will bear all expenses of the controversy and will
gross Executive up for any additional taxes that may be imposed upon Executive
as a result of its payment of such expenses.

     3. Withholding. All payments required to be made by the Company to
Executive under this Agreement will be subject to the withholding of such
amounts, if any, relating to tax and other payroll deductions as may be required
by law.

     4. Fees and Expenses. In the event of Executive's termination of employment
during that period starting on the date of a Change of Control and ending on the
second anniversary of


                                       -4-

<PAGE>

the Change of Control, the Company will pay any and all fees and expenses
(including legal fees and other costs of arbitration or litigation) that may be
incurred by Executive in enforcing his rights under this Agreement.

     5. No Duty to Mitigate. Benefits payable under this Agreement as a result
of termination of Executive's employment will be considered severance pay in
consideration of his past service and his continued service from the Effective
Date, and his entitlement thereto will neither be governed by any duty to
mitigate his damages by seeking further employment nor offset by any
compensation that he may receive from other employment.

     6. Confidentiality. Executive agrees to maintain the confidentiality of the
Company's (and its related entities and projects) books, records, financial
information, technical information, business plans and/or strategies, and other
confidential matters unless required to make disclosure in the performance of
his duties for the Company or as a result of a legal proceeding or other legally
mandated cause. Executive further agrees to abide by all of the terms of the
Confidentiality and Inventions Agreement dated as of __________.

     The parties recognize and agree that should the Company be required to
pursue a claim against Executive under this Section 6, the Company will likely
be required to seek injunctive relief as well as damages at law. Accordingly,
Section 8, Arbitration, will not apply to any action by the Company against
Executive for violation of this Section 6.

     7. Indemnification. To the extent permitted by law, the Company will
defend, indemnify and hold Executive harmless from and against any and all
losses, liabilities, damages, expenses (including attorneys' fees and costs),
actions, causes of action or proceedings arising directly or indirectly from
Executive's performance of this Agreement or services as an employee of the
Company. Executive may retain his own counsel to defend himself in such actions,
and the Company will pay for the reasonable costs and expense of such counsel.
This indemnification is in addition to any right of indemnification to which
Executive may be entitled under the Company's Articles of Incorporation and
By-laws, any separate indemnification agreements between the Company and
Executive, and any insurance policies that may be maintained by the Company.

     8. Arbitration. Except as otherwise provided in Section 6, any dispute or
controversy between the parties involving the construction or application of any
terms, covenants or conditions of this Agreement, or any claim arising out of or
relating to this Agreement, or any claim arising out of or relating to
Executive's employment by the Company that is not resolved within ten days by
the parties will be settled by arbitration in Boston, Massachusetts, in
accordance with the rules of the American Arbitration Association then in
effect, and judgment upon the award rendered by the arbitrator(s) may be entered
in any court having jurisdiction thereof. The Company and Executive agree that
the arbitrator(s) will have no authority to award punitive or exemplary damages
or so-called consequential or remote damages such as damages for emotional
distress. Any decision of the arbitrator(s) will be final and binding upon the
parties. Either party may request that the arbitrator(s) submit written findings
of fact and


                                       -5-

<PAGE>

conclusions of law. The parties agree and understand that they hereby waive
their rights to a jury trial of any dispute or controversy relating to the
matters specified above in this Section 8.

     9. Rights of Survivors If Executive dies after becoming entitled to
benefits under Section 1 following termination of employment but before all such
benefits have been provided, (a) all unpaid cash amounts will be paid to the
beneficiary that has been designated by Executive in writing (the
"beneficiary"), or if none, to Executive's estate, (b) all applicable insurance
coverage will be provided to Executive's family as though Executive had
continued to live, and (c) any stock options that become exercisable under
Section 1 will be exercisable by the beneficiary, or if none, the estate.

     10. Successors. This Agreement will inure to and be binding upon the
Company's successors. The Company will require any successor to all or
substantially all of the business and/or assets of the Company by sale, merger
or consolidation (where the Company is not the surviving corporation), lease or
otherwise, by agreement in form and substance satisfactory to Executive, to
assume this Agreement expressly. This Agreement is not otherwise assignable by
the Company or the Executive.

     11. Amendment or Modification; Waiver. This Agreement may not be amended
unless agreed to in writing by Executive and the Company. No waiver by either
party of any breach of this Agreement will be deemed a waiver of a subsequent
breach.

     12. Severability. In the event that any provision of this Agreement is
determined to be invalid or unenforceable, the remaining provisions shall remain
in full force and effect to the fullest extent permitted by law.

     13. Controlling Law. This Agreement will be controlled and interpreted
pursuant to Massachusetts law, other than its choice of law principles.

     14. Entire Agreement. This Agreement (including without limitation the
Exhibits hereto) constitutes the entire agreement and supersedes conflicting
terms in all prior agreements and undertakings, both written and oral, between
Executive and the Company with respect to the subject matter hereof. Except as
otherwise set forth herein, the terms and conditions of all other agreements
with Executive, including without limitation all Restricted Stock Award
Agreements and a Confidentiality and Inventions Agreement, shall continue in
full force and effect.

     15. Notices. Any notices required or permitted to be sent under this
Agreement are to be delivered by hand or mailed by registered or certified mail,
return receipt requested, and addressed as follows:

If to the Company:

     Control Delivery Systems, Inc.
     400 Pleasant Street
     Watertown, MA 02472


                                       -6-

<PAGE>

If to Executive:

     Paul Ashton
     19 Brimmer Street
     Boston, MA 02108

Either party may change its address for receiving notices by giving notice to
the other party.

     16. Release. Notwithstanding anything to the contrary contained in this
Agreement, in order for Executive to be eligible for the severance benefits to
be provided in accordance with this Agreement, Executive must sign (and not
revoke within seven days of signing) a release of claims in the form attached
hereto and marked Exhibit B.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]


                                       -7-

<PAGE>

     In witness whereof, the parties hereto have executed this Agreement as of
the date first set forth above.


                                        By: /s/ Paul Ashton
                                            ------------------------------------
                                        Name: Paul Ashton


                                        CONTROL DELIVERY SYSTEMS, INC.


                                        By: /s/ Lori H. Freedman
                                            ------------------------------------
                                        Name: Lori H. Freedman
                                        Title: Vice President, Corporate Affairs
                                               and General Counsel


                                       -8-

<PAGE>

                                    Exhibit A

     "Change of Control" means the occurrence of any of the following events:

          (a) The acquisition by any Person or group of the ultimate beneficial
     ownership (within the meaning of Rule 13d-3 promulgated under the
     Securities Exchange Act of 1934, as amended (the "Exchange Act")) of more
     than 50% of the then outstanding securities of the Company entitled to vote
     generally in the election of directors; excluding, however, the following:
     (i) any acquisition directly from the Company (other than any acquisition
     by virtue of the exercise of an exercise, conversion or exchange privilege
     unless the security being so exercised, converted or exchanged was itself
     acquired directly from the Company); (ii) any acquisition by the Company;
     (iii) any acquisition by an employee benefit plan (or related trust)
     sponsored or maintained by the Company or by any corporation controlled by
     the Company; (iv) any acquisition by the Executive, by an Executive Related
     Party (as defined in Exhibit A) or by a group of which the Executive is a
     member; or (v) any acquisition by any corporation pursuant to a transaction
     which complies with clauses (i), (ii) and (iii) of subsection (c) of this
     Exhibit A; or

          (b) Individuals who, as of the date hereof, constitute the Board (the
     "Incumbent Board") cease for any reason to constitute at least a majority
     of the Board; provided, however, that any individual becoming a director
     subsequent to the date hereof whose election, or nomination for election,
     by the Company's shareholders, was approved by a vote of at least a
     majority of the directors then comprising the Incumbent Board shall be
     considered as though such individual were a member of the Incumbent Board,
     but excluding, for this purpose, any such individual whose initial
     assumption of office occurs as a result of an actual or threatened election
     contest with respect to the election or removal of directors or other
     actual or threatened solicitation of proxies or consents by or on behalf of
     a Person other than the Board; or

          (v) A reorganization, recapitalization, merger or consolidation (a
     "Corporate Transaction") of the Company, unless (i) securities representing
     more than 50% of the then outstanding securities entitled to vote generally
     in the election of directors of the Company or the corporation resulting
     from or surviving such Corporate Transaction (or the ultimate parent of the
     Company or such corporation after such Corporate Transaction) are
     beneficially owned subsequent to such Corporate Transaction by the Person
     or Persons who were the beneficial owners of the outstanding securities of
     the Company entitled to vote generally in the election of directors
     immediately prior to such Corporate Transaction, in substantially the same
     proportions as their ownership immediately prior to such Corporate
     Transaction; (ii) no Person (excluding any corporation resulting from such
     Corporate Transaction or any employee benefit plan (or related trust) of
     the Company or such corporation resulting from such Corporate Transaction)
     ultimately beneficially owns, directly or indirectly, more than 50% of the
     then outstanding securities entitled to vote generally in the election of
     directors of the Company or the corporation resulting from or surviving
     such Corporate Transaction (or the ultimate parent of the

<PAGE>

     Company or such corporation after such Corporate Transaction) except to the
     extent that such ownership existed prior to the Corporate Transaction; and
     (iii) at least a majority of the members of the board of directors of the
     corporation resulting from such Corporate Transaction were members of the
     Incumbent Board at the time of the execution of the initial agreement, or
     of the action of the Board, providing for such Corporate Transaction; or

          (c) The sale, transfer or other disposition of all or substantially
     all of the assets of the Company; or

          (vi) Approval by the shareholders of the Company of a complete
     liquidation or dissolution of the Company.

     For purposes of this definition, securities entitled to vote generally in
the election of directors that are issuable upon exercise of an exercise,
conversion or exchange privilege shall be deemed to be outstanding. In addition,
for purposes of this definition the following terms have the meanings set forth
below:

     A Person will be deemed to be the "owner" of any securities of which such
Person would be the "beneficial owner," as such term is defined in Rule 13d-3
promulgated by the Securities and Exchange Commission under the Exchange Act.

     "Person" has the meaning used in Section 13(d) of the Exchange Act, except
that "Person" does not include (i) the Executive, an Executive Related Party, or
any group of which the Executive or Executive Related Party is a member, or (ii)
the Company or a wholly owned subsidiary of the Company or an employee benefit
plan (or related trust) of the Company or of a wholly owned subsidiary.

     An "Executive Related Party" means any affiliate or associate of the
Executive other than the Company or a subsidiary of the Company. The terms
"affiliate" and "associate" have the meanings given in Rule 12b-2 under the
Exchange Act; the term "registrant" in the definition of "associate" means, in
this case, the Company.


                                      -ii-

<PAGE>

                                    EXHIBIT B

                                RELEASE OF CLAIMS

     FOR AND IN CONSIDERATION OF the benefits to be provided me in connection
with the termination of my employment, as set forth in the Amended and Restated
Change of Control Agreement between me and Control Delivery Systems, Inc. (the
"Company") dated as of August 17, 2004 (the "Agreement"), which benefits are
subject to my signing of this Release of Claims and to which I am not otherwise
entitled, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, I, on my own behalf and on behalf
of my heirs, executives, administrators, beneficiaries, representatives and
assigns, and all others connected with me, hereby release and forever discharge
the Company, its subsidiaries and other affiliates and all of their respective
past, present and future officers, directors, trustees, shareholders, employees,
agents, general and limited partners, members, managers, joint venturers,
representatives, successors and assigns, and all others connected with any of
them, both individually and in their official capacities, from any and all
causes of action, rights and claims of any type or description, known or
unknown, which I have had in the past, now have, or might now have, through the
date of my signing of this Release of Claims, in any way resulting from, arising
out of or connected with my employment by the Company or any of its subsidiaries
or other affiliates or the termination of that employment or pursuant to any
federal, state or local law, regulation or other requirement (including without
limitation Title VII of the Civil Rights Act of 1964, the Age Discrimination in
Employment Act, the Americans with Disabilities Act, and the fair employment
practices laws of the state or states in which I have been employed by the
Company or any of the subsidiaries or other affiliates, each as amended from
time to time).

     Excluded from the scope of this Release of Claims is (i) any claim arising
under the terms of the Agreement and (ii) any right of indemnification or
contribution that I have pursuant to the Articles of Incorporation or By-Laws of
the Company or any of its subsidiaries or other affiliates.

     In signing this Release of Claims, I acknowledge my understanding that I
may not sign it prior to the termination of my employment, but that I may
consider the terms of this Release of Claims for up to twenty-one (21) days (or
such longer period as the Company may specify) from the later of the date my
employment with the Company terminates or the date I receive this Release of
Claims. I also acknowledge that I am advised by the Company and its Affiliates
to seek the advice of an attorney prior to signing this Release of Claims; that
I have had sufficient time to consider this Release of Claims and to consult
with an attorney, if I wished to do so, or to consult with any other person of
my choosing before signing; and that I am signing this Release of Claims
voluntarily and with a full understanding of its terms.

     I further acknowledge that, in signing this Release of Claims, I have not
relied on any promises or representations, express or implied, that are not set
forth expressly in the Agreement. I understand that I may revoke this Release of
Claims at any time within seven (7) days of the date of my signing by written
notice to the General Counsel of the Company and that this


                                      -iii-

<PAGE>

Release of Claims will take effect only upon the expiration of such seven-day
revocation period and only if I have not timely revoked it.

Intending to be legally bound, I have signed this Release of Claims under seal
as of the date written below.


Signature:
           -----------------------------
Name (please print):
                     -------------------
Date Signed:
             ---------------------------


                                      -iv-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.21
<SEQUENCE>7
<FILENAME>y16393exv4w21.txt
<DESCRIPTION>EX-4.21: AMENDED AND RESTATED CONTROL DELIVERY SYSTEMS, INC. CHANGE OF CONTROL AGREEMENT
<TEXT>
<PAGE>
                                                                    Exhibit 4.21

                              AMENDED AND RESTATED
                         CONTROL DELIVERY SYSTEMS, INC.
                           CHANGE OF CONTROL AGREEMENT

     AGREEMENT made this 17th day of August, 2004, by and between Michael J.
Soja ("Executive") and Control Delivery Systems, Inc. (the "Company").

     Whereas, the Board of Directors of the Company (the "Board") recognizes
that, as is the case with many corporations, the possibility of a Change of
Control (as defined in Exhibit A) may exist and that such possibility, and the
uncertainty and questions which it may raise among management personnel, may
result in the departure or distraction of management personnel to the detriment
of the Company and its stockholders;

     Whereas, the Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's management, including Executive, to their duties, to assisting the
Board in assessing proposals with respect to a Change of Control and to advising
the Board as to the best interests of the Company and its shareholders with
respect to such potential Change of Control, without distraction and conflict
arising from the possibility of a Change of Control; and

     Whereas, the Board wishes to induce Executive and other members of
management to remain in the employ of the Company and to assure them of fair
severance should the employment of any of them terminate in specified
circumstances following a Change of Control of the Company;

     NOW, THEREFORE, in consideration of the premises and the mutual promises,
terms and conditions contained herein, the parties hereto agree as follows:

     1. Severance Benefits Following a Change of Control

          (a) Entitlement to Severance Benefits. If during that period starting
     on the date of a Change of Control and ending on the second anniversary of
     the Change of Control, the Company terminates Executive's employment
     without Cause, or if Executive terminates his employment for Good Reason,
     the Company will, subject to Section 2 below, provide severance benefits to
     Executive as set forth below in this Section 1.

          "Good Reason" means (i) failure by the Company to maintain Executive
     in the position of Vice President, Chief Financial Officer including
     holding the title of and serving as Vice President, Chief Financial Officer
     of the Company and having responsibility for performing all duties
     typically undertaken by such offices or assignment to Executive of duties
     materially inconsistent with such positions, (ii) the diminution in any
     material respect of Executive's positions or authority, excluding for this
     purpose an isolated, insubstantial and inadvertent action not taken in bad
     faith and which is remedied by the Company promptly after receipt of notice
     thereof given by Executive, (iii) failure by the Company to provide
     Executive with Base Salary as well as

<PAGE>

     with the compensation (including without limitation bonus and other
     incentive compensation) Executive was receiving immediately prior to the
     Change of Control and with Benefits, or (iv) relocation of Executive's
     principal place of work to a location more than 30 miles from its current
     location without Executive's consent. For purposes of this definition of
     Good Reason, "Company" means Control Delivery Systems and any successor of
     Control Delivery Systems, provided if any such successor has a parent, then
     Company shall mean the ultimate parent corporation.

          "Cause" means only (a) willful malfeasance or gross negligence in the
     performance by Executive of his or her duties, resulting in material harm
     to the Company, (b) fraud or dishonesty by Executive with respect to the
     Company, or (c) Executive's conviction of any felony involving deception,
     fraud or moral turpitude. The Company may treat a termination of
     Executive's employment as termination for Cause only after (i) giving
     Executive written notice of the intention to terminate for Cause and of his
     or her right to a hearing by the Board, (ii) at least 30 days after giving
     the notice, conducting a hearing by the Board at which Executive may be
     represented by counsel, and (iii) giving Executive 30 days' written notice
     of the results of the hearing, which shall require a vote of a majority of
     the Directors then in office other than Executive. For purposes of this
     definition of Cause, no act or omission shall be considered to have been
     "willful" unless it was not in good faith and Executive had knowledge at
     the time that the act or omission was not in the best interest of the
     Company. Any act or failure to act based on authority given pursuant to a
     resolution duly adopted by the Board or based on the advice of counsel of
     the Company shall be conclusively presumed to be done, or omitted to be
     done, by Executive in good faith and in the best interest of the Company.
     Cause shall not include willful failure due to incapacity resulting from
     physical or mental illness or any actual or anticipated failure after
     Notice of Termination for Good Reason.

          "Base Salary" means $272,497, provided that in the event the Board in
     its sole discretion increases Executive's Base Salary above $272,497, the
     Base Salary as so increased will be referred to as "Base Salary."

          "Benefits" means the following plans, policies and arrangements (or in
     any successor or supplemental plans, policies or arrangements), if and to
     the extent maintained by the Company, in each case at a level appropriate
     to Executive's position as determined by the Board and in each case in
     accordance with the terms of the pertinent plan, policy or arrangement:

          (i) the Company's 2001 Incentive Plan;

          (ii) the Company's group medical plan;

          (iii) life insurance arrangements or disability plan arrangements
     provided to executive-level employees of the Company;


                                       -2-

<PAGE>

          (iv) all the Company's equity plans in which executives of the Company
     participate;

          (v) the Company's normal expense reimbursement policies; and

          (vi) ordinary vacation arrangements provided to executive-level
     employees of the Company, including at least four weeks paid vacation in
     addition to Company holidays per year.

          (b) Severance Benefits Following a Change of Control. The Company will
     provide severance benefits to Executive as follows:

          (i) The Company will pay to Executive within 30 days of the
     termination a lump-sum cash amount equal to 200% of the sum of (x) Base
     Salary, plus (y) the greater of (1) 100 percent of his bonus for the
     completed year immediately preceding the Change of Control, and (2) 100
     percent of his bonus for the immediately preceding employment year.

          (ii) The Company will also pay to Executive within 30 days of the
     termination a pro-rata portion of his maximum bonus for the year of
     termination.

               (A) For purposes of this Section 1(b), the maximum bonus payable
          in such year will be calculated assuming all bonus targets or formulas
          for determining the bonus in such year had been met if Executive and
          Board had, prior to the termination of Executive's employment, agreed
          on such targets or formulas.

               (B) If no such targets or formulas have been set as of such
          termination date, then the maximum bonus shall be deemed to be the
          greater of (x) 100 percent of his bonus for the completed year
          immediately preceding the Change of Control, and (y) 100 percent of
          his bonus for the immediately preceding employment year.

          (iii) The Company will continue for a period of two years from the
     date of termination to provide Executive with medical benefits under the
     Company's group medical plan and life insurance arrangements and disability
     arrangements provided to executive level employees of the Company. To the
     extent the Company is unable to provide such benefits to Executive under
     its existing plans and arrangements, it will either arrange to provide
     Executive with substantially similar benefits upon comparable terms or pay
     Executive cash amounts equal to Executive's cost of obtaining such
     benefits.

          (iv) All options to purchase Company stock held by Executive will
     automatically and immediately vest and become exercisable upon such
     termination and remain exercisable for a period of one year following such
     termination, and all restricted stock held by Executive under restricted
     stock plans and arrangements of the Company shall automatically and
     immediately vest and no longer be subject to forfeiture upon such


                                       -3-

<PAGE>

     termination. The Company agrees that it will not exercise any right that
     the Company has to purchase, repurchase or reacquire all or any part of
     such vested stock.

     2. Taxes on Severance Benefits.

     2.1 Withholding. All payments required to be made by the Company hereunder
to Executive or his dependents, beneficiaries, or estate will be subject to the
withholding of such amounts relating to tax and/or other payroll deductions as
may be required by law.

     2.2 Section 4999 Excise Taxes. In the event that it is determined that any
payment or benefit provided by the Company to or for the benefit of Executive,
either under this Agreement or otherwise, will be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code or any successor
provision(s) ("Section 4999"), the Company will, prior to the date on which any
amount of the excise tax must be paid or withheld, make an additional lump-sum
payment (the "Gross-up Payment") to Executive in an amount sufficient, after
giving effect to all federal, state and other taxes and charges (including
interest and penalties, if any) with respect to the gross-up payment, to make
Executive whole for all taxes (including withholding taxes) and any associated
interest and penalties, imposed under or as a result of Section 4999.

     2.3 Selection of Accounting Firm. Determinations under this Section 2 will
be made by PricewaterhouseCoopers, LLP or if PricewaterhouseCoopers, LLP is
unable or unwilling to serve or if the Company and Executive otherwise
determine, by another firm mutually agreed to by the Company and Executive (the
"Firm"). The determinations of the Firm will be binding upon the Company and
Executive except as the determinations are established in resolution (including
by settlement) of a controversy with the Internal Revenue Service to have been
incorrect. All fees and expenses of the Firm will be paid by the Company.

     2.4 IRS Claims. If the Internal Revenue Service asserts a claim that, if
successful, would require the Company to make a Gross-up Payment or an
additional Gross-up Payment, the Company and Executive will cooperate fully in
resolving the controversy with the Internal Revenue Service. The Company will
make or advance such Gross-up Payments as are necessary to prevent Executive
from having to bear the cost of payments made to the Internal Revenue Service in
the course of, or as a result of, the controversy. The Firm will determine the
amount of such Gross-up Payments or advances and will determine after final
resolution of the controversy whether any advances must be returned by Executive
to the Company. The Company will bear all expenses of the controversy and will
gross Executive up for any additional taxes that may be imposed upon Executive
as a result of its payment of such expenses.

     3. Withholding. All payments required to be made by the Company to
Executive under this Agreement will be subject to the withholding of such
amounts, if any, relating to tax and other payroll deductions as may be required
by law.

     4. Fees and Expenses. In the event of Executive's termination of employment
during that period starting on the date of a Change of Control and ending on the
second anniversary of


                                       -4-

<PAGE>

the Change of Control, the Company will pay any and all fees and expenses
(including legal fees and other costs of arbitration or litigation) that may be
incurred by Executive in enforcing his rights under this Agreement.

     5. No Duty to Mitigate. Benefits payable under this Agreement as a result
of termination of Executive's employment will be considered severance pay in
consideration of his past service and his continued service from the Effective
Date, and his entitlement thereto will neither be governed by any duty to
mitigate his damages by seeking further employment nor offset by any
compensation that he may receive from other employment.

     6. Confidentiality. Executive agrees to maintain the confidentiality of the
Company's (and its related entities and projects) books, records, financial
information, technical information, business plans and/or strategies, and other
confidential matters unless required to make disclosure in the performance of
his duties for the Company or as a result of a legal proceeding or other legally
mandated cause. Executive further agrees to abide by all of the terms of the
Confidentiality and Inventions Agreement dated as of __________.

     The parties recognize and agree that should the Company be required to
pursue a claim against Executive under this Section 6, the Company will likely
be required to seek injunctive relief as well as damages at law. Accordingly,
Section 8, Arbitration, will not apply to any action by the Company against
Executive for violation of this Section 6.

     7. Indemnification. To the extent permitted by law, the Company will
defend, indemnify and hold Executive harmless from and against any and all
losses, liabilities, damages, expenses (including attorneys' fees and costs),
actions, causes of action or proceedings arising directly or indirectly from
Executive's performance of this Agreement or services as an employee of the
Company. Executive may retain his own counsel to defend himself in such actions,
and the Company will pay for the reasonable costs and expense of such counsel.
This indemnification is in addition to any right of indemnification to which
Executive may be entitled under the Company's Articles of Incorporation and
By-laws, any separate indemnification agreements between the Company and
Executive, and any insurance policies that may be maintained by the Company.

     8. Arbitration. Except as otherwise provided in Section 6, any dispute or
controversy between the parties involving the construction or application of any
terms, covenants or conditions of this Agreement, or any claim arising out of or
relating to this Agreement, or any claim arising out of or relating to
Executive's employment by the Company that is not resolved within ten days by
the parties will be settled by arbitration in Boston, Massachusetts, in
accordance with the rules of the American Arbitration Association then in
effect, and judgment upon the award rendered by the arbitrator(s) may be entered
in any court having jurisdiction thereof. The Company and Executive agree that
the arbitrator(s) will have no authority to award punitive or exemplary damages
or so-called consequential or remote damages such as damages for emotional
distress. Any decision of the arbitrator(s) will be final and binding upon the
parties. Either party may request that the arbitrator(s) submit written findings
of fact and


                                       -5-

<PAGE>

conclusions of law. The parties agree and understand that they hereby waive
their rights to a jury trial of any dispute or controversy relating to the
matters specified above in this Section 8.

     9. Rights of Survivors If Executive dies after becoming entitled to
benefits under Section 1 following termination of employment but before all such
benefits have been provided, (a) all unpaid cash amounts will be paid to the
beneficiary that has been designated by Executive in writing (the
"beneficiary"), or if none, to Executive's estate, (b) all applicable insurance
coverage will be provided to Executive's family as though Executive had
continued to live, and (c) any stock options that become exercisable under
Section 1 will be exercisable by the beneficiary, or if none, the estate.

     10. Successors. This Agreement will inure to and be binding upon the
Company's successors. The Company will require any successor to all or
substantially all of the business and/or assets of the Company by sale, merger
or consolidation (where the Company is not the surviving corporation), lease or
otherwise, by agreement in form and substance satisfactory to Executive, to
assume this Agreement expressly. This Agreement is not otherwise assignable by
the Company or the Executive.

     11. Amendment or Modification; Waiver. This Agreement may not be amended
unless agreed to in writing by Executive and the Company. No waiver by either
party of any breach of this Agreement will be deemed a waiver of a subsequent
breach.

     12. Severability. In the event that any provision of this Agreement is
determined to be invalid or unenforceable, the remaining provisions shall remain
in full force and effect to the fullest extent permitted by law.

     13. Controlling Law. This Agreement will be controlled and interpreted
pursuant to Massachusetts law, other than its choice of law principles.

     14. Entire Agreement. This Agreement (including without limitation the
Exhibits hereto) constitutes the entire agreement and supersedes conflicting
terms in all prior agreements and undertakings, both written and oral, between
Executive and the Company with respect to the subject matter hereof. Except as
otherwise set forth herein, the terms and conditions of all other agreements
with Executive, including without limitation all Restricted Stock Award
Agreements and a Confidentiality and Inventions Agreement, shall continue in
full force and effect.

     15. Notices. Any notices required or permitted to be sent under this
Agreement are to be delivered by hand or mailed by registered or certified mail,
return receipt requested, and addressed as follows:

If to the Company:

     Control Delivery Systems, Inc.
     400 Pleasant Street
     Watertown, MA 02472


                                       -6-

<PAGE>

If to Executive:

     Michael J. Soja
     34 Musket Lane
     Sudbury, MA 01776

Either party may change its address for receiving notices by giving notice to
the other party.

     16. Release. Notwithstanding anything to the contrary contained in this
Agreement, in order for Executive to be eligible for the severance benefits to
be provided in accordance with this Agreement, Executive must sign (and not
revoke within seven days of signing) a release of claims in the form attached
hereto and marked Exhibit B.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]


                                       -7-

<PAGE>

     In witness whereof, the parties hereto have executed this Agreement as of
the date first set forth above.


                                        By: /s/ Michael J. Soja
                                            ------------------------------------
                                        Name: Michael J. Soja


                                        CONTROL DELIVERY SYSTEMS, INC.


                                        By: /s/ Paul Ashton
                                            ------------------------------------
                                        Name: Paul Ashton
                                        Title: Chief Executive Officer &
                                               President


                                       -8-

<PAGE>

                                    Exhibit A

     "Change of Control" means the occurrence of any of the following events:

          (a) The acquisition by any Person or group of the ultimate beneficial
     ownership (within the meaning of Rule 13d-3 promulgated under the
     Securities Exchange Act of 1934, as amended (the "Exchange Act")) of more
     than 50% of the then outstanding securities of the Company entitled to vote
     generally in the election of directors; excluding, however, the following:
     (i) any acquisition directly from the Company (other than any acquisition
     by virtue of the exercise of an exercise, conversion or exchange privilege
     unless the security being so exercised, converted or exchanged was itself
     acquired directly from the Company); (ii) any acquisition by the Company;
     (iii) any acquisition by an employee benefit plan (or related trust)
     sponsored or maintained by the Company or by any corporation controlled by
     the Company; (iv) any acquisition by the Executive, by an Executive Related
     Party (as defined in Exhibit A) or by a group of which the Executive is a
     member; or (v) any acquisition by any corporation pursuant to a transaction
     which complies with clauses (i), (ii) and (iii) of subsection (c) of this
     Exhibit A; or

          (b) Individuals who, as of the date hereof, constitute the Board (the
     "Incumbent Board") cease for any reason to constitute at least a majority
     of the Board; provided, however, that any individual becoming a director
     subsequent to the date hereof whose election, or nomination for election,
     by the Company's shareholders, was approved by a vote of at least a
     majority of the directors then comprising the Incumbent Board shall be
     considered as though such individual were a member of the Incumbent Board,
     but excluding, for this purpose, any such individual whose initial
     assumption of office occurs as a result of an actual or threatened election
     contest with respect to the election or removal of directors or other
     actual or threatened solicitation of proxies or consents by or on behalf of
     a Person other than the Board; or

          (v) A reorganization, recapitalization, merger or consolidation (a
     "Corporate Transaction") of the Company, unless (i) securities representing
     more than 50% of the then outstanding securities entitled to vote generally
     in the election of directors of the Company or the corporation resulting
     from or surviving such Corporate Transaction (or the ultimate parent of the
     Company or such corporation after such Corporate Transaction) are
     beneficially owned subsequent to such Corporate Transaction by the Person
     or Persons who were the beneficial owners of the outstanding securities of
     the Company entitled to vote generally in the election of directors
     immediately prior to such Corporate Transaction, in substantially the same
     proportions as their ownership immediately prior to such Corporate
     Transaction; (ii) no Person (excluding any corporation resulting from such
     Corporate Transaction or any employee benefit plan (or related trust) of
     the Company or such corporation resulting from such Corporate Transaction)
     ultimately beneficially owns, directly or indirectly, more than 50% of the
     then outstanding securities entitled to vote generally in the election of
     directors of the Company or the corporation resulting from or surviving
     such Corporate Transaction (or the ultimate parent of the
<PAGE>

     Company or such corporation after such Corporate Transaction) except to the
     extent that such ownership existed prior to the Corporate Transaction; and
     (iii) at least a majority of the members of the board of directors of the
     corporation resulting from such Corporate Transaction were members of the
     Incumbent Board at the time of the execution of the initial agreement, or
     of the action of the Board, providing for such Corporate Transaction; or

          (c) The sale, transfer or other disposition of all or substantially
     all of the assets of the Company; or

          (vi) Approval by the shareholders of the Company of a complete
     liquidation or dissolution of the Company.

     For purposes of this definition, securities entitled to vote generally in
the election of directors that are issuable upon exercise of an exercise,
conversion or exchange privilege shall be deemed to be outstanding. In addition,
for purposes of this definition the following terms have the meanings set forth
below:

     A Person will be deemed to be the "owner" of any securities of which such
Person would be the "beneficial owner," as such term is defined in Rule 13d-3
promulgated by the Securities and Exchange Commission under the Exchange Act.

     "Person" has the meaning used in Section 13(d) of the Exchange Act, except
that "Person" does not include (i) the Executive, an Executive Related Party, or
any group of which the Executive or Executive Related Party is a member, or (ii)
the Company or a wholly owned subsidiary of the Company or an employee benefit
plan (or related trust) of the Company or of a wholly owned subsidiary.

     An "Executive Related Party" means any affiliate or associate of the
Executive other than the Company or a subsidiary of the Company. The terms
"affiliate" and "associate" have the meanings given in Rule 12b-2 under the
Exchange Act; the term "registrant" in the definition of "associate" means, in
this case, the Company.


                                      -ii-

<PAGE>

                                    EXHIBIT B

                                RELEASE OF CLAIMS

     FOR AND IN CONSIDERATION OF the benefits to be provided me in connection
with the termination of my employment, as set forth in the Amended and Restated
Change of Control Agreement between me and Control Delivery Systems, Inc. (the
"Company") dated as of August 17, 2004 (the "Agreement"), which benefits are
subject to my signing of this Release of Claims and to which I am not otherwise
entitled, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, I, on my own behalf and on behalf
of my heirs, executives, administrators, beneficiaries, representatives and
assigns, and all others connected with me, hereby release and forever discharge
the Company, its subsidiaries and other affiliates and all of their respective
past, present and future officers, directors, trustees, shareholders, employees,
agents, general and limited partners, members, managers, joint venturers,
representatives, successors and assigns, and all others connected with any of
them, both individually and in their official capacities, from any and all
causes of action, rights and claims of any type or description, known or
unknown, which I have had in the past, now have, or might now have, through the
date of my signing of this Release of Claims, in any way resulting from, arising
out of or connected with my employment by the Company or any of its subsidiaries
or other affiliates or the termination of that employment or pursuant to any
federal, state or local law, regulation or other requirement (including without
limitation Title VII of the Civil Rights Act of 1964, the Age Discrimination in
Employment Act, the Americans with Disabilities Act, and the fair employment
practices laws of the state or states in which I have been employed by the
Company or any of the subsidiaries or other affiliates, each as amended from
time to time).

     Excluded from the scope of this Release of Claims is (i) any claim arising
under the terms of the Agreement and (ii) any right of indemnification or
contribution that I have pursuant to the Articles of Incorporation or By-Laws of
the Company or any of its subsidiaries or other affiliates.

     In signing this Release of Claims, I acknowledge my understanding that I
may not sign it prior to the termination of my employment, but that I may
consider the terms of this Release of Claims for up to twenty-one (21) days (or
such longer period as the Company may specify) from the later of the date my
employment with the Company terminates or the date I receive this Release of
Claims. I also acknowledge that I am advised by the Company and its Affiliates
to seek the advice of an attorney prior to signing this Release of Claims; that
I have had sufficient time to consider this Release of Claims and to consult
with an attorney, if I wished to do so, or to consult with any other person of
my choosing before signing; and that I am signing this Release of Claims
voluntarily and with a full understanding of its terms.

     I further acknowledge that, in signing this Release of Claims, I have not
relied on any promises or representations, express or implied, that are not set
forth expressly in the Agreement. I understand that I may revoke this Release of
Claims at any time within seven (7) days of the date of my signing by written
notice to the General Counsel of the Company and that this


                                      -iii-

<PAGE>

Release of Claims will take effect only upon the expiration of such seven-day
revocation period and only if I have not timely revoked it.

Intending to be legally bound, I have signed this Release of Claims under seal
as of the date written below.


Signature:
           --------------------------
Name (please print):
                     ----------------
Date Signed:
             ------------------------


                                      -iv-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.22
<SEQUENCE>8
<FILENAME>y16393exv4w22.txt
<DESCRIPTION>EX-4.22: AMENDED AND RESTATED CONTROL DELIVERY SYSTEMS, INC. CHANGE OF CONTROL AGREEMENT
<TEXT>
<PAGE>
                                                                    Exhibit 4.22

                              AMENDED AND RESTATED
                         CONTROL DELIVERY SYSTEMS, INC.
                           CHANGE OF CONTROL AGREEMENT

     AGREEMENT made this 17th day of August, 2004, by and between Lori Freedman
("Executive") and Control Delivery Systems, Inc. (the "Company").

     Whereas, the Board of Directors of the Company (the "Board") recognizes
that, as is the case with many corporations, the possibility of a Change of
Control (as defined in Exhibit A) may exist and that such possibility, and the
uncertainty and questions which it may raise among management personnel, may
result in the departure or distraction of management personnel to the detriment
of the Company and its stockholders;

     Whereas, the Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's management, including Executive, to their duties, to assisting the
Board in assessing proposals with respect to a Change of Control and to advising
the Board as to the best interests of the Company and its shareholders with
respect to such potential Change of Control, without distraction and conflict
arising from the possibility of a Change of Control; and

     Whereas, the Board wishes to induce Executive and other members of
management to remain in the employ of the Company and to assure them of fair
severance should the employment of any of them terminate in specified
circumstances following a Change of Control of the Company;

     NOW, THEREFORE, in consideration of the premises and the mutual promises,
terms and conditions contained herein, the parties hereto agree as follows:

     1. Severance Benefits Following a Change of Control

          (a) Entitlement to Severance Benefits. If during that period starting
     on the date of a Change of Control and ending on the second anniversary of
     the Change of Control, the Company terminates Executive's employment
     without Cause, or if Executive terminates his employment for Good Reason,
     the Company will, subject to Section 2 below, provide severance benefits to
     Executive as set forth below in this Section 1.

          "Good Reason" means (i) failure by the Company to maintain Executive
     in the positions of Vice President, Corporate Affairs, General Counsel and
     Secretary including holding the title of and serving as Vice President,
     Corporate Affairs, General Counsel and Secretary of the Company and having
     responsibility for performing all duties typically undertaken by such
     offices or assignment to Executive of duties materially inconsistent with
     such positions, (ii) the diminution in any material respect of Executive's
     positions or authority, excluding for this purpose an isolated,
     insubstantial and inadvertent action not taken in bad faith and which is
     remedied by the Company promptly after receipt of notice thereof given by
     Executive, (iii) failure by the Company to provide Executive with Base

<PAGE>

     Salary as well as with the compensation (including without limitation,
     bonus and other incentive compensation) Executive was receiving immediately
     prior to the Change of Control and with Benefits, or (iv) relocation of
     Executive's principal place of work to a location more than 30 miles from
     its current location without Executive's consent. For purposes of this
     definition of Good Reason, "Company" means Control Delivery Systems and any
     successor of Control Delivery Systems, provided if any such successor has a
     parent, then Company shall mean the ultimate parent corporation.

          "Cause" means only (a) willful malfeasance or gross negligence in the
     performance by Executive of his or her duties, resulting in material harm
     to the Company, (b) fraud or dishonesty by Executive with respect to the
     Company, or (c) Executive's conviction of any felony involving deception,
     fraud or moral turpitude. The Company may treat a termination of
     Executive's employment as termination for Cause only after (i) giving
     Executive written notice of the intention to terminate for Cause and of his
     or her right to a hearing by the Board, (ii) at least 30 days after giving
     the notice, conducting a hearing by the Board at which Executive may be
     represented by counsel, and (iii) giving Executive 30 days' written notice
     of the results of the hearing, which shall require a vote of a majority of
     the Directors then in office other than Executive. For purposes of this
     definition of Cause, no act or omission shall be considered to have been
     "willful" unless it was not in good faith and Executive had knowledge at
     the time that the act or omission was not in the best interest of the
     Company. Any act or failure to act based on authority given pursuant to a
     resolution duly adopted by the Board or based on the advice of counsel of
     the Company shall be conclusively presumed to be done, or omitted to be
     done, by Executive in good faith and in the best interest of the Company.
     Cause shall not include willful failure due to incapacity resulting from
     physical or mental illness or any actual or anticipated failure after
     Notice of Termination for Good Reason.

          "Base Salary" means $272,497, provided that in the event the Board in
     its sole discretion increases Executive's Base Salary above $272,497, the
     Base Salary as so increased will be referred to as "Base Salary."

          "Benefits"means the following plans, policies and arrangements (or in
     any successor or supplemental plans, policies or arrangements), if and to
     the extent maintained by the Company, in each case at a level appropriate
     to Executive's position as determined by the Board and in each case in
     accordance with the terms of the pertinent plan, policy or arrangement:

          (i) the Company's 2001 Incentive Plan;

          (ii) the Company's group medical plan;

          (iii) life insurance arrangements or disability plan arrangements
     provided to executive-level employees of the Company;


                                       -2-

<PAGE>

          (iv) all the Company's equity plans in which executives of the Company
     participate;

          (v) the Company's normal expense reimbursement policies; and

          (vi) ordinary vacation arrangements provided to executive-level
     employees of the Company, including at least four weeks paid vacation in
     addition to Company holidays per year.

          (b) Severance Benefits Following a Change of Control. The Company will
     provide severance benefits to Executive as follows:

          (i) The Company will pay to Executive within 30 days of the
     termination a lump-sum cash amount equal to 200% of the sum of (x) Base
     Salary, plus (y) the greater of (1) 100 percent of his bonus for the
     completed year immediately preceding the Change of Control, and (2) 100
     percent of his bonus for the immediately preceding employment year.

          (ii) The Company will also pay to Executive within 30 days of the
     termination a pro-rata portion of his maximum bonus for the year of
     termination.

               (A) For purposes of this Section 1(b), the maximum bonus payable
          in such year will be calculated assuming all bonus targets or formulas
          for determining the bonus in such year had been met if Executive and
          Board had, prior to the termination of Executive's employment, agreed
          on such targets or formulas.

               (B) If no such targets or formulas have been set as of such
          termination date, then the maximum bonus shall be deemed to be the
          greater of (x) 100 percent of his bonus for the completed year
          immediately preceding the Change of Control, and (y) 100 percent of
          his bonus for the immediately preceding employment year.

          (iii) The Company will continue for a period of two years from the
     date of termination to provide Executive with medical benefits under the
     Company's group medical plan and life insurance arrangements and disability
     arrangements provided to executive level employees of the Company. To the
     extent the Company is unable to provide such benefits to Executive under
     its existing plans and arrangements, it will either arrange to provide
     Executive with substantially similar benefits upon comparable terms or pay
     Executive cash amounts equal to Executive's cost of obtaining such
     benefits.

          (iv) All options to purchase Company stock held by Executive will
     automatically and immediately vest and become exercisable upon such
     termination and remain exercisable for a period of one year following such
     termination, and all restricted stock held by Executive under restricted
     stock plans and arrangements of the Company shall automatically and
     immediately vest and no longer be subject to forfeiture upon such


                                       -3-

<PAGE>

     termination. The Company agrees that it will not exercise any right that
     the Company has to purchase, repurchase or reacquire all or any part of
     such vested stock.

     2. Taxes on Severance Benefits.

     2.1 Withholding. All payments required to be made by the Company hereunder
to Executive or his dependents, beneficiaries, or estate will be subject to the
withholding of such amounts relating to tax and/or other payroll deductions as
may be required by law.

     2.2 Section 4999 Excise Taxes. In the event that it is determined that any
payment or benefit provided by the Company to or for the benefit of Executive,
either under this Agreement or otherwise, will be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code or any successor
provision(s) ("Section 4999"), the Company will, prior to the date on which any
amount of the excise tax must be paid or withheld, make an additional lump-sum
payment (the "Gross-up Payment") to Executive in an amount sufficient, after
giving effect to all federal, state and other taxes and charges (including
interest and penalties, if any) with respect to the gross-up payment, to make
Executive whole for all taxes (including withholding taxes) and any associated
interest and penalties, imposed under or as a result of Section 4999.

     2.3 Selection of Accounting Firm. Determinations under this Section 2 will
be made by PricewaterhouseCoopers, LLP or if PricewaterhouseCoopers, LLP is
unable or unwilling to serve or if the Company and Executive otherwise
determine, by another firm mutually agreed to by the Company and Executive (the
"Firm"). The determinations of the Firm will be binding upon the Company and
Executive except as the determinations are established in resolution (including
by settlement) of a controversy with the Internal Revenue Service to have been
incorrect. All fees and expenses of the Firm will be paid by the Company.

     2.4 IRS Claims. If the Internal Revenue Service asserts a claim that, if
successful, would require the Company to make a Gross-up Payment or an
additional Gross-up Payment, the Company and Executive will cooperate fully in
resolving the controversy with the Internal Revenue Service. The Company will
make or advance such Gross-up Payments as are necessary to prevent Executive
from having to bear the cost of payments made to the Internal Revenue Service in
the course of, or as a result of, the controversy. The Firm will determine the
amount of such Gross-up Payments or advances and will determine after final
resolution of the controversy whether any advances must be returned by Executive
to the Company. The Company will bear all expenses of the controversy and will
gross Executive up for any additional taxes that may be imposed upon Executive
as a result of its payment of such expenses.

     3. Withholding. All payments required to be made by the Company to
Executive under this Agreement will be subject to the withholding of such
amounts, if any, relating to tax and other payroll deductions as may be required
by law.

     4. Fees and Expenses. In the event of Executive's termination of employment
during that period starting on the date of a Change of Control and ending on the
second anniversary of


                                       -4-

<PAGE>

the Change of Control, the Company will pay any and all fees and expenses
(including legal fees and other costs of arbitration or litigation) that may be
incurred by Executive in enforcing his rights under this Agreement.

     5. No Duty to Mitigate. Benefits payable under this Agreement as a result
of termination of Executive's employment will be considered severance pay in
consideration of his past service and his continued service from the Effective
Date, and his entitlement thereto will neither be governed by any duty to
mitigate his damages by seeking further employment nor offset by any
compensation that he may receive from other employment.

     6. Confidentiality. Executive agrees to maintain the confidentiality of the
Company's (and its related entities and projects) books, records, financial
information, technical information, business plans and/or strategies, and other
confidential matters unless required to make disclosure in the performance of
his duties for the Company or as a result of a legal proceeding or other legally
mandated cause. Executive further agrees to abide by all of the terms of the
Confidentiality and Inventions Agreement dated as of ________.

     The parties recognize and agree that should the Company be required to
pursue a claim against Executive under this Section 6, the Company will likely
be required to seek injunctive relief as well as damages at law. Accordingly,
Section 8, Arbitration, will not apply to any action by the Company against
Executive for violation of this Section 6.

     7. Indemnification. To the extent permitted by law, the Company will
defend, indemnify and hold Executive harmless from and against any and all
losses, liabilities, damages, expenses (including attorneys' fees and costs),
actions, causes of action or proceedings arising directly or indirectly from
Executive's performance of this Agreement or services as an employee of the
Company. Executive may retain his own counsel to defend himself in such actions,
and the Company will pay for the reasonable costs and expense of such counsel.
This indemnification is in addition to any right of indemnification to which
Executive may be entitled under the Company's Articles of Incorporation and
By-laws, any separate indemnification agreements between the Company and
Executive, and any insurance policies that may be maintained by the Company.

     8. Arbitration. Except as otherwise provided in Section 6, any dispute or
controversy between the parties involving the construction or application of any
terms, covenants or conditions of this Agreement, or any claim arising out of or
relating to this Agreement, or any claim arising out of or relating to
Executive's employment by the Company that is not resolved within ten days by
the parties will be settled by arbitration in Boston, Massachusetts, in
accordance with the rules of the American Arbitration Association then in
effect, and judgment upon the award rendered by the arbitrator(s) may be entered
in any court having jurisdiction thereof. The Company and Executive agree that
the arbitrator(s) will have no authority to award punitive or exemplary damages
or so-called consequential or remote damages such as damages for emotional
distress. Any decision of the arbitrator(s) will be final and binding upon the
parties. Either party may request that the arbitrator(s) submit written findings
of fact and


                                       -5-

<PAGE>

conclusions of law. The parties agree and understand that they hereby waive
their rights to a jury trial of any dispute or controversy relating to the
matters specified above in this Section 8.

     9. Rights of Survivors If Executive dies after becoming entitled to
benefits under Section 1 following termination of employment but before all such
benefits have been provided, (a) all unpaid cash amounts will be paid to the
beneficiary that has been designated by Executive in writing (the
"beneficiary"), or if none, to Executive's estate, (b) all applicable insurance
coverage will be provided to Executive's family as though Executive had
continued to live, and (c) any stock options that become exercisable under
Section 1 will be exercisable by the beneficiary, or if none, the estate.

     10. Successors. This Agreement will inure to and be binding upon the
Company's successors. The Company will require any successor to all or
substantially all of the business and/or assets of the Company by sale, merger
or consolidation (where the Company is not the surviving corporation), lease or
otherwise, by agreement in form and substance satisfactory to Executive, to
assume this Agreement expressly. This Agreement is not otherwise assignable by
the Company or the Executive.

     11. Amendment or Modification; Waiver. This Agreement may not be amended
unless agreed to in writing by Executive and the Company. No waiver by either
party of any breach of this Agreement will be deemed a waiver of a subsequent
breach.

     12. Severability. In the event that any provision of this Agreement is
determined to be invalid or unenforceable, the remaining provisions shall remain
in full force and effect to the fullest extent permitted by law.

     13. Controlling Law. This Agreement will be controlled and interpreted
pursuant to Massachusetts law, other than its choice of law principles.

     14. Entire Agreement. This Agreement (including without limitation the
Exhibits hereto) constitutes the entire agreement and supersedes conflicting
terms in all prior agreements and undertakings, both written and oral, between
Executive and the Company with respect to the subject matter hereof. Except as
otherwise set forth herein, the terms and conditions of all other agreements
with Executive, including without limitation all Restricted Stock Award
Agreements and a Confidentiality and Inventions Agreement, shall continue in
full force and effect.

     15. Notices. Any notices required or permitted to be sent under this
Agreement are to be delivered by hand or mailed by registered or certified mail,
return receipt requested, and addressed as follows:

If to the Company:

     Control Delivery Systems, Inc.
     400 Pleasant Street
     Watertown, MA 02472


                                       -6-

<PAGE>

If to Executive:

     Lori Freedman
     21 Swan Road
     Winchester, MA 01890

Either party may change its address for receiving notices by giving notice to
the other party.

     16. Release. Notwithstanding anything to the contrary contained in this
Agreement, in order for Executive to be eligible for the severance benefits to
be provided in accordance with this Agreement, Executive must sign (and not
revoke within seven days of signing) a release of claims in the form attached
hereto and marked Exhibit B.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]


                                       -7-

<PAGE>

     In witness whereof, the parties hereto have executed this Agreement as of
the date first set forth above.


                                        By: /s/ Lori Freedman
                                            ------------------------------------
                                        Name: Lori Freedman


                                        CONTROL DELIVERY SYSTEMS, INC.


                                        By: /s/ Michael J. Soja
                                            ------------------------------------
                                        Name: Michael J. Soja
                                        Title: Vice President, Chief Financial
                                               Officer


                                       -8-

<PAGE>

                                    Exhibit A

     "Change of Control" means the occurrence of any of the following events:

          (a) The acquisition by any Person or group of the ultimate beneficial
     ownership (within the meaning of Rule 13d-3 promulgated under the
     Securities Exchange Act of 1934, as amended (the "Exchange Act")) of more
     than 50% of the then outstanding securities of the Company entitled to vote
     generally in the election of directors; excluding, however, the following:
     (i) any acquisition directly from the Company (other than any acquisition
     by virtue of the exercise of an exercise, conversion or exchange privilege
     unless the security being so exercised, converted or exchanged was itself
     acquired directly from the Company); (ii) any acquisition by the Company;
     (iii) any acquisition by an employee benefit plan (or related trust)
     sponsored or maintained by the Company or by any corporation controlled by
     the Company; (iv) any acquisition by the Executive, by an Executive Related
     Party (as defined in Exhibit A) or by a group of which the Executive is a
     member; or (v) any acquisition by any corporation pursuant to a transaction
     which complies with clauses (i), (ii) and (iii) of subsection (c) of this
     Exhibit A; or

          (b) Individuals who, as of the date hereof, constitute the Board (the
     "Incumbent Board") cease for any reason to constitute at least a majority
     of the Board; provided, however, that any individual becoming a director
     subsequent to the date hereof whose election, or nomination for election,
     by the Company's shareholders, was approved by a vote of at least a
     majority of the directors then comprising the Incumbent Board shall be
     considered as though such individual were a member of the Incumbent Board,
     but excluding, for this purpose, any such individual whose initial
     assumption of office occurs as a result of an actual or threatened election
     contest with respect to the election or removal of directors or other
     actual or threatened solicitation of proxies or consents by or on behalf of
     a Person other than the Board; or

          (v) A reorganization, recapitalization, merger or consolidation (a
     "Corporate Transaction") of the Company, unless (i) securities representing
     more than 50% of the then outstanding securities entitled to vote generally
     in the election of directors of the Company or the corporation resulting
     from or surviving such Corporate Transaction (or the ultimate parent of the
     Company or such corporation after such Corporate Transaction) are
     beneficially owned subsequent to such Corporate Transaction by the Person
     or Persons who were the beneficial owners of the outstanding securities of
     the Company entitled to vote generally in the election of directors
     immediately prior to such Corporate Transaction, in substantially the same
     proportions as their ownership immediately prior to such Corporate
     Transaction; (ii) no Person (excluding any corporation resulting from such
     Corporate Transaction or any employee benefit plan (or related trust) of
     the Company or such corporation resulting from such Corporate Transaction)
     ultimately beneficially owns, directly or indirectly, more than 50% of the
     then outstanding securities entitled to vote generally in the election of
     directors of the Company or the corporation resulting from or surviving
     such Corporate Transaction (or the ultimate parent of the

<PAGE>

     Company or such corporation after such Corporate Transaction) except to the
     extent that such ownership existed prior to the Corporate Transaction; and
     (iii) at least a majority of the members of the board of directors of the
     corporation resulting from such Corporate Transaction were members of the
     Incumbent Board at the time of the execution of the initial agreement, or
     of the action of the Board, providing for such Corporate Transaction; or

          (c) The sale, transfer or other disposition of all or substantially
     all of the assets of the Company; or

          (vi) Approval by the shareholders of the Company of a complete
     liquidation or dissolution of the Company.

     For purposes of this definition, securities entitled to vote generally in
the election of directors that are issuable upon exercise of an exercise,
conversion or exchange privilege shall be deemed to be outstanding. In addition,
for purposes of this definition the following terms have the meanings set forth
below:

     A Person will be deemed to be the "owner" of any securities of which such
Person would be the "beneficial owner," as such term is defined in Rule 13d-3
promulgated by the Securities and Exchange Commission under the Exchange Act.

     "Person" has the meaning used in Section 13(d) of the Exchange Act, except
that "Person" does not include (i) the Executive, an Executive Related Party, or
any group of which the Executive or Executive Related Party is a member, or (ii)
the Company or a wholly owned subsidiary of the Company or an employee benefit
plan (or related trust) of the Company or of a wholly owned subsidiary.

     An "Executive Related Party" means any affiliate or associate of the
Executive other than the Company or a subsidiary of the Company. The terms
"affiliate" and "associate" have the meanings given in Rule 12b-2 under the
Exchange Act; the term "registrant" in the definition of "associate" means, in
this case, the Company.


                                      -ii-

<PAGE>

                                    EXHIBIT B

                                RELEASE OF CLAIMS

     FOR AND IN CONSIDERATION OF the benefits to be provided me in connection
with the termination of my employment, as set forth in the Amended and Restated
Change of Control Agreement between me and Control Delivery Systems, Inc. (the
"Company") dated as of August 17, 2004 (the "Agreement"), which benefits are
subject to my signing of this Release of Claims and to which I am not otherwise
entitled, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, I, on my own behalf and on behalf
of my heirs, executives, administrators, beneficiaries, representatives and
assigns, and all others connected with me, hereby release and forever discharge
the Company, its subsidiaries and other affiliates and all of their respective
past, present and future officers, directors, trustees, shareholders, employees,
agents, general and limited partners, members, managers, joint venturers,
representatives, successors and assigns, and all others connected with any of
them, both individually and in their official capacities, from any and all
causes of action, rights and claims of any type or description, known or
unknown, which I have had in the past, now have, or might now have, through the
date of my signing of this Release of Claims, in any way resulting from, arising
out of or connected with my employment by the Company or any of its subsidiaries
or other affiliates or the termination of that employment or pursuant to any
federal, state or local law, regulation or other requirement (including without
limitation Title VII of the Civil Rights Act of 1964, the Age Discrimination in
Employment Act, the Americans with Disabilities Act, and the fair employment
practices laws of the state or states in which I have been employed by the
Company or any of the subsidiaries or other affiliates, each as amended from
time to time).

     Excluded from the scope of this Release of Claims is (i) any claim arising
under the terms of the Agreement and (ii) any right of indemnification or
contribution that I have pursuant to the Articles of Incorporation or By-Laws of
the Company or any of its subsidiaries or other affiliates.

     In signing this Release of Claims, I acknowledge my understanding that I
may not sign it prior to the termination of my employment, but that I may
consider the terms of this Release of Claims for up to twenty-one (21) days (or
such longer period as the Company may specify) from the later of the date my
employment with the Company terminates or the date I receive this Release of
Claims. I also acknowledge that I am advised by the Company and its Affiliates
to seek the advice of an attorney prior to signing this Release of Claims; that
I have had sufficient time to consider this Release of Claims and to consult
with an attorney, if I wished to do so, or to consult with any other person of
my choosing before signing; and that I am signing this Release of Claims
voluntarily and with a full understanding of its terms.

     I further acknowledge that, in signing this Release of Claims, I have not
relied on any promises or representations, express or implied, that are not set
forth expressly in the Agreement. I understand that I may revoke this Release of
Claims at any time within seven (7) days of the date of my signing by written
notice to the General Counsel of the Company and that this


                                      -iii-

<PAGE>

Release of Claims will take effect only upon the expiration of such seven-day
revocation period and only if I have not timely revoked it.

Intending to be legally bound, I have signed this Release of Claims under seal
as of the date written below.


Signature:
           -----------------------------
Name (please print):
                     -------------------
Date Signed:
             ---------------------------


                                      -iv-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.23
<SEQUENCE>9
<FILENAME>y16393exv4w23.txt
<DESCRIPTION>EX-4.23: SEVERANCE AGREEMENT
<TEXT>
<PAGE>
                                                                    Exhibit 4.23

                         CONTROL DELIVERY SYSTEMS, INC.
                               SEVERANCE AGREEMENT

     AGREEMENT made this 20th day of February, 2004, by and between Paul Ashton
("Executive") and Control Delivery Systems, Inc. (the "Company").

     Whereas, the Board of Directors of the Company (the "Board") recognizes
that the possibility of additional layoffs and/or hibernation exists and that
such possibility, and the uncertainty and questions which it may raise among
certain key management personnel, may result in the departure or distraction of
such management personnel to the detriment of the Company and its stockholders;

     Whereas, the Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of certain key
members of the Company's management, including Executive, to their duties, to
assist the Board and the Company in maximizing the value of the Company, without
distraction; and

     Whereas, the Board wishes to induce Executive and other key members of
management to remain in the employ of the Company and to assure them of fair
severance should the employment of any of them terminate on or before October 7,
2005;

NOW, THEREFORE, in consideration of the premises and the mutual promises, terms
and conditions contained herein, the parties hereto agree as follows:

1.   Severance Benefits. If on or before October 7, 2005 the Company terminates
     Executive's employment without Cause, or if Executive terminates his or her
     employment for Good Reason, the Company will provide severance benefits to
     Executive as follows:

     a.   All of the shares of restricted stock granted to Executive will
          automatically and immediately vest upon such termination.

     b.   All options to purchase Company stock held by Executive will
          automatically and immediately vest and become exercisable upon such
          termination and remain exercisable for a period of six months
          following such termination (or three months in the case of incentive
          stock options).

     c.   The Company will pay to Executive within 30 days of the termination a
          lump-sum cash amount equal to the sum of (x) an amount equal to six
          months' Base Salary plus (y) a pro-rated portion of the maximum bonus
          that would otherwise be payable in the year of termination, if any.
          "Base Salary" means Executive's base salary on the date of this
          agreement. For purposes of this Agreement, the maximum bonus payable
          in any year will be calculated assuming all bonus targets or formulas
          for determining the bonus in such year had been met if Executive and
          Board had, prior to the termination of Executive's employment, agreed
          on such targets or formulas. If no such targets or formulas have been
          set as of such termination date, then the

<PAGE>

          maximum bonus shall be deemed to be the actual bonus paid to Executive
          during the preceding fiscal year.

     d.   The Company will continue for a period of six months from the date of
          termination to provide Executive with the following benefits: (1) the
          Company's group medical plan, and (2) life insurance arrangements or
          disability plan arrangements provided to executive-level employees of
          the Company. To the extent that the Company is unable to provide such
          benefits to Executive under its existing plans and arrangements, it
          will pay Executive cash amounts equal to the cost the Company would
          have incurred to provide those benefits.

2.   Definitions.

     a.   "Cause" means only (a) willful malfeasance or gross negligence in the
          performance by Executive of his or her duties, resulting in material
          harm to the Company, (b) fraud or dishonesty by Executive with respect
          to the Company, or (c) Executive's conviction of any felony involving
          deception, fraud or moral turpitude. The Company may treat a
          termination of Executive's employment as termination for Cause only
          after (i) giving Executive written notice of the intention to
          terminate for Cause and of his or her right to a hearing by the Board,
          (ii) at least 30 days after giving the notice, conducting a hearing by
          the Board at which Executive may be represented by counsel, and (iii)
          giving Executive 30 days' written notice of the results of the
          hearing, which shall require a vote of a majority of the Directors
          then in office other than Executive. For purposes of this definition
          of Cause, no act or omission shall be considered to have been
          "willful" unless it was not in good faith and Executive had knowledge
          at the time that the act or omission was not in the best interest of
          the Company. Any act or failure to act based on authority given
          pursuant to a resolution duly adopted by the Board or based on the
          advice of counsel of the Company shall be conclusively presumed to be
          done, or omitted to be done, by Executive in good faith and in the
          best interest of the Company. Cause shall not include willful failure
          due to incapacity resulting from physical or mental illness or any
          actual or anticipated failure after Notice of Termination for Good
          Reason.

     b.   "Good Reason" means (i) failure by the Company to maintain Executive
          in the positions of Chief Executive Officer and President including
          holding the title of and serving as Chief Executive Officer and
          President of the Company and having responsibility for performing all
          duties typically undertaken by such offices or assignment to Executive
          of duties materially inconsistent with such positions, (ii) the
          diminution in any material respect of Executive's positions or
          authority, excluding for this purpose an isolated, insubstantial and
          inadvertent action not taken in bad faith and which is remedied by the
          Company promptly after receipt of notice thereof given by Executive,
          (iii) failure by the Company to provide Executive with Base Salary,
          benefits and other compensation (including without limitation bonus
          and other incentive compensation) Executive was receiving as of the
          date of this Agreement, or (iv) relocation of Executive's principal
          place of

<PAGE>

          work to a location more than 30 miles from its current location
          without Executive's consent. For purposes of this definition of Good
          Reason, "Company" means Control Delivery Systems and any successor of
          Control Delivery Systems, provided if any such successor has a parent,
          then Company shall mean the ultimate parent corporation.

3.   Change of Control. Notwithstanding anything in this Agreement to the
     contrary (including without limitation Sections 1, 2 and 11 of this
     Agreement), if Executive is eligible for the benefits prescribed in the
     Change of Control Agreement between Executive and Company of even date
     herewith (the "Change of Control Agreement"), then Executive shall receive
     the benefits prescribed in the Change of Control Agreement and will not be
     eligible for benefits under this Agreement and the Company will have no
     obligation or liability to Executive under this Agreement.

4.   Terminability of Employment. This Agreement does not constitute a contract
     of employment for a specific term. Employment with the Company is at-will.
     The Company may at any time terminate Executive's employment with the
     Company with or without notice or Cause.

5.   Termination by the Company for Cause or by Executive Without Good Reason.
     If the Company terminates Executive's employment for Cause or if Executive
     terminates his employment other than for Good Reason, the Company will have
     no obligation or liability to Executive under this Agreement.

6.   Withholding. All payments required to be made by the Company to Executive
     under this Agreement will be subject to the withholding of such amounts, if
     any, relating to tax and other payroll deductions as may be required by
     law.

7.   Confidentiality, Non-Competition and Exclusivity. Executive further agrees
     to abide by all of the terms of the Confidentiality and Inventions
     Agreement dated as of July 27, 2001 ("Confidentiality and Inventions
     Agreement"). The parties recognize and agree that should the Company be
     required to pursue a claim against Executive under the Confidentiality and
     Inventions Agreement, the Company will likely be required to seek
     injunctive relief as well as damages at law. Accordingly, Section 8,
     Arbitration, will not apply to any action by the Company against Executive
     under the Confidentiality and Inventions Agreement.

8.   Arbitration. Except as otherwise provided in Section 7, any dispute or
     controversy between the parties involving the construction or application
     of this Agreement, or any claim arising out of or relating to this
     Agreement, or any claim arising out of or relating to Executive's
     employment by the Company that is not resolved within ten days by the
     parties will be settled by arbitration in Boston, Massachusetts, in
     accordance with the rules of the American Arbitration Association then in
     effect, and judgment upon the award rendered by the arbitrator(s) may be
     entered in any court having jurisdiction thereof. The Company and Executive
     agree that the arbitrator(s) will have no authority to award punitive or
     exemplary damages or so-called

<PAGE>

     consequential or remote damages such as damages for emotional distress. Any
     decision of the arbitrator(s) will be final and binding upon the parties.
     Either party may request that the arbitrator(s) submit written findings of
     fact and conclusions of law. The parties agree and understand that they
     hereby waive their rights to a jury trial of any dispute or controversy
     relating to the matters specified above in this Section.

9.   Termination upon Death or Disability. If Executive ceases to be an employee
     of the Company as a result of death or disability, the Company will have no
     further obligation or liability to Executive under this Agreement. However,
     nothing in this Agreement is intended to interfere with the rights of
     Executive and his family or beneficiaries under other applicable plans,
     policies or arrangements of the Company applicable in the event of death or
     disability.

10.  Rights of Survivors If Executive dies after becoming entitled to benefits
     under Section 1 following termination of employment but before all such
     benefits have been provided, all unpaid cash amounts will be paid to the
     beneficiary that has been designated by Executive in writing (the
     "beneficiary"), or if none, to Executive's estate.

11.  Successors. This Agreement will inure to and be binding upon the Company's
     successors. The Company will require any successor to all or substantially
     all of the business and/or assets of the Company by sale, merger or
     consolidation (where the Company is not the surviving corporation), lease
     or otherwise, to assume this Agreement. This Agreement is not otherwise
     assignable by the Company or the Executive.

12.  Amendment or Modification; Waiver. This Agreement may not be amended unless
     agreed to in writing by Executive and an expressly authorized officer of
     the Company. No waiver by either party of any breach of this Agreement will
     be deemed a waiver of a subsequent breach.

13.  Controlling Law. This Agreement will be controlled and interpreted pursuant
     to Massachusetts law, other than its choice of law principles.

14.  Entire Agreement. This Agreement constitutes the entire agreement and
     supersedes conflicting terms in all prior agreements and undertakings, both
     written and oral, between Executive and the Company with respect to the
     subject matter hereof. Except as otherwise set forth herein, the terms and
     conditions of all other agreements with Executive, including without
     limitation all Restricted Stock Award Agreements, Stock Option Grant
     Agreements, the Change of Control Agreement and the Confidentiality and
     Inventions Agreement, shall continue in full force and effect.

15.  Notices. Any notices required or permitted to be sent under this Agreement
     shall be effective when delivered by hand or mailed by registered or
     certified mail, return receipt requested, and addressed as follows:

<PAGE>

     If to the Company:

          Control Delivery Systems, Inc.
          400 Pleasant Street
          Watertown, MA 02472

     If to Executive:

          Paul Ashton
          19 Brimmer Street
          Boston, MA 02108

     Either party may change its address for receiving notices by giving notice
     to the other party.

16.  Release. Notwithstanding anything to the contrary contained in this
     Agreement, in order for Executive to be eligible for the severance benefits
     to be provided in accordance with this Agreement, Executive must sign (and
     not revoke within seven days of signing) a release of claims in the form
     attached hereto and marked Exhibit A.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]

<PAGE>

     In witness whereof, the parties hereto have executed this Agreement as of
the date first set forth above.


                                        By: /s/ Paul Ashton
                                            ------------------------------------
                                        Name: Paul Ashton


                                        CONTROL DELIVERY SYSTEMS, INC.


                                        By: /s/ Lori H. Freedman
                                            ------------------------------------
                                        Name: Lori H. Freedman
                                        Title: Vice President, Corporate Affairs
                                               & General Counsel

<PAGE>

                                    EXHIBIT A

                                RELEASE OF CLAIMS

     FOR AND IN CONSIDERATION OF the benefits to be provided me in connection
with the termination of my employment, as set forth in the Severance Agreement
between me and Control Delivery Systems, Inc. (the "Company") dated as of
February 20, 2004 (the "Agreement"), which benefits are subject to my signing of
this Release of Claims and to which I am not otherwise entitled, and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, I, on my own behalf and on behalf of my heirs, executives,
administrators, beneficiaries, representatives and assigns, and all others
connected with me, hereby release and forever discharge the Company, its
subsidiaries and other affiliates and all of their respective past, present and
future officers, directors, trustees, shareholders, employees, agents, general
and limited partners, members, managers, joint venturers, representatives,
successors and assigns, and all others connected with any of them, both
individually and in their official capacities, from any and all causes of
action, rights and claims of any type or description, known or unknown, which I
have had in the past, now have, or might now have, through the date of my
signing of this Release of Claims, in any way resulting from, arising out of or
connected with my employment by the Company or any of its subsidiaries or other
affiliates or the termination of that employment or pursuant to any federal,
state or local law, regulation or other requirement (including without
limitation Title VII of the Civil Rights Act of 1964, the Age Discrimination in
Employment Act, the Americans with Disabilities Act, and the fair employment
practices laws of the state or states in which I have been employed by the
Company or any of the subsidiaries or other affiliates, each as amended from
time to time).

     Excluded from the scope of this Release of Claims is (i) any claim arising
under the terms of the Agreement and (ii) any right of indemnification or
contribution that I have pursuant to the Articles of Incorporation or By-Laws of
the Company or any of its subsidiaries or other affiliates.

     In signing this Release of Claims, I acknowledge my understanding that I
may not sign it prior to the termination of my employment, but that I may
consider the terms of this Release of Claims for up to twenty-one (21) days (or
such longer period as the Company may specify) from the later of the date my
employment with the Company terminates or the date I receive this Release of
Claims. I also acknowledge that I am advised by the Company and its Affiliates
to seek the advice of an attorney prior to signing this Release of Claims; that
I have had sufficient time to consider this Release of Claims and to consult
with an attorney, if I wished to do so, or to consult with any other person of
my choosing before signing; and that I am signing this Release of Claims
voluntarily and with a full understanding of its terms.

     I further acknowledge that, in signing this Release of Claims, I have not
relied on any promises or representations, express or implied, that are not set
forth expressly in the Agreement. I understand that I may revoke this Release of
Claims at any time within seven (7) days of the date of my signing by written
notice to the General Counsel of the

<PAGE>

Company and that this Release of Claims will take effect only upon the
expiration of such seven-day revocation period and only if I have not timely
revoked it.

Intending to be legally bound, I have signed this Release of Claims under seal
as of the date written below.


Signature:
           -----------------------------
Name (please print):
                     -------------------
Date Signed:
             ---------------------------
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.24
<SEQUENCE>10
<FILENAME>y16393exv4w24.txt
<DESCRIPTION>EX-4.24: SEVERANCE AGREEMENT
<TEXT>
<PAGE>
                                                                    Exhibit 4.24

                         CONTROL DELIVERY SYSTEMS, INC.
                               SEVERANCE AGREEMENT

     AGREEMENT made this 20th day of February, 2004, by and between Michael J.
Soja ("Executive") and Control Delivery Systems, Inc. (the "Company").

     Whereas, the Board of Directors of the Company (the "Board") recognizes
that the possibility of additional layoffs and/or hibernation exists and that
such possibility, and the uncertainty and questions which it may raise among
certain key management personnel, may result in the departure or distraction of
such management personnel to the detriment of the Company and its stockholders;

     Whereas, the Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of certain key
members of the Company's management, including Executive, to their duties, to
assist the Board and the Company in maximizing the value of the Company, without
distraction; and

     Whereas, the Board wishes to induce Executive and other key members of
management to remain in the employ of the Company and to assure them of fair
severance should the employment of any of them terminate on or before October 7,
2005;

NOW, THEREFORE, in consideration of the premises and the mutual promises, terms
and conditions contained herein, the parties hereto agree as follows:

1.   Severance Benefits. If on or before October 7, 2005 the Company terminates
     Executive's employment without Cause, or if Executive terminates his or her
     employment for Good Reason, the Company will provide severance benefits to
     Executive as follows:

     a.   All of the shares of restricted stock granted to Executive will
          automatically and immediately vest upon such termination, including
          without limitation the following shares: 14,040 shares of restricted
          stock granted on May 28, 2003; 30,046 shares of restricted stock
          granted on October 7, 2003; 5,954 shares of restricted stock granted
          on October 7, 2003; 10,000 shares of restricted stock granted on
          October 7, 2003.

     b.   All options to purchase Company stock held by Executive will
          automatically and immediately vest and become exercisable upon such
          termination and remain exercisable for a period of six months
          following such termination (or three months in the case of incentive
          stock options).

     c.   The Company will pay to Executive within 30 days of the termination a
          lump-sum cash amount equal to the sum of (x) an amount equal to six
          months' Base Salary plus (y) a pro-rated portion of the maximum bonus
          that would otherwise be payable in the year of termination, if any.
          "Base Salary" means Executive's base salary on the date of this
          agreement. For purposes of this Agreement, the maximum bonus payable
          in any year will be calculated

<PAGE>

          assuming all bonus targets or formulas for determining the bonus in
          such year had been met if Executive and Board had, prior to the
          termination of Executive's employment, agreed on such targets or
          formulas. If no such targets or formulas have been set as of such
          termination date, then the maximum bonus shall be deemed to be the
          actual bonus paid to Executive during the preceding fiscal year.

     d.   The Company will continue for a period of six months from the date of
          termination to provide Executive with the following benefits: (1) the
          Company's group medical plan, and (2) life insurance arrangements or
          disability plan arrangements provided to executive-level employees of
          the Company. To the extent that the Company is unable to provide such
          benefits to Executive under its existing plans and arrangements, it
          will pay Executive cash amounts equal to the cost the Company would
          have incurred to provide those benefits.

2.   Definitions.

     a.   "Cause" means only (a) willful malfeasance or gross negligence in the
          performance by Executive of his or her duties, resulting in material
          harm to the Company, (b) fraud or dishonesty by Executive with respect
          to the Company, or (c) Executive's conviction of any felony involving
          deception, fraud or moral turpitude. The Company may treat a
          termination of Executive's employment as termination for Cause only
          after (i) giving Executive written notice of the intention to
          terminate for Cause and of his or her right to a hearing by the Board,
          (ii) at least 30 days after giving the notice, conducting a hearing by
          the Board at which Executive may be represented by counsel, and (iii)
          giving Executive 30 days' written notice of the results of the
          hearing, which shall require a vote of a majority of the Directors
          then in office other than Executive. For purposes of this definition
          of Cause, no act or omission shall be considered to have been
          "willful" unless it was not in good faith and Executive had knowledge
          at the time that the act or omission was not in the best interest of
          the Company. Any act or failure to act based on authority given
          pursuant to a resolution duly adopted by the Board or based on the
          advice of counsel of the Company shall be conclusively presumed to be
          done, or omitted to be done, by Executive in good faith and in the
          best interest of the Company. Cause shall not include willful failure
          due to incapacity resulting from physical or mental illness or any
          actual or anticipated failure after Notice of Termination for Good
          Reason.

     b.   "Good Reason" means (i) failure by the Company to maintain Executive
          in the position of Vice President, Chief Financial Officer including
          holding the title of and serving as Vice President, Chief Financial
          Officer of the Company and having responsibility for performing all
          duties typically undertaken by such offices or assignment to Executive
          of duties materially inconsistent with such positions, (ii) the
          diminution in any material respect of Executive's positions or
          authority, excluding for this purpose an isolated, insubstantial and
          inadvertent action not taken in bad faith and which is remedied by the
          Company promptly

<PAGE>

          after receipt of notice thereof given by Executive, (iii) failure by
          the Company to provide Executive with Base Salary, benefits and other
          compensation (including without limitation bonus and other incentive
          compensation) Executive was receiving as of the date of this
          Agreement, or (iv) relocation of Executive's principal place of work
          to a location more than 30 miles from its current location without
          Executive's consent. For purposes of this definition of Good Reason,
          "Company" means Control Delivery Systems and any successor of Control
          Delivery Systems, provided if any such successor has a parent, then
          Company shall mean the ultimate parent corporation.

3.   Change of Control. Notwithstanding anything in this Agreement to the
     contrary (including without limitation Sections 1, 2 and 11 of this
     Agreement), if Executive is eligible for the benefits prescribed in the
     Change of Control Agreement between Executive and Company of even date
     herewith (the "Change of Control Agreement"), then Executive shall receive
     the benefits prescribed in the Change of Control Agreement and will not be
     eligible for benefits under this Agreement and the Company will have no
     obligation or liability to Executive under this Agreement.

4.   Terminability of Employment. This Agreement does not constitute a contract
     of employment for a specific term. Employment with the Company is at-will.
     The Company may at any time terminate Executive's employment with the
     Company with or without notice or Cause.

5.   Termination by the Company for Cause or by Executive Without Good Reason.
     If the Company terminates Executive's employment for Cause or if Executive
     terminates his employment other than for Good Reason, the Company will have
     no obligation or liability to Executive under this Agreement.

6.   Withholding. All payments required to be made by the Company to Executive
     under this Agreement will be subject to the withholding of such amounts, if
     any, relating to tax and other payroll deductions as may be required by
     law.

7.   Confidentiality, Non-Competition and Exclusivity. Executive further agrees
     to abide by all of the terms of the Employee Confidentiality, Proprietary
     Rights and Noncompetition Agreement dated as of February 26, 2001
     ("Confidentiality and Inventions Agreement"). The parties recognize and
     agree that should the Company be required to pursue a claim against
     Executive under the Confidentiality and Inventions Agreement, the Company
     will likely be required to seek injunctive relief as well as damages at
     law. Accordingly, Section 8, Arbitration, will not apply to any action by
     the Company against Executive under the Confidentiality and Inventions
     Agreement.

8.   Arbitration. Except as otherwise provided in Section 7, any dispute or
     controversy between the parties involving the construction or application
     of this Agreement, or any claim arising out of or relating to this
     Agreement, or any claim arising out of or relating to Executive's
     employment by the Company that is not resolved within ten

<PAGE>

     days by the parties will be settled by arbitration in Boston,
     Massachusetts, in accordance with the rules of the American Arbitration
     Association then in effect, and judgment upon the award rendered by the
     arbitrator(s) may be entered in any court having jurisdiction thereof. The
     Company and Executive agree that the arbitrator(s) will have no authority
     to award punitive or exemplary damages or so-called consequential or remote
     damages such as damages for emotional distress. Any decision of the
     arbitrator(s) will be final and binding upon the parties. Either party may
     request that the arbitrator(s) submit written findings of fact and
     conclusions of law. The parties agree and understand that they hereby waive
     their rights to a jury trial of any dispute or controversy relating to the
     matters specified above in this Section.

9.   Termination upon Death or Disability. If Executive ceases to be an employee
     of the Company as a result of death or disability, the Company will have no
     further obligation or liability to Executive under this Agreement. However,
     nothing in this Agreement is intended to interfere with the rights of
     Executive and his family or beneficiaries under other applicable plans,
     policies or arrangements of the Company applicable in the event of death or
     disability.

10.  Rights of Survivors If Executive dies after becoming entitled to benefits
     under Section 1 following termination of employment but before all such
     benefits have been provided, all unpaid cash amounts will be paid to the
     beneficiary that has been designated by Executive in writing (the
     "beneficiary"), or if none, to Executive's estate.

11.  Successors. This Agreement will inure to and be binding upon the Company's
     successors. The Company will require any successor to all or substantially
     all of the business and/or assets of the Company by sale, merger or
     consolidation (where the Company is not the surviving corporation), lease
     or otherwise, to assume this Agreement. This Agreement is not otherwise
     assignable by the Company or the Executive.

12.  Amendment or Modification; Waiver. This Agreement may not be amended unless
     agreed to in writing by Executive and an expressly authorized officer of
     the Company. No waiver by either party of any breach of this Agreement will
     be deemed a waiver of a subsequent breach.

13.  Controlling Law. This Agreement will be controlled and interpreted pursuant
     to Massachusetts law, other than its choice of law principles.

14.  Entire Agreement. This Agreement constitutes the entire agreement and
     supersedes conflicting terms in all prior agreements and undertakings, both
     written and oral, between Executive and the Company with respect to the
     subject matter hereof. Except as otherwise set forth herein, the terms and
     conditions of all other agreements with Executive, including without
     limitation all Restricted Stock Award Agreements,

<PAGE>

     Stock Option Grant Agreements, the Change of Control Agreement and the
     Confidentiality and Inventions Agreement, shall continue in full force and
     effect.

15.  Notices. Any notices required or permitted to be sent under this Agreement
     shall be effective when delivered by hand or mailed by registered or
     certified mail, return receipt requested, and addressed as follows:

     If to the Company:

          Control Delivery Systems, Inc.
          400 Pleasant Street
          Watertown, MA 02472

     If to Executive:

          Michael J. Soja
          34 Musket Lane
          Sudbury, MA 01776

Either party may change its address for receiving notices by giving notice to
the other party.

16.  Release. Notwithstanding anything to the contrary contained in this
     Agreement, in order for Executive to be eligible for the severance benefits
     to be provided in accordance with this Agreement, Executive must sign (and
     not revoke within seven days of signing) a release of claims in the form
     attached hereto and marked Exhibit A.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]

<PAGE>

     In witness whereof, the parties hereto have executed this Agreement as of
the date first set forth above.


                                        By: /s/ Michael J. Soja
                                            ------------------------------------
                                        Name: Michael J. Soja


                                        CONTROL DELIVERY SYSTEMS, INC.


                                        By: /s/ Paul Ashton
                                            ------------------------------------
                                        Name: Paul Ashton
                                        Title: Chief Executive Officer &
                                               President

<PAGE>

                                    EXHIBIT A

                                RELEASE OF CLAIMS

     FOR AND IN CONSIDERATION OF the benefits to be provided me in connection
with the termination of my employment, as set forth in the Severance Agreement
between me and Control Delivery Systems, Inc. (the "Company") dated as of
February 20, 2004 (the "Agreement"), which benefits are subject to my signing of
this Release of Claims and to which I am not otherwise entitled, and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, I, on my own behalf and on behalf of my heirs, executives,
administrators, beneficiaries, representatives and assigns, and all others
connected with me, hereby release and forever discharge the Company, its
subsidiaries and other affiliates and all of their respective past, present and
future officers, directors, trustees, shareholders, employees, agents, general
and limited partners, members, managers, joint venturers, representatives,
successors and assigns, and all others connected with any of them, both
individually and in their official capacities, from any and all causes of
action, rights and claims of any type or description, known or unknown, which I
have had in the past, now have, or might now have, through the date of my
signing of this Release of Claims, in any way resulting from, arising out of or
connected with my employment by the Company or any of its subsidiaries or other
affiliates or the termination of that employment or pursuant to any federal,
state or local law, regulation or other requirement (including without
limitation Title VII of the Civil Rights Act of 1964, the Age Discrimination in
Employment Act, the Americans with Disabilities Act, and the fair employment
practices laws of the state or states in which I have been employed by the
Company or any of the subsidiaries or other affiliates, each as amended from
time to time).

     Excluded from the scope of this Release of Claims is (i) any claim arising
under the terms of the Agreement and (ii) any right of indemnification or
contribution that I have pursuant to the Articles of Incorporation or By-Laws of
the Company or any of its subsidiaries or other affiliates.

     In signing this Release of Claims, I acknowledge my understanding that I
may not sign it prior to the termination of my employment, but that I may
consider the terms of this Release of Claims for up to twenty-one (21) days (or
such longer period as the Company may specify) from the later of the date my
employment with the Company terminates or the date I receive this Release of
Claims. I also acknowledge that I am advised by the Company and its Affiliates
to seek the advice of an attorney prior to signing this Release of Claims; that
I have had sufficient time to consider this Release of Claims and to consult
with an attorney, if I wished to do so, or to consult with any other person of
my choosing before signing; and that I am signing this Release of Claims
voluntarily and with a full understanding of its terms.

     I further acknowledge that, in signing this Release of Claims, I have not
relied on any promises or representations, express or implied, that are not set
forth expressly in the Agreement. I understand that I may revoke this Release of
Claims at any time within seven (7) days of the date of my signing by written
notice to the General Counsel of the

<PAGE>

Company and that this Release of Claims will take effect only upon the
expiration of such seven-day revocation period and only if I have not timely
revoked it.

Intending to be legally bound, I have signed this Release of Claims under seal
as of the date written below.


Signature:
           --------------------------
Name (please print):
                     ----------------
Date Signed:
             ------------------------
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.25
<SEQUENCE>11
<FILENAME>y16393exv4w25.txt
<DESCRIPTION>EX-4.25: SEVERANCE AGREEMENT
<TEXT>
<PAGE>
                                                                    Exhibit 4.25

                         CONTROL DELIVERY SYSTEMS, INC.
                               SEVERANCE AGREEMENT

     AGREEMENT made this 20th day of February, 2004, by and between Lori
Freedman ("Executive") and Control Delivery Systems, Inc. (the "Company").

     Whereas, the Board of Directors of the Company (the "Board") recognizes
that the possibility of additional layoffs and/or hibernation exists and that
such possibility, and the uncertainty and questions which it may raise among
certain key management personnel, may result in the departure or distraction of
such management personnel to the detriment of the Company and its stockholders;

     Whereas, the Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of certain key
members of the Company's management, including Executive, to their duties, to
assist the Board and the Company in maximizing the value of the Company, without
distraction; and

     Whereas, the Board wishes to induce Executive and other key members of
management to remain in the employ of the Company and to assure them of fair
severance should the employment of any of them terminate on or before October 7,
2005;

NOW, THEREFORE, in consideration of the premises and the mutual promises, terms
and conditions contained herein, the parties hereto agree as follows:

1.   Severance Benefits. If on or before October 7, 2005 the Company terminates
     Executive's employment without Cause, or if Executive terminates his or her
     employment for Good Reason, the Company will provide severance benefits to
     Executive as follows:

     a.   All of the shares of restricted stock granted to Executive will
          automatically and immediately vest upon such termination, including
          without limitation the following shares: 11,700 shares of restricted
          stock granted on May 28, 2003; 24,046 shares of restricted stock
          granted on October 7, 2003; 5,954 shares of restricted stock granted
          on October 7, 2003; 10,000 shares of restricted stock granted on
          October 7, 2003.

     b.   All options to purchase Company stock held by Executive will
          automatically and immediately vest and become exercisable upon such
          termination and remain exercisable for a period of six months
          following such termination (or three months in the case of incentive
          stock options).

     c.   The Company will pay to Executive within 30 days of the termination a
          lump-sum cash amount equal to the sum of (x) an amount equal to six
          months' Base Salary plus (y) a pro-rated portion of the maximum bonus
          that would otherwise be payable in the year of termination, if any.
          "Base Salary" means Executive's base salary on the date of this
          agreement. For purposes of this Agreement, the maximum bonus payable
          in any year will be calculated

<PAGE>

          assuming all bonus targets or formulas for determining the bonus in
          such year had been met if Executive and Board had, prior to the
          termination of Executive's employment, agreed on such targets or
          formulas. If no such targets or formulas have been set as of such
          termination date, then the maximum bonus shall be deemed to be the
          actual bonus paid to Executive during the preceding fiscal year.

     d.   The Company will continue for a period of six months from the date of
          termination to provide Executive with the following benefits: (1) the
          Company's group medical plan, and (2) life insurance arrangements or
          disability plan arrangements provided to executive-level employees of
          the Company. To the extent that the Company is unable to provide such
          benefits to Executive under its existing plans and arrangements, it
          will pay Executive cash amounts equal to the cost the Company would
          have incurred to provide those benefits.

2.   Definitions.

     a.   "Cause" means only (a) willful malfeasance or gross negligence in the
          performance by Executive of his or her duties, resulting in material
          harm to the Company, (b) fraud or dishonesty by Executive with respect
          to the Company, or (c) Executive's conviction of any felony involving
          deception, fraud or moral turpitude. The Company may treat a
          termination of Executive's employment as termination for Cause only
          after (i) giving Executive written notice of the intention to
          terminate for Cause and of his or her right to a hearing by the Board,
          (ii) at least 30 days after giving the notice, conducting a hearing by
          the Board at which Executive may be represented by counsel, and (iii)
          giving Executive 30 days' written notice of the results of the
          hearing, which shall require a vote of a majority of the Directors
          then in office other than Executive. For purposes of this definition
          of Cause, no act or omission shall be considered to have been
          "willful" unless it was not in good faith and Executive had knowledge
          at the time that the act or omission was not in the best interest of
          the Company. Any act or failure to act based on authority given
          pursuant to a resolution duly adopted by the Board or based on the
          advice of counsel of the Company shall be conclusively presumed to be
          done, or omitted to be done, by Executive in good faith and in the
          best interest of the Company. Cause shall not include willful failure
          due to incapacity resulting from physical or mental illness or any
          actual or anticipated failure after Notice of Termination for Good
          Reason.

     b.   "Good Reason" means (i) failure by the Company to maintain Executive
          in the positions of Vice President, Corporate Affairs, General Counsel
          and Secretary including holding the title of and serving as Vice
          President, Corporate Affairs, General Counsel and Secretary of the
          Company and having responsibility for performing all duties typically
          undertaken by such offices or assignment to Executive of duties
          materially inconsistent with such positions, (ii) the diminution in
          any material respect of Executive's positions or authority, excluding
          for this purpose an isolated, insubstantial and inadvertent action not
          taken in bad faith and

<PAGE>

          which is remedied by the Company promptly after receipt of notice
          thereof given by Executive, (iii) failure by the Company to provide
          Executive with Base Salary, benefits and other compensation (including
          without limitation bonus and other incentive compensation) Executive
          was receiving as of the date of this Agreement, or (iv) relocation of
          Executive's principal place of work to a location more than 30 miles
          from its current location without Executive's consent. For purposes of
          this definition of Good Reason, "Company" means Control Delivery
          Systems and any successor of Control Delivery Systems, provided if any
          such successor has a parent, then Company shall mean the ultimate
          parent corporation.

3.   Change of Control. Notwithstanding anything in this Agreement to the
     contrary (including without limitation Sections 1, 2 and 11 of this
     Agreement), if Executive is eligible for the benefits prescribed in the
     Amended and Restated Change of Control Agreement between Executive and
     Company dated December 18, 2003 (the "Change of Control Agreement"), then
     Executive shall receive the benefits prescribed in the Change of Control
     Agreement and will not be eligible for benefits under this Agreement and
     the Company will have no obligation or liability to Executive under this
     Agreement.

4.   Terminability of Employment. This Agreement does not constitute a contract
     of employment for a specific term. Employment with the Company is at-will.
     The Company may at any time terminate Executive's employment with the
     Company with or without notice or Cause.

5.   Termination by the Company for Cause or by Executive Without Good Reason.
     If the Company terminates Executive's employment for Cause or if Executive
     terminates his employment other than for Good Reason, the Company will have
     no obligation or liability to Executive under this Agreement.

6.   Withholding. All payments required to be made by the Company to Executive
     under this Agreement will be subject to the withholding of such amounts, if
     any, relating to tax and other payroll deductions as may be required by
     law.

7.   Confidentiality, Non-Competition and Exclusivity. Executive further agrees
     to abide by all of the terms of the Employee Confidentiality, Proprietary
     Rights and Noncompetition Agreement dated as of October 1, 2001
     ("Confidentiality and Inventions Agreement"). The parties recognize and
     agree that should the Company be required to pursue a claim against
     Executive under the Confidentiality and Inventions Agreement, the Company
     will likely be required to seek injunctive relief as well as damages at
     law. Accordingly, Section 8, Arbitration, will not apply to any action by
     the Company against Executive under the Confidentiality and Inventions
     Agreement.

8.   Arbitration. Except as otherwise provided in Section 7, any dispute or
     controversy between the parties involving the construction or application
     of this Agreement, or any claim arising out of or relating to this
     Agreement, or any claim arising out of or

<PAGE>

     relating to Executive's employment by the Company that is not resolved
     within ten days by the parties will be settled by arbitration in Boston,
     Massachusetts, in accordance with the rules of the American Arbitration
     Association then in effect, and judgment upon the award rendered by the
     arbitrator(s) may be entered in any court having jurisdiction thereof. The
     Company and Executive agree that the arbitrator(s) will have no authority
     to award punitive or exemplary damages or so-called consequential or remote
     damages such as damages for emotional distress. Any decision of the
     arbitrator(s) will be final and binding upon the parties. Either party may
     request that the arbitrator(s) submit written findings of fact and
     conclusions of law. The parties agree and understand that they hereby waive
     their rights to a jury trial of any dispute or controversy relating to the
     matters specified above in this Section.

9.   Termination upon Death or Disability. If Executive ceases to be an employee
     of the Company as a result of death or disability, the Company will have no
     further obligation or liability to Executive under this Agreement. However,
     nothing in this Agreement is intended to interfere with the rights of
     Executive and his family or beneficiaries under other applicable plans,
     policies or arrangements of the Company applicable in the event of death or
     disability.

10.  Rights of Survivors If Executive dies after becoming entitled to benefits
     under Section 1 following termination of employment but before all such
     benefits have been provided, all unpaid cash amounts will be paid to the
     beneficiary that has been designated by Executive in writing (the
     "beneficiary"), or if none, to Executive's estate.

11.  Successors. This Agreement will inure to and be binding upon the Company's
     successors. The Company will require any successor to all or substantially
     all of the business and/or assets of the Company by sale, merger or
     consolidation (where the Company is not the surviving corporation), lease
     or otherwise, to assume this Agreement. This Agreement is not otherwise
     assignable by the Company or the Executive.

12.  Amendment or Modification; Waiver. This Agreement may not be amended unless
     agreed to in writing by Executive and an expressly authorized officer of
     the Company. No waiver by either party of any breach of this Agreement will
     be deemed a waiver of a subsequent breach.

13.  Controlling Law. This Agreement will be controlled and interpreted pursuant
     to Massachusetts law, other than its choice of law principles.

14.  Entire Agreement. This Agreement constitutes the entire agreement and
     supersedes conflicting terms in all prior agreements and undertakings, both
     written and oral, between Executive and the Company with respect to the
     subject matter hereof. Except as otherwise set forth herein, the terms and
     conditions of all other agreements with Executive, including without
     limitation all Restricted Stock Award Agreements,

<PAGE>

     Stock Option Grant Agreements, the Change of Control Agreement and the
     Confidentiality and Inventions Agreement, shall continue in full force and
     effect.

15.  Notices. Any notices required or permitted to be sent under this Agreement
     shall be effective when delivered by hand or mailed by registered or
     certified mail, return receipt requested, and addressed as follows:

     If to the Company:

          Control Delivery Systems, Inc.
          400 Pleasant Street
          Watertown, MA 02472

     If to Executive:

          Lori Freedman
          21 Swan Road
          Winchester, MA 01890

     Either party may change its address for receiving notices by giving notice
     to the other party.

16.  Release. Notwithstanding anything to the contrary contained in this
     Agreement, in order for Executive to be eligible for the severance benefits
     to be provided in accordance with this Agreement, Executive must sign (and
     not revoke within seven days of signing) a release of claims in the form
     attached hereto and marked Exhibit A.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]

<PAGE>

     In witness whereof, the parties hereto have executed this Agreement as of
the date first set forth above.


                                        By: /s/ Lori H. Freedman
                                            ------------------------------------
                                        Name: Lori H. Freedman


                                        CONTROL DELIVERY SYSTEMS, INC.


                                        By: /s/ Paul Ashton
                                            ------------------------------------
                                        Name: Paul Ashton
                                        Title: Chief Executive Officer &
                                               President

<PAGE>

                                    EXHIBIT A

                                RELEASE OF CLAIMS

     FOR AND IN CONSIDERATION OF the benefits to be provided me in connection
with the termination of my employment, as set forth in the Severance Agreement
between me and Control Delivery Systems, Inc. (the "Company") dated as of
February 20, 2004 (the "Agreement"), which benefits are subject to my signing of
this Release of Claims and to which I am not otherwise entitled, and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, I, on my own behalf and on behalf of my heirs, executives,
administrators, beneficiaries, representatives and assigns, and all others
connected with me, hereby release and forever discharge the Company, its
subsidiaries and other affiliates and all of their respective past, present and
future officers, directors, trustees, shareholders, employees, agents, general
and limited partners, members, managers, joint venturers, representatives,
successors and assigns, and all others connected with any of them, both
individually and in their official capacities, from any and all causes of
action, rights and claims of any type or description, known or unknown, which I
have had in the past, now have, or might now have, through the date of my
signing of this Release of Claims, in any way resulting from, arising out of or
connected with my employment by the Company or any of its subsidiaries or other
affiliates or the termination of that employment or pursuant to any federal,
state or local law, regulation or other requirement (including without
limitation Title VII of the Civil Rights Act of 1964, the Age Discrimination in
Employment Act, the Americans with Disabilities Act, and the fair employment
practices laws of the state or states in which I have been employed by the
Company or any of the subsidiaries or other affiliates, each as amended from
time to time).

     Excluded from the scope of this Release of Claims is (i) any claim arising
under the terms of the Agreement and (ii) any right of indemnification or
contribution that I have pursuant to the Articles of Incorporation or By-Laws of
the Company or any of its subsidiaries or other affiliates.

     In signing this Release of Claims, I acknowledge my understanding that I
may not sign it prior to the termination of my employment, but that I may
consider the terms of this Release of Claims for up to twenty-one (21) days (or
such longer period as the Company may specify) from the later of the date my
employment with the Company terminates or the date I receive this Release of
Claims. I also acknowledge that I am advised by the Company and its Affiliates
to seek the advice of an attorney prior to signing this Release of Claims; that
I have had sufficient time to consider this Release of Claims and to consult
with an attorney, if I wished to do so, or to consult with any other person of
my choosing before signing; and that I am signing this Release of Claims
voluntarily and with a full understanding of its terms.

     I further acknowledge that, in signing this Release of Claims, I have not
relied on any promises or representations, express or implied, that are not set
forth expressly in the Agreement. I understand that I may revoke this Release of
Claims at any time within seven (7) days of the date of my signing by written
notice to the General Counsel of the

<PAGE>

Company and that this Release of Claims will take effect only upon the
expiration of such seven-day revocation period and only if I have not timely
revoked it.

Intending to be legally bound, I have signed this Release of Claims under seal
as of the date written below.


Signature:
           -----------------------------
Name (please print):
                     -------------------
Date Signed:
             ---------------------------
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.26
<SEQUENCE>12
<FILENAME>y16393exv4w26.txt
<DESCRIPTION>EX-4.26: FIRST AMENDMENT TO CONTROL DELIVERY SYSTEMS, INC. SEVERANCE AGREEMENT
<TEXT>
<PAGE>
                                                                    Exhibit 4.26

                                 FIRST AMENDMENT
                         CONTROL DELIVERY SYSTEMS, INC.
                               SEVERANCE AGREEMENT

     This First Amendment to Severance Agreement (this "Amendment") made this
17th day of August, 2004 (the "Amendment Effective Date"), by and between Paul
Ashton ("Executive") and Control Delivery Systems, Inc. (the "Company").

     Reference is made to (a) that certain Severance Agreement dated February
20, 2004, by and between Executive and the Company (the "Severance Agreement"),
and (b) that certain Control Delivery Systems, Inc. 2001 Incentive Plan
Restricted Stock Award Agreement dated August 16, 2004 between Executive and the
Company (the "August 2004 Restricted Stock Award Agreement").

     Whereas, the Board of Directors of the Company (the "Board") has determined
that Executive's salary should be reduced below Base Salary;

     Whereas, Executive has agreed to such reduction in salary under the terms
and conditions set forth in this Amendment;

NOW, THEREFORE, in consideration of the premises and the mutual promises, terms
and conditions contained herein, the parties hereto agree as follows:

1.   Restricted Stock.

     a.   Section 11 of the August 2004 Restricted Stock Award Agreement is
          hereby deleted in its entirety and the following is substituted in
          place thereof: "Right of Repurchase of Vested Shares. Notwithstanding
          anything in this Agreement to the contrary, the Company agrees that it
          will not exercise any right that the Company has to purchase,
          repurchase or reacquire all or any part of Employee's Vested Shares."

2.   Bonus. Subject to the occurrence of the Bonus Date and provided that
     Executive is employed by the Company on the Bonus Date, Executive shall be
     eligible for a bonus equal to Bonus Amount.

     "Bonus Amount" means that amount equal to the product of (a) $301.37
     multiplied by (b) the number of calendar days that have elapsed during the
     period beginning on August 16, 2004 and ending on the Bonus Date.

     "Bonus Date" means the earliest date that the Board reasonably determines
     that the Company has the financial resources to pay Executive a bonus equal
     to the Bonus Amount.

<PAGE>

     The parties acknowledge and agree that any obligation to pay a bonus is
     solely that of the Company and that none of the directors or officers of
     the Company shall have any personal liability with respect thereto.

3.   Amendment to Section 1 of Severance Agreement. Section 1 of the Severance
     Agreement is hereby deleted in its entirety and the following is
     substituted in place thereof:

     a.   "1. Severance Benefits.

          i.   Severance Benefits in the event of termination on or before
               December 31, 2006. If on or before December 31, 2006, the Company
               terminates Executive's employment without Cause, or Executive
               terminates his or her employment for Good Reason, the Company
               will provide severance benefits to Executive as follows:

               1.   Notwithstanding anything to the contrary in any agreement
                    between Executive and Company, including without limitation
                    Section 6 of the August 2004 Restricted Stock Award
                    Agreement, all unvested shares of restricted stock granted
                    to Executive will automatically and immediately vest on the
                    Separation Date and no longer be subject to forfeiture,
                    including without limitation the following shares: 20,000
                    shares of restricted stock granted on August 16, 2004.

               2.   All options to purchase Company stock held by Executive will
                    automatically and immediately vest and become exercisable on
                    the Separation Date and remain exercisable for a period of
                    six months following the Separation Date (or three months in
                    the case of incentive stock options).

               3.   The Company will pay to Executive a lump-sum cash amount
                    equal to the Severance Payment within 30 days following the
                    later of (a) the Separation Date, and (b) the date Executive
                    delivers to Company a release of claims in accordance with
                    Section 16 of this Agreement. Notwithstanding the foregoing,
                    in the event the Separation Date occurs after March 31,
                    2005, the Company shall have the right to defer payment of
                    the Severance Payment until the Deferment Date, provided
                    that the Severance Payment will accrue simple interest at
                    the rate of 3 % per year, payable on the Deferment Date. The
                    parties acknowledge and agree that the obligation to pay the
                    Severance Payment is solely that of the Company and that
                    none of the directors or officers of the Company shall have
                    any personal liability with respect thereto.

<PAGE>

               4.   The Company will continue for a period of six months from
                    the Separation Date to provide Executive with the following
                    benefits: (1) the Company's group medical plan, and (2) life
                    insurance arrangements or disability plan arrangements
                    provided to executive-level employees of the Company. To the
                    extent that the Company is unable to provide such benefits
                    to Executive under its existing plans and arrangements, it
                    will pay Executive cash amounts equal to the cost the
                    Company would have incurred to provide those benefits.

4.   Amendment to Section 2 of the Severance Agreement. Section 2 of the
     Severance Agreement is hereby deleted in its entirety and the following is
     substituted in place thereof:

     a.   "2. Definitions.

          i.   "Applicable Base Salary" means: (a) for that period beginning
               August 16, 2004 and ending on that date which is 30 days
               following the Base Salary and Bonus Date, $140,000 and (b) for
               that period beginning on that date which is 31 days following the
               Base Salary and Bonus Date and ending on December 31, 2006, Base
               Salary.

          ii.  "Base Salary" means $250,000 provided that in the event the Board
               in its sole discretion increases Executive's Base Salary above
               $250,000, the Base Salary as so increased will be referred to as
               "Base Salary."

          iii. "Base Salary and Bonus Date" means the first date on which both
               of the following conditions are met (a) the sum of all royalty
               payments received by the Company from Bausch & Lomb after
               December 31, 2004 under that certain Amended and Restated License
               Agreement between the Company and Bausch & Lomb dated December 9,
               2003 equals five million dollars ($5,000,000), and (b) the sum of
               (i) cash, cash equivalents and short term investments, plus (ii)
               accounts receivable equals five million dollars ($5,000,000).

          iv.  "Bonus Amount" means that amount equal to the product of (a)
               $301.37 multiplied by (b) the number of calendar days that have
               elapsed during the period beginning on August 16, 2004 and ending
               on the Base Salary and Bonus Date.

          v.   "Cause" means only (a) willful malfeasance or gross negligence in
               the performance by Executive of his or her duties, resulting in
               material harm to the Company, (b) fraud or dishonesty by
               Executive with respect to the Company, or (c) Executive's
               conviction of any felony involving deception, fraud or moral
               turpitude. The Company may treat a termination of Executive's
               employment as termination for

<PAGE>

               Cause only after (i) giving Executive written notice of the
               intention to terminate for Cause and of his or her right to a
               hearing by the Board, (ii) at least 30 days after giving the
               notice, conducting a hearing by the Board at which Executive may
               be represented by counsel, and (iii) giving Executive 30 days'
               written notice of the results of the hearing, which shall require
               a vote of a majority of the Directors then in office other than
               Executive. For purposes of this definition of Cause, no act or
               omission shall be considered to have been "willful" unless it was
               not in good faith and Executive had knowledge at the time that
               the act or omission was not in the best interest of the Company.
               Any act or failure to act based on authority given pursuant to a
               resolution duly adopted by the Board or based on the advice of
               counsel of the Company shall be conclusively presumed to be done,
               or omitted to be done, by Executive in good faith and in the best
               interest of the Company. Cause shall not include willful failure
               due to incapacity resulting from physical or mental illness or
               any actual or anticipated failure after Notice of Termination for
               Good Reason.

          vi.  "Deferment Date" means the earliest to occur of the date (a) the
               Company files for protection under the bankruptcy laws, makes an
               assignment for the benefit of creditors, appoints or suffers
               appointment of a receiver or trustee over its property, files a
               petition under any bankruptcy or insolvency act or has any such
               petition filed against it, (b) the sum of all amounts paid to the
               Company from any source (including without limitation from Bausch
               & Lomb, financing sources or under any new or existing license or
               other commercial arrangement) after March 31, 2005 equals two
               million dollars ($2,000,000) and (c) December 31, 2005.

          vii. "Good Reason" means (i) failure by the Company to maintain
               Executive in the positions of Chief Executive Officer and
               President including holding the title of and serving as Chief
               Executive Officer and President of the Company and having
               responsibility for performing all duties typically undertaken by
               such offices or assignment to Executive of duties materially
               inconsistent with such positions, (ii) the diminution in any
               material respect of Executive's positions or authority, excluding
               for this purpose an isolated, insubstantial and inadvertent
               action not taken in bad faith and which is remedied by the
               Company promptly after receipt of notice thereof given by
               Executive, (iii) failure by the Company to (a) provide Executive
               with the Applicable Base Salary, (b) pay Executive a bonus equal
               to Bonus Amount within thirty (30) days following the Base Salary
               and Bonus Date, or (c) provide Executive with the benefits and
               other compensation (including without limitation bonus and other
               incentive compensation) Executive was receiving as of the date of
               this Agreement, or (iv) relocation of Executive's principal place
               of work to

<PAGE>

               a location more than 30 miles from its current location without
               Executive's consent. For purposes of this definition of Good
               Reason, "Company" means Control Delivery Systems and any
               successor of Control Delivery Systems, provided if any such
               successor has a parent, then Company shall mean the ultimate
               parent corporation.

          viii. "Maximum Bonus" means the maximum bonus payable in any year and
               is calculated assuming all bonus targets or formulas for
               determining the bonus in such year had been met if Executive and
               Board had, prior to the Separation Date, agreed on such targets
               or formulas. If no such targets or formulas have been set as of
               the Separation Date, then the maximum bonus shall be deemed to be
               the actual bonus paid to Executive during the preceding fiscal
               year. Notwithstanding anything herein to the contrary, Maximum
               Bonus shall not include the Bonus Amount.

          ix.  "Reduced Base Salary" means $140,000.

          x.   "Separation Date" means the date the Employee's employment with
               the Company ends.

          xi.  "Severance Payment" means the sum of (x) an amount equal to
               twelve months' Base Salary plus (y) a pro-rated portion of the
               Maximum Bonus that would otherwise be payable in the year that
               the Separation Date occurs, if any.

5.   Remainder of Severance Agreement Unaffected. In all other respects, the
     provisions of the Severance Agreement shall remain in full force and
     effect.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]

<PAGE>

     In witness whereof, the parties hereto have executed this Agreement as of
the date first set forth above.


                                        By: /s/ Paul Ashton
                                            ------------------------------------
                                        Name: Paul Ashton


                                        CONTROL DELIVERY SYSTEMS, INC.


                                        By: /s/ Lori Freedman
                                            ------------------------------------
                                        Name: Lori Freedman
                                              ----------------------------------
                                        Title: VP, Corporate Affairs & General
                                               Counsel
                                               ---------------------------------
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.27
<SEQUENCE>13
<FILENAME>y16393exv4w27.txt
<DESCRIPTION>EX-4.27: FIRST AMENDMENT TO CONTROL DELIVERY SYSTEMS, INC. SEVERANCE AGREEMENT
<TEXT>
<PAGE>
                                                                    Exhibit 4.27

                                 FIRST AMENDMENT
                         CONTROL DELIVERY SYSTEMS, INC.
                               SEVERANCE AGREEMENT

     This First Amendment to Severance Agreement (this "Amendment") made this
17th day of August, 2004 (the "Amendment Effective Date"), by and between
Michael J. Soja ("Executive") and Control Delivery Systems, Inc. (the
"Company").

     Reference is made to (a) that certain Severance Agreement dated February
20, 2004, by and between Executive and the Company (the "Severance Agreement"),
(b) that certain Control Delivery Systems, Inc. 2001 Incentive Plan Restricted
Stock Award Agreement dated October 7, 2003 between Executive and the Company
and that certain Control Delivery Systems, Inc. 1997 Incentive Plan Restricted
Stock Award Agreement dated October 7, 2003 between Executive and the Company
(collectively, the "October 2003 Restricted Stock Award Agreements"), (c) that
certain Control Delivery Systems, Inc. 2001 Incentive Plan Restricted Stock
Award Agreement dated May 28, 2003 between Executive and the Company (the "May
2003 Restricted Stock Award Agreement"), and (d) that certain Control Delivery
Systems, Inc. 2001 Incentive Plan Restricted Stock Award Agreement dated August
16, 2004 between Executive and the Company (the "August 2004 Restricted Stock
Award Agreement").

     Whereas, the Board of Directors of the Company (the "Board") has determined
that Executive's salary should be reduced below Base Salary;

     Whereas, Executive has agreed to such reduction in salary under the terms
and conditions set forth in this Amendment;

NOW, THEREFORE, in consideration of the premises and the mutual promises, terms
and conditions contained herein, the parties hereto agree as follows:

1.   Restricted Stock.

     a.   Notwithstanding anything to the contrary in the October 2003
          Restricted Stock Award Agreements, including without limitation
          Section 6 of such agreements, and notwithstanding anything to the
          contrary in the May 2003 Restricted Stock Award Agreement, including
          without limitation Section 7 of such agreement, all of the shares of
          restricted stock granted prior to August 16, 2004 shall automatically
          and immediately vest on the Amendment Effective Date and no longer be
          subject to forfeiture, including without limitation the following
          shares: 14,040 shares of restricted stock granted on May 28, 2003;
          30,046 shares of restricted stock granted on October 7, 2003; 5,954
          shares of restricted stock granted on October 7, 2003; 10,000 shares
          of restricted stock granted on October 7, 2003.

     b.   Section 11 of the October 2003 Restricted Stock Award Agreements,
          Section 11 of the August 2004 Restricted Stock Award Agreement and
          Section 12 of

<PAGE>

          the May 2003 Restricted Stock Award Agreement are each hereby deleted
          in their entirety and the following is substituted in place thereof:
          "Right of Repurchase of Vested Shares. Notwithstanding anything in
          this Agreement to the contrary, the Company agrees that it will not
          exercise any right that the Company has to purchase, repurchase or
          reacquire all or any part of Employee's Vested Shares."

2.   Bonus. Subject to the occurrence of the Bonus Date and provided that
     Executive is employed by the Company on the Bonus Date, Executive shall be
     eligible for a bonus equal to Bonus Amount.

     "Bonus Amount" means that amount equal to the product of (a) $335.61
     multiplied by (b) the number of calendar days that have elapsed during the
     period beginning on August 16, 2004 and ending on the Bonus Date.

     "Bonus Date" means the earliest date that the Board reasonably determines
     that the Company has the financial resources to pay Executive a bonus equal
     to the Bonus Amount.

     The parties acknowledge and agree that any obligation to pay a bonus is
     solely that of the Company and that none of the directors or officers of
     the Company shall have any personal liability with respect thereto.

3.   Amendment to Section 1 of Severance Agreement. Section 1 of the Severance
     Agreement is hereby deleted in its entirety and the following is
     substituted in place thereof:

     a.  "1. Severance Benefits.

          i.   Severance Benefits in the event of termination on or before
               December 31, 2006. If on or before December 31, 2006, the Company
               terminates Executive's employment without Cause, or Executive
               terminates his or her employment for Good Reason, the Company
               will provide severance benefits to Executive as follows:

               1.   Notwithstanding anything to the contrary in any agreement
                    between Executive and Company, including without limitation
                    Section 6 of the August 2004 Restricted Stock Award
                    Agreement, all unvested shares of restricted stock granted
                    to Executive will automatically and immediately vest on the
                    Separation Date and no longer be subject to forfeiture,
                    including without limitation the following shares: 20,000
                    shares of restricted stock granted on August 16, 2004.

               2.   All options to purchase Company stock held by Executive will
                    automatically and immediately vest and become exercisable on
                    the Separation Date and remain exercisable for a period of
                    six

<PAGE>

                    months following the Separation Date (or three months in the
                    case of incentive stock options).

               3.   The Company will pay to Executive a lump-sum cash amount
                    equal to the Severance Payment within 30 days following the
                    later of (a) the Separation Date, and (b) the date Executive
                    delivers to Company a release of claims in accordance with
                    Section 16 of this Agreement. Notwithstanding the foregoing,
                    in the event the Separation Date occurs after March 31,
                    2005, the Company shall have the right to defer payment of
                    the Severance Payment until the Deferment Date, provided
                    that the Severance Payment will accrue simple interest at
                    the rate of 3 % per year, payable on the Deferment Date. The
                    parties acknowledge and agree that the obligation to pay the
                    Severance Payment is solely that of the Company and that
                    none of the directors or officers of the Company shall have
                    any personal liability with respect thereto.

               4.   The Company will continue for a period of six months from
                    the Separation Date to provide Executive with the following
                    benefits: (1) the Company's group medical plan, and (2) life
                    insurance arrangements or disability plan arrangements
                    provided to executive-level employees of the Company. To the
                    extent that the Company is unable to provide such benefits
                    to Executive under its existing plans and arrangements, it
                    will pay Executive cash amounts equal to the cost the
                    Company would have incurred to provide those benefits.

4.   Amendment to Section 2 of the Severance Agreement. Section 2 of the
     Severance Agreement is hereby deleted in its entirety and the following is
     substituted in place thereof:

     a.  "2. Definitions.

          i.   "Applicable Base Salary" means: (a) for that period beginning
               August 16, 2004 and ending on that date which is 30 days
               following the Base Salary and Bonus Date, $150,000 and (b) for
               that period beginning on that date which is 31 days following the
               Base Salary and Bonus Date and ending on December 31, 2006, Base
               Salary.

          ii.  "Base Salary" means $272,497, provided that in the event the
               Board in its sole discretion increases Executive's Base Salary
               above $272,497, the Base Salary as so increased will be referred
               to as "Base Salary."

          iii. "Base Salary and Bonus Date" means the first date on which both
               of the following conditions are met (a) the sum of all royalty
               payments

<PAGE>

               received by the Company from Bausch & Lomb after December 31,
               2004 under that certain Amended and Restated License Agreement
               between the Company and Bausch & Lomb dated December 9, 2003
               equals five million dollars ($5,000,000), and (b) the sum of (i)
               cash, cash equivalents and short term investments, plus (ii)
               accounts receivable equals five million dollars ($5,000,000).

          iv.  "Bonus Amount" means that amount equal to the product of (a)
               $335.61 multiplied by (b) the number of calendar days that have
               elapsed during the period beginning on August 16, 2004 and ending
               on the Base Salary and Bonus Date.

          v.   "Cause" means only (a) willful malfeasance or gross negligence in
               the performance by Executive of his or her duties, resulting in
               material harm to the Company, (b) fraud or dishonesty by
               Executive with respect to the Company, or (c) Executive's
               conviction of any felony involving deception, fraud or moral
               turpitude. The Company may treat a termination of Executive's
               employment as termination for Cause only after (i) giving
               Executive written notice of the intention to terminate for Cause
               and of his or her right to a hearing by the Board, (ii) at least
               30 days after giving the notice, conducting a hearing by the
               Board at which Executive may be represented by counsel, and (iii)
               giving Executive 30 days' written notice of the results of the
               hearing, which shall require a vote of a majority of the
               Directors then in office other than Executive. For purposes of
               this definition of Cause, no act or omission shall be considered
               to have been "willful" unless it was not in good faith and
               Executive had knowledge at the time that the act or omission was
               not in the best interest of the Company. Any act or failure to
               act based on authority given pursuant to a resolution duly
               adopted by the Board or based on the advice of counsel of the
               Company shall be conclusively presumed to be done, or omitted to
               be done, by Executive in good faith and in the best interest of
               the Company. Cause shall not include willful failure due to
               incapacity resulting from physical or mental illness or any
               actual or anticipated failure after Notice of Termination for
               Good Reason.

          vi.  "Deferment Date" means the earliest to occur of the date (a) the
               Company files for protection under the bankruptcy laws, makes an
               assignment for the benefit of creditors, appoints or suffers
               appointment of a receiver or trustee over its property, files a
               petition under any bankruptcy or insolvency act or has any such
               petition filed against it, (b) the sum of all amounts paid to the
               Company from any source (including without limitation from Bausch
               & Lomb, financing sources or under any new or existing license or
               other commercial arrangement) after March 31, 2005 equals two
               million dollars ($2,000,000) and (c) December 31, 2005.

<PAGE>

          vii. "Good Reason" means (i) failure by the Company to maintain
               Executive in the position of Vice President, Chief Financial
               Officer including holding the title of and serving as Vice
               President, Chief Financial Officer of the Company and having
               responsibility for performing all duties typically undertaken by
               such offices or assignment to Executive of duties materially
               inconsistent with such positions, (ii) the diminution in any
               material respect of Executive's positions or authority, excluding
               for this purpose an isolated, insubstantial and inadvertent
               action not taken in bad faith and which is remedied by the
               Company promptly after receipt of notice thereof given by
               Executive, (iii) failure by the Company to (a) provide Executive
               with the Applicable Base Salary, (b) pay Executive a bonus equal
               to Bonus Amount within thirty (30) days following the Base Salary
               and Bonus Date, or (c) provide Executive with the benefits and
               other compensation (including without limitation bonus and other
               incentive compensation) Executive was receiving as of the date of
               this Agreement, or (iv) relocation of Executive's principal place
               of work to a location more than 30 miles from its current
               location without Executive's consent. For purposes of this
               definition of Good Reason, "Company" means Control Delivery
               Systems and any successor of Control Delivery Systems, provided
               if any such successor has a parent, then Company shall mean the
               ultimate parent corporation.

          viii. "Maximum Bonus" means the maximum bonus payable in any year and
               is calculated assuming all bonus targets or formulas for
               determining the bonus in such year had been met if Executive and
               Board had, prior to the Separation Date, agreed on such targets
               or formulas. If no such targets or formulas have been set as of
               the Separation Date, then the maximum bonus shall be deemed to be
               the actual bonus paid to Executive during the preceding fiscal
               year. Notwithstanding anything herein to the contrary, Maximum
               Bonus shall not include the Bonus Amount.

          ix.  "Reduced Base Salary" means $150,000.

          x.   "Separation Date" means the date the Employee's employment with
               the Company ends.

          xi.  "Severance Payment" means the sum of (x) an amount equal to six
               months' Base Salary plus (y) a pro-rated portion of the Maximum
               Bonus that would otherwise be payable in the year that the
               Separation Date occurs, if any.

5.   Remainder of Severance Agreement Unaffected. In all other respects, the
     provisions of the Severance Agreement shall remain in full force and
     effect.

<PAGE>

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]

<PAGE>

     In witness whereof, the parties hereto have executed this Agreement as of
the date first set forth above.


                                        By: /s/ Michael J. Soja
                                            ------------------------------------
                                        Name: Michael J. Soja


                                        CONTROL DELIVERY SYSTEMS, INC.


                                        By: /s/ Paul Ashton
                                            ------------------------------------
                                        Name: Paul Ashton
                                        Title: Chief Executive Officer &
                                               President
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.28
<SEQUENCE>14
<FILENAME>y16393exv4w28.txt
<DESCRIPTION>EX-4.28: FIRST AMENDMENT TO CONTROL DELIVERY SYSTEMS, INC. SEVERANCE AGREEMENT
<TEXT>
<PAGE>
                                                                    Exhibit 4.28

                                 FIRST AMENDMENT
                         CONTROL DELIVERY SYSTEMS, INC.
                               SEVERANCE AGREEMENT

     This First Amendment to Severance Agreement (this "Amendment") made this
17th day of August, 2004 (the "Amendment Effective Date"), by and between Lori
H. Freedman ("Executive") and Control Delivery Systems, Inc. (the "Company").

     Reference is made to (a) that certain Severance Agreement dated February
20, 2004, by and between Executive and the Company (the "Severance Agreement"),
(b) that certain Control Delivery Systems, Inc. 2001 Incentive Plan Restricted
Stock Award Agreement dated October 7, 2003 between Executive and the Company
and that certain Control Delivery Systems, Inc. 1997 Incentive Plan Restricted
Stock Award Agreement dated October 7, 2003 between Executive and the Company
(collectively, the "October 2003 Restricted Stock Award Agreements"), (c) that
certain Control Delivery Systems, Inc. 2001 Incentive Plan Restricted Stock
Award Agreement dated May 28, 2003 between Executive and the Company (the "May
2003 Restricted Stock Award Agreement"), and (d) that certain Control Delivery
Systems, Inc. 2001 Incentive Plan Restricted Stock Award Agreement dated August
16, 2004 between Executive and the Company (the "August 2004 Restricted Stock
Award Agreement").

     Whereas, the Board of Directors of the Company (the "Board") has determined
that Executive's salary should be reduced below Base Salary;

     Whereas, Executive has agreed to such reduction in salary under the terms
and conditions set forth in this Amendment;

NOW, THEREFORE, in consideration of the premises and the mutual promises, terms
and conditions contained herein, the parties hereto agree as follows:

1.   Restricted Stock.

     a.   Notwithstanding anything to the contrary in the October 2003
          Restricted Stock Award Agreements, including without limitation
          Section 6 of such agreements, and notwithstanding anything to the
          contrary in the May 2003 Restricted Stock Award Agreement, including
          without limitation Section 7 of such agreement, all of the shares of
          restricted stock granted prior to August 16, 2004 shall automatically
          and immediately vest on the Amendment Effective Date and no longer be
          subject to forfeiture, including without limitation the following
          shares: 11,700 shares of restricted stock granted on May 28, 2003;
          24,046 shares of restricted stock granted on October 7, 2003; 5,954
          shares of restricted stock granted on October 7, 2003; 10,000 shares
          of restricted stock granted on October 7, 2003.

     b.   Section 11 of the October 2003 Restricted Stock Award Agreements,
          Section 11 of the August 2004 Restricted Stock Award Agreement and
          Section 12 of

<PAGE>

          the May 2003 Restricted Stock Award Agreement are each hereby deleted
          in their entirety and the following is substituted in place thereof:
          "Right of Repurchase of Vested Shares. Notwithstanding anything in
          this Agreement to the contrary, the Company agrees that it will not
          exercise any right that the Company has to purchase, repurchase or
          reacquire all or any part of Employee's Vested Shares."

2.   Bonus. Subject to the occurrence of the Bonus Date and provided that
     Executive is employed by the Company on the Bonus Date, Executive shall be
     eligible for a bonus equal to Bonus Amount.

     "Bonus Amount" means that amount equal to the product of (a) $124.28
     multiplied by (b) the number of calendar days that have elapsed during the
     period beginning on August 16, 2004 and ending on the Bonus Date.

     "Bonus Date" means the earliest date that the Board reasonably determines
     that the Company has the financial resources to pay Executive a bonus equal
     to the Bonus Amount.

     The parties acknowledge and agree that any obligation to pay a bonus is
     solely that of the Company and that none of the directors or officers of
     the Company shall have any personal liability with respect thereto.

3.   Amendment to Section 1 of Severance Agreement. Section 1 of the Severance
     Agreement is hereby deleted in its entirety and the following is
     substituted in place thereof:

     a.   "1. Severance Benefits.

          i.   Severance Benefits in the event of termination on or before
               December 31, 2006. If on or before December 31, 2006, the Company
               terminates Executive's employment without Cause, or Executive
               terminates his or her employment for Good Reason, the Company
               will provide severance benefits to Executive as follows:

               1.   Notwithstanding anything to the contrary in any agreement
                    between Executive and Company, including without limitation
                    Section 6 of the August 2004 Restricted Stock Award
                    Agreement, all unvested shares of restricted stock granted
                    to Executive will automatically and immediately vest on the
                    Separation Date and no longer be subject to forfeiture,
                    including without limitation the following shares: 20,000
                    shares of restricted stock granted on August 16, 2004.

               2.   All options to purchase Company stock held by Executive will
                    automatically and immediately vest and become exercisable on
                    the Separation Date and remain exercisable for a period of
                    six

<PAGE>

                    months following the Separation Date (or three months in the
                    case of incentive stock options).

               3.   The Company will pay to Executive a lump-sum cash amount
                    equal to the Severance Payment within 30 days following the
                    later of (a) the Separation Date, and (b) the date Executive
                    delivers to Company a release of claims in accordance with
                    Section 16 of this Agreement. Notwithstanding the foregoing,
                    in the event the Separation Date occurs after March 31,
                    2005, the Company shall have the right to defer payment of
                    the Severance Payment until the Deferment Date, provided
                    that the Severance Payment will accrue simple interest at
                    the rate of 3 % per year, payable on the Deferment Date. The
                    parties acknowledge and agree that the obligation to pay the
                    Severance Payment is solely that of the Company and that
                    none of the directors or officers of the Company shall have
                    any personal liability with respect thereto.

               4.   The Company will continue for a period of six months from
                    the Separation Date to provide Executive with the following
                    benefits: (1) the Company's group medical plan, and (2) life
                    insurance arrangements or disability plan arrangements
                    provided to executive-level employees of the Company. To the
                    extent that the Company is unable to provide such benefits
                    to Executive under its existing plans and arrangements, it
                    will pay Executive cash amounts equal to the cost the
                    Company would have incurred to provide those benefits.

4.   Amendment to Section 2 of the Severance Agreement. Section 2 of the
     Severance Agreement is hereby deleted in its entirety and the following is
     substituted in place thereof:

     a.   "2. Definitions.

          i.   "Applicable Base Salary" means: (a) for that period beginning
               August 16, 2004 and ending on that date which is 30 days
               following the Base Salary and Bonus Date, $140,000 and (b) for
               that period beginning on that date which is 31 days following the
               Base Salary and Bonus Date and ending on December 31, 2006, Base
               Salary.

          ii.  "Base Salary" means $185,361 provided that in the event the Board
               in its sole discretion increases Executive's Base Salary above
               $185,361, the Base Salary as so increased will be referred to as
               "Base Salary."

          iii. "Base Salary and Bonus Date" means the first date on which both
               of the following conditions are met (a) the sum of all royalty
               payments

<PAGE>

               received by the Company from Bausch & Lomb after December 31,
               2004 under that certain Amended and Restated License Agreement
               between the Company and Bausch & Lomb dated December 9, 2003
               equals five million dollars ($5,000,000), and (b) the sum of (i)
               cash, cash equivalents and short term investments, plus (ii)
               accounts receivable equals five million dollars ($5,000,000).

          iv.  "Bonus Amount" means that amount equal to the product of (a)
               $124.28 multiplied by (b) the number of calendar days that have
               elapsed during the period beginning on August 16, 2004 and ending
               on the Base Salary and Bonus Date.

          v.   "Cause" means only (a) willful malfeasance or gross negligence in
               the performance by Executive of his or her duties, resulting in
               material harm to the Company, (b) fraud or dishonesty by
               Executive with respect to the Company, or (c) Executive's
               conviction of any felony involving deception, fraud or moral
               turpitude. The Company may treat a termination of Executive's
               employment as termination for Cause only after (i) giving
               Executive written notice of the intention to terminate for Cause
               and of his or her right to a hearing by the Board, (ii) at least
               30 days after giving the notice, conducting a hearing by the
               Board at which Executive may be represented by counsel, and (iii)
               giving Executive 30 days' written notice of the results of the
               hearing, which shall require a vote of a majority of the
               Directors then in office other than Executive. For purposes of
               this definition of Cause, no act or omission shall be considered
               to have been "willful" unless it was not in good faith and
               Executive had knowledge at the time that the act or omission was
               not in the best interest of the Company. Any act or failure to
               act based on authority given pursuant to a resolution duly
               adopted by the Board or based on the advice of counsel of the
               Company shall be conclusively presumed to be done, or omitted to
               be done, by Executive in good faith and in the best interest of
               the Company. Cause shall not include willful failure due to
               incapacity resulting from physical or mental illness or any
               actual or anticipated failure after Notice of Termination for
               Good Reason.

          vi.  "Deferment Date" means the earliest to occur of the date (a) the
               Company files for protection under the bankruptcy laws, makes an
               assignment for the benefit of creditors, appoints or suffers
               appointment of a receiver or trustee over its property, files a
               petition under any bankruptcy or insolvency act or has any such
               petition filed against it, (b) the sum of all amounts paid to the
               Company from any source (including without limitation from Bausch
               & Lomb, financing sources or under any new or existing license or
               other commercial arrangement) after March 31, 2005 equals two
               million dollars ($2,000,000) and (c) December 31, 2005.

<PAGE>

          vii. "Good Reason" means (i) failure by the Company to maintain
               Executive in the positions of Vice President, Corporate Affairs,
               General Counsel and Secretary including holding the title of and
               serving as Vice President, Corporate Affairs, General Counsel and
               Secretary of the Company and having responsibility for performing
               all duties typically undertaken by such offices or assignment to
               Executive of duties materially inconsistent with such positions,
               (ii) the diminution in any material respect of Executive's
               positions or authority, excluding for this purpose an isolated,
               insubstantial and inadvertent action not taken in bad faith and
               which is remedied by the Company promptly after receipt of notice
               thereof given by Executive, (iii) failure by the Company to (a)
               provide Executive with the Applicable Base Salary, (b) pay
               Executive a bonus equal to Bonus Amount within thirty (30) days
               following the Base Salary and Bonus Date, or (c) provide
               Executive with the benefits and other compensation (including
               without limitation bonus and other incentive compensation)
               Executive was receiving as of the date of this Agreement, or (iv)
               relocation of Executive's principal place of work to a location
               more than 30 miles from its current location without Executive's
               consent. For purposes of this definition of Good Reason,
               "Company" means Control Delivery Systems and any successor of
               Control Delivery Systems, provided if any such successor has a
               parent, then Company shall mean the ultimate parent corporation.

          viii. "Maximum Bonus" means the maximum bonus payable in any year and
               is calculated assuming all bonus targets or formulas for
               determining the bonus in such year had been met if Executive and
               Board had, prior to the Separation Date, agreed on such targets
               or formulas. If no such targets or formulas have been set as of
               the Separation Date, then the maximum bonus shall be deemed to be
               the actual bonus paid to Executive during the preceding fiscal
               year. Notwithstanding anything herein to the contrary, Maximum
               Bonus shall not include the Bonus Amount.

          ix.  "Reduced Base Salary" means $140,000.

          x.   "Separation Date" means the date the Employee's employment with
               the Company ends.

          xi.  "Severance Payment" means the sum of (x) an amount equal to six
               months' Base Salary plus (y) a pro-rated portion of the Maximum
               Bonus that would otherwise be payable in the year that the
               Separation Date occurs, if any.

<PAGE>

5.   Remainder of Severance Agreement Unaffected. In all other respects, the
     provisions of the Severance Agreement shall remain in full force and
     effect.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]

<PAGE>

     In witness whereof, the parties hereto have executed this Agreement as of
the date first set forth above.


                                        By: /s/ Lori H. Freedman
                                            ------------------------------------
                                        Name: Lori H. Freedman


                                        CONTROL DELIVERY SYSTEMS, INC.


                                        By: /s/ Paul Ashton
                                            ------------------------------------
                                        Name: Paul Ashton
                                        Title: Chief Executive Officer &
                                               President
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.29
<SEQUENCE>15
<FILENAME>y16393exv4w29.txt
<DESCRIPTION>EX-4.29: CONTROL DELIVERY SYSTEMS, INC. RESTRICTED STOCK AWARD AGREEMENT
<TEXT>
<PAGE>
                                                                    Exhibit 4.29

                         CONTROL DELIVERY SYSTEMS, INC.
                               2001 INCENTIVE PLAN

                        Restricted Stock Award Agreement

     The undersigned employee ("Employee") has been granted an award (the
"Award") of restricted stock from Control Delivery Systems, Inc. (the "Company")
under the 2001 Incentive Plan (the "Plan"), subject to the terms set forth below
and in the Plan, a copy of which as currently in effect has been delivered to
Employee. In consideration of the grant of the Award, the Employee agrees with
the Company as follows:

1. Effective Date. This Agreement shall take effect as of the date of grant of
the Award, as indicated on the signature page hereof.

2. Shares Subject to Award. The Award consists of the number of shares set forth
on the signature page hereof (the "Shares") of common stock of the Company
("Stock"). Employee's rights to the Shares are subject to the restrictions
described in this Agreement and the Plan in addition to such other restrictions,
if any, as may be imposed by law.

3. Meaning of Certain Terms. Except as otherwise expressly provided, all terms
used herein shall have the same meaning as in the Plan. The term "vest" as used
herein with respect to any Share means the lapsing of the restrictions described
herein with respect to such Share.

4. Nontransferability of Shares. The Shares cannot be sold, transferred,
pledged, assigned or otherwise encumbered or disposed of until they have vested,
and then only as provided below and in the Plan.

5. Forfeiture Risk. If Employee ceases to be employed by the Company and its
subsidiaries for any reason, including death, any then outstanding and unvested
Shares shall be automatically and immediately forfeited. Employee hereby (i)
appoints the Company as the attorney-in-fact of Employee to take such actions as
may be necessary or appropriate to effectuate a transfer of the record ownership
of any such shares that are unvested and forfeited hereunder, (ii) agrees to
deliver to the Company, as a precondition to the issuance of any certificate or
certificates with respect to unvested Shares hereunder, one or more stock
powers, endorsed in blank, with respect to such Shares, and (iii) agrees to sign
such other powers and take such other actions as the Company may reasonably
request to accomplish the transfer or forfeiture of any unvested Shares that are
forfeited hereunder.

6. Vesting of Shares. The Shares shall vest in accordance with the provisions of
this Paragraph 6 and applicable provisions of the Plan (if not earlier in
accordance with the Plan, including Section 6 of the Plan), as follows:

     100% of the Shares will vest on the earlier to occur of:

          -    October 7, 2005; or

          -    a Liquidity Event Date (as defined below).


                                   PAGE 1 OF 9

<PAGE>

     Notwithstanding the foregoing, in the event that a Liquidity Event Date
that relates to an initial public offering occurs on or before October 7, 2005,
100% of the Shares shall vest on that date which is the six-month anniversary of
the closing of the initial public offering.

     Any securities of the Company or any other entity, and any cash and other
consideration, into which the Shares are converted or for which they are
exchanged, by reason of a merger, consolidation, sale of assets, reorganization
or other transaction, shall vest (by their terms or through the use of an
escrow, a commitment to deliver in the future or such other device as is
determined by the administrator of the Plan) on the same terms as the Shares
from which they were converted or for which they were exchanged.

     A "Liquidity Event" means any public offering, merger, consolidation, sale
of assets, reorganization or other transaction in or as a result of which the
Stock of the Company (or the stock or other securities into or for which such
Stock is converted or exchanged) are or become registered under the Securities
Exchange Act of 1934 or are converted into or exchanged for cash. "Liquidity
Event Date" shall mean the date of the closing of a Liquidity Event.

     Notwithstanding the foregoing, no Shares shall vest on any vesting date
specified above unless Employee is then, and since the date of grant has
continuously been, employed by the Company or its subsidiaries.

7. Legend. Any certificates representing unvested Shares shall bear a legend
substantially in the following form:

     THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED
     HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS (INCLUDING FORFEITURE) OF AN
     INCENTIVE PLAN AND A RESTRICTED STOCK AWARD AGREEMENT ENTERED INTO BETWEEN
     THE REGISTERED OWNER AND CONTROL DELIVERY SYSTEMS, INC. COPIES OF SUCH PLAN
     AND AGREEMENT ARE ON FILE IN THE OFFICES OF CONTROL DELIVERY SYSTEMS, INC.

     As soon as practicable following the vesting of any such Shares, the
Company shall cause a certificate or certificates covering such Shares to be
issued and delivered to Employee, containing a legend substantially in the
following form:

     THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
     RESTRICTIONS UPON TRANSFER SET FORTH IN A RESTRICTED STOCK AWARD AGREEMENT.
     THE CORPORATION WILL FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER OF THIS
     CERTIFICATE UPON WRITTEN REQUEST AND WITHOUT CHARGE.

     If any Shares are held in book-entry form, the Company may take such steps
as it deems necessary or appropriate to record and manifest the restrictions
applicable to such Shares.

8. Dividends, etc. Employee shall be entitled to (i) receive regular cash
dividends, if any, paid with respect to those Shares of which Employee is the
record owner on the record date for


                                       -2-

<PAGE>

such dividend, and (ii) vote any Shares of which Employee is the record owner on
the record date for such vote. Any dividends and distributions (other than any
regular cash dividends) distributed with respect to any Shares or any securities
of the Company or any other entity into which the Shares are converted or for
which they are exchanged (the "associated share"), including without limitation
a distribution of stock by reason of a stock dividend, stock split or otherwise
with respect to an associated share, or a distribution of other securities with
respect to an associated share, shall be subject to the restrictions of this
Agreement in the same manner and for so long as the associated share remains
subject to such restrictions, and shall be forfeited if and when the associated
share is so forfeited. The administrator of the Plan may require that any cash
distribution with respect to the Shares other than a regular cash dividend be
placed in escrow or otherwise made subject to such restrictions as the
administrator of the Plan deems appropriate. References in this Agreement to the
Shares shall refer, with the necessary changes having been made, to any such
restricted amounts.

9. Restriction on Transfer of Vested Shares.

     a. Employee shall not sell, assign, transfer, pledge, hypothecate, give or
otherwise dispose of, by operation of law or otherwise (collectively
"transfer"), any of the Shares once they have vested ("Vested Shares"), or any
interest therein, unless such transfer shall be made in compliance with the
provisions of this Section 9 and the provisions of Sections 10 and 11 of this
Agreement.

     b. Notwithstanding Section 10 hereof, Employee shall not transfer any
Vested Shares unless either (i) a registration statement under the Securities
Act of 1933, as amended (the "Act"), with respect to the Vested Shares shall
have become, and continues to be, effective, or (ii) the Company receives an
opinion of counsel reasonably satisfactory to it that registration of such
Vested Shares is not required under the Act.

10. Right of First Refusal on Dispositions of Vested Shares.

     a. Receipt of Third-Party Offer. If at any time Employee desires to sell
for cash, cash equivalents or any other form of consideration (including a
promissory note) Vested Shares pursuant to an offer or proposed offer from a
third party (the "Proposed Transferee"), Employee shall submit a written offer
(the "Offer") to sell such Vested Shares (the "Offered Shares") to the Company
on terms and conditions, including price, not less favorable to the Company than
those on which Employee proposes to sell such Offered Shares to the Proposed
Transferee. The Offer shall disclose the identity of the Proposed Transferee,
the number of Offered Shares proposed to be sold, the total number of Vested
Shares owned by Employee, the terms and conditions, including price, of the
proposed sale, and any other material facts relating to the proposed sale. The
Offer shall further state that the Company may acquire, in accordance with the
provisions of this Agreement, all or any portion of the Offered Shares for the
price and upon the other terms and conditions, including deferred payment (if
applicable), set forth therein.

     b. Company Notice of Intent to Purchase. If the Company desires to purchase
all or any portion of the Offered Shares, the Company shall give to Employee
written notice of the number of Offered Shares to be purchased by it within 30
days of the date of the Offer. Such communication shall, when taken in
conjunction with the Offer, be deemed to constitute a valid,


                                       -3-

<PAGE>

legally binding and enforceable agreement for the sale and purchase of the
Offered Shares. Sale of the Offered Shares to the Company pursuant to this
Section 10 shall be made at the offices of the Company on the 45th day following
the date of the Offer (or, if such day is not a business day, then on the next
succeeding business day). Such sale shall be effected by Employee's delivery to
the Company of a certificate or certificates evidencing the Offered Shares to be
purchased by the Company, duly endorsed for transfer to the Company, against
payment to Employee of the purchase price therefor by the Company by a certified
or cashier's check.

     c. Sale to Third Party. If, within 30 days of its receipt of notice of the
Offer, the Company fails to deliver written notice to Employee of its intention
to purchase all of the Offered Shares (the Offered Shares which the Company does
not elect to purchase being referred to as the "Refused Shares"), the Refused
Shares not so purchased may be sold by Employee at any time within 90 days after
the date of the Offer, at not less than the price and upon other terms and
conditions, if any, not more favorable to the Proposed Transferee than those
specified in the Offer. If the Refused Shares are not sold within such 90 day
period, they shall continue to be subject to the requirements of a prior offer
pursuant to this Section 10. If the Refused Shares are sold pursuant to this
Section 10 to any purchaser who is not a party to an agreement with the Company
containing restrictions on the transfer of the Vested Shares to the same extent
as those contained herein, the Company, may at its option, require the purchaser
to execute and deliver an agreement containing restrictions on the transfer of
Vested Shares the same as those set forth in this Agreement.

     d. Permitted Transfers. Employee shall have the right to make Permitted
Transfers (as defined below) of Employee's Vested Shares and the provisions of
subsections (a), (b) and (c) above shall not apply to any such Permitted
Transfer by Employee. For purposes of this Agreement, "Permitted Transfer" shall
mean any transfer by Employee during his or her lifetime of all or any portion
of the Vested Shares (i) to the Company; or (ii) to any parent, spouse, child,
grandchild, brother, sister or the spouse of a child, grandchild, brother or
sister (a "Member of the Immediate Family") of Employee, to a trust created for
the benefit of a Member of the Immediate Family of Employee or to a custodian of
a property of one or more such persons, or to a limited partnership or limited
liability company all partners or members of which are Members of the Immediate
Family of Employee, any of such transfers to include transfers by will or the
laws of descent and distribution; provided, however, that, it shall be a
condition of each such transfer, that (x) the transferee agrees to be bound by
the terms of this Agreement, including without limitation Sections 10, 11 and
13, as though no such transfer had taken place, and that (y) Employee has
complied with all applicable laws in connection with such transfer.


                                       -4-

<PAGE>

11. Right of Repurchase of Vested Shares.

     a. Termination of Employment Relationship. If Employee's employment or
other service relationship with the Company terminates, voluntarily or
involuntarily, for any reason, the Company shall have the right to purchase, and
Employee (or Employee's legal representative or transferee(s) pursuant to
Section 10(d) of this Agreement) shall, at the election of the Company, be
obligated to sell, all or any part of Employee's Vested Shares at the purchase
price and on the terms provided in this Section 11 (the "Repurchase Right").

     b. Exercise of Repurchase Right. The Company may exercise the Repurchase
Right by giving to Employee (or Employee's legal representative or transferee(s)
pursuant to Section 10(d) of this Agreement), within 30 days of the date on
which Employee's employment or other service relationship with the Company
terminates (the "Termination Date"), written notice of (i) the number of Vested
Shares to be purchased by it, and (ii) the purchase price, as determined in a
manner provided below, to be paid for such Vested Shares. Such communication
shall be deemed to constitute a valid, legally binding and enforceable agreement
for the sale and purchase of the Vested Shares.

     The purchase price of Vested Shares purchased by the Company pursuant to
this Section 11 shall be the fair market value of such Vested Shares on the
Termination Date, as conclusively determined by the Board of Directors of the
Company after taking into consideration such factors as it deems appropriate.

     Sale of the Vested Shares to the Company pursuant to this Section 11 shall
be made at the offices of the Company on the 45th day following the Termination
Date (or, if such day is not a business day, then on the next succeeding
business day) or such earlier business day of which the Company shall notify
Employee (or Employee's legal representative or transferee(s) pursuant to
Section 10(d) of this Agreement). Such sale shall be effected by the delivery to
the Company of a certificate or certificates evidencing the Vested Shares to be
purchased by the Company, duly endorsed for transfer to the Company, against
payment to Employee (or Employee's legal representative or transferee(s)
pursuant to Section 10(d) of this Agreement) of the purchase price therefor by
the Company by a certified or cashier's check.

12. Effect of Prohibited Transfer. The Company shall not be required (a) to
transfer on its books any Shares which shall have been sold or transferred in
violation of any of the provisions set forth in this Agreement, or (b) to treat
as owner of such Shares or to pay dividends to any transferee to whom any such
Shares shall have been so sold or transferred.

13. Initial Public Offering. Upon the closing of the first underwritten public
offering by the Company under the Act of its Stock for its own account for cash:
(a) Sections 9(a), 10 and 11 of this Agreement shall terminate except as to
Offers accepted and Repurchase Rights exercised by the Company prior to such
date; (b) without the prior written approval of the Company, Employee agrees not
to, directly or indirectly, make or cause any offering, sale, short sale,
hypothecation, pledge or other disposition of any Vested Shares until the date
180 days after the effective date of the registration statement filed with the
Securities and Exchange Commission pursuant to the Act by the Company in
connection with such offering (the "Holdback Period"); and (c) Employee shall,
if so requested by the Company, sign an agreement with the


                                       -5-

<PAGE>

underwriters of the offering containing such terms and provisions requested by
such underwriters substantially similar to those contained in this Section 13.
The Company may impose stop-transfer instructions with respect to the Shares or
other securities subject to the foregoing restrictions until the end of the
Holdback Period.

14. Termination of Restrictions on Transfer. The restrictions on the transfer of
Vested Shares contained in Sections 11 through 13 of this Agreement, and the
obligations of Employee and the Company set forth therein, except as to Offers
accepted and Repurchase Rights exercised by the Company prior to a Change in
Control, shall terminate upon a Change in Control, as defined below. The
transfer of the Shares pursuant to a Change in Control shall not be subject to
the provisions of Sections 9(a) and 10 of this Agreement.

     For purposes of this Section 14, Change in Control shall mean:

     (i) the acquisition by any Person or group of the ultimate beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) of more than 50% of the
then outstanding securities of the Company entitled to vote generally in the
election of directors; excluding, however, the following: (A) any acquisition
directly from the Company (excluding any acquisition by virtue of the exercise
of an exercise, conversion or exchange privilege unless the security being so
exercised, converted or exchanged was itself acquired directly from the
Company), (B) any acquisition by the Company, or (C) any acquisition by an
employee benefit plan (or related trust) sponsored or maintained by the Company
or by any corporation controlled by the Company; or

     (ii) a reorganization, recapitalization, merger or consolidation (a
"Corporate Transaction") of the Company, unless securities representing more
than 50% of the then outstanding securities entitled to vote generally in the
election of directors of the Company or the corporation resulting from or
surviving such Corporate Transaction (or the ultimate parent of the Company or
such corporation after such Corporate Transaction) are beneficially owned
subsequent to such Corporate Transaction by the Person or Persons who were the
beneficial owners of the outstanding securities of the Company entitled to vote
generally in the election of directors immediately prior to such Corporate
Transaction, in substantially the same proportions as their ownership
immediately prior to such Corporate Transaction; or

     (iii) the sale, transfer or other disposition of all or substantially all
of the assets of the Company; or

     (iv) the dissolution or liquidation of the Company.

     For purposes of this definition, securities entitled to vote generally in
the election of directors that are issuable upon exercise of an exercise,
conversion or exchange privilege shall be deemed to be outstanding. In addition,
for purposes of this definition the following terms have the meanings set forth
below:

     A Person will be deemed to be the "owner" of any securities of which such
Person would be the "beneficial owner," as such term is defined in Rule 13d-3
promulgated by the Securities and Exchange Commission under the Exchange Act.


                                       -6-

<PAGE>

     "Person" has the meaning used in Section 13(d) of the Exchange Act, except
that "Person" does not include the Company or a wholly owned subsidiary of the
Company or an employee benefit plan (or related trust) of the Company or of a
wholly owned subsidiary.

15. Certain Tax Matters. Employee expressly acknowledges the following:

     a. Employee has been advised to confer promptly with a professional tax
advisor to consider whether Employee should make a so-called "83(b) election"
with respect to the Shares. Any such election, to be effective, must be made in
accordance with applicable regulations and within thirty (30) days following the
date of this Award. The Company has made no recommendation to Employee with
respect to the advisability of making such an election.

     b. The award or vesting of the Shares acquired hereunder, and the payment
of dividends with respect to such Shares, may give rise to "wages" subject to
withholding. Employee expressly acknowledges and agrees that Employee's rights
hereunder are subject to Employee's promptly paying to the Company in cash (or
by such other means as may be acceptable to the Company in its discretion,
including, if the administrator of the Plan so determines, by the delivery of
previously acquired Stock or shares of Stock acquired hereunder or by the
withholding of amounts from any payment hereunder) all taxes required to be
withheld in connection with such award, vesting or payment.

16. No Employment Rights. Nothing in the Plan, the Award or this Agreement
confers upon the Employee any right to continued employment or interferes with
the right of the Company to terminate Employee's employment at any time.

17. Severability; Governing Law. If any provisions of this Agreement shall be
determined to be illegal or unenforceable by any court of law, the remaining
provisions shall be severable and enforceable in accordance with their terms.
This Agreement shall be governed by, and construed in accordance with, the laws
of Delaware, excluding its choice of law provisions.

18. Injunctive Relief. It is acknowledged that it will be impossible to measure
the damages that would be suffered by the Company if Employee fails to comply
with the provisions of this Agreement and that, in the event of any such
failure, the Company will not have an adequate remedy at law. The Company shall,
therefore, be entitled to obtain specific performance of each of Employee's
obligations hereunder and to obtain immediate injunctive relief without the
requirement of posting a bond. Employee shall not urge, as a defense to any
proceeding for such specific performance or injunctive relief, that the Company
has an adequate remedy at law.

19. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns.

20. Amendments. Except as provided below, the Board may at any time or times
amend the Plan or this Agreement for the purpose of satisfying the requirements
of any changes in applicable laws or regulations or for any other purpose which
at the time may be permitted by law. Sections 9 through 11 of this Agreement,
containing restrictions on the transfer of Shares, may be amended or modified
only by a written instrument executed by both the Company and Employee. No
termination or amendment of the Plan or amendment of this Agreement shall,


                                       -7-

<PAGE>

without Employee's consent, adversely affect Employee's rights under the Plan or
this Agreement.

21. Notices. All notices required or permitted hereunder shall be in writing and
deemed effectively given upon personal delivery, upon deposit with the United
States Post Office, by registered or certified mail, postage prepaid, or upon
deposit with a recognized express overnight courier service, addressed, if to
the Company, to 400 Pleasant Street, Watertown, MA 02472, attention: Chief
Financial Officer, and if to Employee, to the address shown beneath his or her
respective signature to this Agreement, or at such other address or addresses as
either party shall designate to the other in accordance with this Section 21.

22. Merger Provision. This Agreement, including the Plan which is incorporated
herein by reference in its entirety, constitutes the entire agreement between
the parties hereto pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements and understandings, whether oral or
written, of the parties hereto concerning the subject matter hereof.

23. Waivers. Any provision contained in this Agreement may be waived, either
generally or in any particular instance, by the Company.

24. Definition. As used in this Agreement, the term "Company" shall include any
subsidiary or parent of the Company as defined in Sections 424(e) and (f) of the
Code.

25. Consistency with Plan. If there is any inconsistency between the provisions
of this Agreement and the provisions of the Plan, the Plan shall control.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]


                                       -8-

<PAGE>

Name of Employee: Paul Ashton

Number of Shares of Restricted Stock granted: 20,000

Date of Grant: August 16, 2004

The foregoing Restricted Stock Award is hereby accepted and in consideration of
the grant of such Award, the undersigned Employee hereby agrees with Control
Delivery Systems, Inc. that the undersigned will be bound by the foregoing
Restricted Stock Award Agreement:


/s/ Paul Ashton
-------------------------------------
(Signature of Employee)

Dated: ___________, 2004
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.30
<SEQUENCE>16
<FILENAME>y16393exv4w30.txt
<DESCRIPTION>EX-4.30: CONTROL DELIVERY SYSTEMS, INC. RESTRICTED STOCK AWARD AGREEMENT
<TEXT>
<PAGE>
                                                                    Exhibit 4.30

                         CONTROL DELIVERY SYSTEMS, INC.
                               2001 INCENTIVE PLAN

                        Restricted Stock Award Agreement

     The undersigned employee ("Employee") has been granted an award (the
"Award") of restricted stock from Control Delivery Systems, Inc. (the "Company")
under the 2001 Incentive Plan (the "Plan"), subject to the terms set forth below
and in the Plan, a copy of which as currently in effect has been delivered to
Employee. In consideration of the grant of the Award, the Employee agrees with
the Company as follows:

1. Effective Date. This Agreement shall take effect as of the date of grant of
the Award, as indicated on the signature page hereof.

2. Shares Subject to Award. The Award consists of the number of shares set forth
on the signature page hereof (the "Shares") of common stock of the Company
("Stock"). Employee's rights to the Shares are subject to the restrictions
described in this Agreement and the Plan in addition to such other restrictions,
if any, as may be imposed by law.

3. Meaning of Certain Terms. Except as otherwise expressly provided, all terms
used herein shall have the same meaning as in the Plan. The term "vest" as used
herein with respect to any Share means the lapsing of the restrictions described
herein with respect to such Share.

4. Nontransferability of Shares. The Shares cannot be sold, transferred,
pledged, assigned or otherwise encumbered or disposed of until they have vested,
and then only as provided below and in the Plan.

5. Forfeiture Risk. If Employee ceases to be employed by the Company and its
subsidiaries for any reason, including death, any then outstanding and unvested
Shares shall be automatically and immediately forfeited. Employee hereby (i)
appoints the Company as the attorney-in-fact of Employee to take such actions as
may be necessary or appropriate to effectuate a transfer of the record ownership
of any such shares that are unvested and forfeited hereunder, (ii) agrees to
deliver to the Company, as a precondition to the issuance of any certificate or
certificates with respect to unvested Shares hereunder, one or more stock
powers, endorsed in blank, with respect to such Shares, and (iii) agrees to sign
such other powers and take such other actions as the Company may reasonably
request to accomplish the transfer or forfeiture of any unvested Shares that are
forfeited hereunder.

6. Vesting of Shares. The Shares shall vest in accordance with the provisions of
this Paragraph 6 and applicable provisions of the Plan (if not earlier in
accordance with the Plan, including Section 6 of the Plan), as follows:

     100% of the Shares will vest on the earlier to occur of:

          -    October 7, 2005; or

          -    a Liquidity Event Date (as defined below).


                                   PAGE 1 OF 9

<PAGE>

     Notwithstanding the foregoing, in the event that a Liquidity Event Date
that relates to an initial public offering occurs on or before October 7, 2005,
100% of the Shares shall vest on that date which is the six-month anniversary of
the closing of the initial public offering.

     Any securities of the Company or any other entity, and any cash and other
consideration, into which the Shares are converted or for which they are
exchanged, by reason of a merger, consolidation, sale of assets, reorganization
or other transaction, shall vest (by their terms or through the use of an
escrow, a commitment to deliver in the future or such other device as is
determined by the administrator of the Plan) on the same terms as the Shares
from which they were converted or for which they were exchanged.

     A "Liquidity Event" means any public offering, merger, consolidation, sale
of assets, reorganization or other transaction in or as a result of which the
Stock of the Company (or the stock or other securities into or for which such
Stock is converted or exchanged) are or become registered under the Securities
Exchange Act of 1934 or are converted into or exchanged for cash. "Liquidity
Event Date" shall mean the date of the closing of a Liquidity Event.

     Notwithstanding the foregoing, no Shares shall vest on any vesting date
specified above unless Employee is then, and since the date of grant has
continuously been, employed by the Company or its subsidiaries.

7. Legend. Any certificates representing unvested Shares shall bear a legend
substantially in the following form:

     THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED
     HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS (INCLUDING FORFEITURE) OF AN
     INCENTIVE PLAN AND A RESTRICTED STOCK AWARD AGREEMENT ENTERED INTO BETWEEN
     THE REGISTERED OWNER AND CONTROL DELIVERY SYSTEMS, INC. COPIES OF SUCH PLAN
     AND AGREEMENT ARE ON FILE IN THE OFFICES OF CONTROL DELIVERY SYSTEMS, INC.

     As soon as practicable following the vesting of any such Shares, the
Company shall cause a certificate or certificates covering such Shares to be
issued and delivered to Employee, containing a legend substantially in the
following form:

     THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
     RESTRICTIONS UPON TRANSFER SET FORTH IN A RESTRICTED STOCK AWARD AGREEMENT.
     THE CORPORATION WILL FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER OF THIS
     CERTIFICATE UPON WRITTEN REQUEST AND WITHOUT CHARGE.

     If any Shares are held in book-entry form, the Company may take such steps
as it deems necessary or appropriate to record and manifest the restrictions
applicable to such Shares.

8. Dividends, etc. Employee shall be entitled to (i) receive regular cash
dividends, if any, paid with respect to those Shares of which Employee is the
record owner on the record date for


                                       -2-

<PAGE>

such dividend, and (ii) vote any Shares of which Employee is the record owner on
the record date for such vote. Any dividends and distributions (other than any
regular cash dividends) distributed with respect to any Shares or any securities
of the Company or any other entity into which the Shares are converted or for
which they are exchanged (the "associated share"), including without limitation
a distribution of stock by reason of a stock dividend, stock split or otherwise
with respect to an associated share, or a distribution of other securities with
respect to an associated share, shall be subject to the restrictions of this
Agreement in the same manner and for so long as the associated share remains
subject to such restrictions, and shall be forfeited if and when the associated
share is so forfeited. The administrator of the Plan may require that any cash
distribution with respect to the Shares other than a regular cash dividend be
placed in escrow or otherwise made subject to such restrictions as the
administrator of the Plan deems appropriate. References in this Agreement to the
Shares shall refer, with the necessary changes having been made, to any such
restricted amounts.

9. Restriction on Transfer of Vested Shares.

     a. Employee shall not sell, assign, transfer, pledge, hypothecate, give or
otherwise dispose of, by operation of law or otherwise (collectively
"transfer"), any of the Shares once they have vested ("Vested Shares"), or any
interest therein, unless such transfer shall be made in compliance with the
provisions of this Section 9 and the provisions of Sections 10 and 11 of this
Agreement.

     b. Notwithstanding Section 10 hereof, Employee shall not transfer any
Vested Shares unless either (i) a registration statement under the Securities
Act of 1933, as amended (the "Act"), with respect to the Vested Shares shall
have become, and continues to be, effective, or (ii) the Company receives an
opinion of counsel reasonably satisfactory to it that registration of such
Vested Shares is not required under the Act.

10. Right of First Refusal on Dispositions of Vested Shares.

     a. Receipt of Third-Party Offer. If at any time Employee desires to sell
for cash, cash equivalents or any other form of consideration (including a
promissory note) Vested Shares pursuant to an offer or proposed offer from a
third party (the "Proposed Transferee"), Employee shall submit a written offer
(the "Offer") to sell such Vested Shares (the "Offered Shares") to the Company
on terms and conditions, including price, not less favorable to the Company than
those on which Employee proposes to sell such Offered Shares to the Proposed
Transferee. The Offer shall disclose the identity of the Proposed Transferee,
the number of Offered Shares proposed to be sold, the total number of Vested
Shares owned by Employee, the terms and conditions, including price, of the
proposed sale, and any other material facts relating to the proposed sale. The
Offer shall further state that the Company may acquire, in accordance with the
provisions of this Agreement, all or any portion of the Offered Shares for the
price and upon the other terms and conditions, including deferred payment (if
applicable), set forth therein.

     b. Company Notice of Intent to Purchase. If the Company desires to purchase
all or any portion of the Offered Shares, the Company shall give to Employee
written notice of the number of Offered Shares to be purchased by it within 30
days of the date of the Offer. Such communication shall, when taken in
conjunction with the Offer, be deemed to constitute a valid,


                                       -3-

<PAGE>

legally binding and enforceable agreement for the sale and purchase of the
Offered Shares. Sale of the Offered Shares to the Company pursuant to this
Section 10 shall be made at the offices of the Company on the 45th day following
the date of the Offer (or, if such day is not a business day, then on the next
succeeding business day). Such sale shall be effected by Employee's delivery to
the Company of a certificate or certificates evidencing the Offered Shares to be
purchased by the Company, duly endorsed for transfer to the Company, against
payment to Employee of the purchase price therefor by the Company by a certified
or cashier's check.

     c. Sale to Third Party. If, within 30 days of its receipt of notice of the
Offer, the Company fails to deliver written notice to Employee of its intention
to purchase all of the Offered Shares (the Offered Shares which the Company does
not elect to purchase being referred to as the "Refused Shares"), the Refused
Shares not so purchased may be sold by Employee at any time within 90 days after
the date of the Offer, at not less than the price and upon other terms and
conditions, if any, not more favorable to the Proposed Transferee than those
specified in the Offer. If the Refused Shares are not sold within such 90 day
period, they shall continue to be subject to the requirements of a prior offer
pursuant to this Section 10. If the Refused Shares are sold pursuant to this
Section 10 to any purchaser who is not a party to an agreement with the Company
containing restrictions on the transfer of the Vested Shares to the same extent
as those contained herein, the Company, may at its option, require the purchaser
to execute and deliver an agreement containing restrictions on the transfer of
Vested Shares the same as those set forth in this Agreement.

     d. Permitted Transfers. Employee shall have the right to make Permitted
Transfers (as defined below) of Employee's Vested Shares and the provisions of
subsections (a), (b) and (c) above shall not apply to any such Permitted
Transfer by Employee. For purposes of this Agreement, "Permitted Transfer" shall
mean any transfer by Employee during his or her lifetime of all or any portion
of the Vested Shares (i) to the Company; or (ii) to any parent, spouse, child,
grandchild, brother, sister or the spouse of a child, grandchild, brother or
sister (a "Member of the Immediate Family") of Employee, to a trust created for
the benefit of a Member of the Immediate Family of Employee or to a custodian of
a property of one or more such persons, or to a limited partnership or limited
liability company all partners or members of which are Members of the Immediate
Family of Employee, any of such transfers to include transfers by will or the
laws of descent and distribution; provided, however, that, it shall be a
condition of each such transfer, that (x) the transferee agrees to be bound by
the terms of this Agreement, including without limitation Sections 10, 11 and
13, as though no such transfer had taken place, and that (y) Employee has
complied with all applicable laws in connection with such transfer.


                                       -4-

<PAGE>

11. Right of Repurchase of Vested Shares.

     a. Termination of Employment Relationship. If Employee's employment or
other service relationship with the Company terminates, voluntarily or
involuntarily, for any reason, the Company shall have the right to purchase, and
Employee (or Employee's legal representative or transferee(s) pursuant to
Section 10(d) of this Agreement) shall, at the election of the Company, be
obligated to sell, all or any part of Employee's Vested Shares at the purchase
price and on the terms provided in this Section 11 (the "Repurchase Right").

     b. Exercise of Repurchase Right. The Company may exercise the Repurchase
Right by giving to Employee (or Employee's legal representative or transferee(s)
pursuant to Section 10(d) of this Agreement), within 30 days of the date on
which Employee's employment or other service relationship with the Company
terminates (the "Termination Date"), written notice of (i) the number of Vested
Shares to be purchased by it, and (ii) the purchase price, as determined in a
manner provided below, to be paid for such Vested Shares. Such communication
shall be deemed to constitute a valid, legally binding and enforceable agreement
for the sale and purchase of the Vested Shares.

     The purchase price of Vested Shares purchased by the Company pursuant to
this Section 11 shall be the fair market value of such Vested Shares on the
Termination Date, as conclusively determined by the Board of Directors of the
Company after taking into consideration such factors as it deems appropriate.

     Sale of the Vested Shares to the Company pursuant to this Section 11 shall
be made at the offices of the Company on the 45th day following the Termination
Date (or, if such day is not a business day, then on the next succeeding
business day) or such earlier business day of which the Company shall notify
Employee (or Employee's legal representative or transferee(s) pursuant to
Section 10(d) of this Agreement). Such sale shall be effected by the delivery to
the Company of a certificate or certificates evidencing the Vested Shares to be
purchased by the Company, duly endorsed for transfer to the Company, against
payment to Employee (or Employee's legal representative or transferee(s)
pursuant to Section 10(d) of this Agreement) of the purchase price therefor by
the Company by a certified or cashier's check.

12. Effect of Prohibited Transfer. The Company shall not be required (a) to
transfer on its books any Shares which shall have been sold or transferred in
violation of any of the provisions set forth in this Agreement, or (b) to treat
as owner of such Shares or to pay dividends to any transferee to whom any such
Shares shall have been so sold or transferred.

13. Initial Public Offering. Upon the closing of the first underwritten public
offering by the Company under the Act of its Stock for its own account for cash:
(a) Sections 9(a), 10 and 11 of this Agreement shall terminate except as to
Offers accepted and Repurchase Rights exercised by the Company prior to such
date; (b) without the prior written approval of the Company, Employee agrees not
to, directly or indirectly, make or cause any offering, sale, short sale,
hypothecation, pledge or other disposition of any Vested Shares until the date
180 days after the effective date of the registration statement filed with the
Securities and Exchange Commission pursuant to the Act by the Company in
connection with such offering (the "Holdback Period"); and (c) Employee shall,
if so requested by the Company, sign an agreement with the


                                       -5-

<PAGE>

underwriters of the offering containing such terms and provisions requested by
such underwriters substantially similar to those contained in this Section 13.
The Company may impose stop-transfer instructions with respect to the Shares or
other securities subject to the foregoing restrictions until the end of the
Holdback Period.

14. Termination of Restrictions on Transfer. The restrictions on the transfer of
Vested Shares contained in Sections 11 through 13 of this Agreement, and the
obligations of Employee and the Company set forth therein, except as to Offers
accepted and Repurchase Rights exercised by the Company prior to a Change in
Control, shall terminate upon a Change in Control, as defined below. The
transfer of the Shares pursuant to a Change in Control shall not be subject to
the provisions of Sections 9(a) and 10 of this Agreement.

     For purposes of this Section 14, Change in Control shall mean:

     (i) the acquisition by any Person or group of the ultimate beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) of more than 50% of the
then outstanding securities of the Company entitled to vote generally in the
election of directors; excluding, however, the following: (A) any acquisition
directly from the Company (excluding any acquisition by virtue of the exercise
of an exercise, conversion or exchange privilege unless the security being so
exercised, converted or exchanged was itself acquired directly from the
Company), (B) any acquisition by the Company, or (C) any acquisition by an
employee benefit plan (or related trust) sponsored or maintained by the Company
or by any corporation controlled by the Company; or

     (ii) a reorganization, recapitalization, merger or consolidation (a
"Corporate Transaction") of the Company, unless securities representing more
than 50% of the then outstanding securities entitled to vote generally in the
election of directors of the Company or the corporation resulting from or
surviving such Corporate Transaction (or the ultimate parent of the Company or
such corporation after such Corporate Transaction) are beneficially owned
subsequent to such Corporate Transaction by the Person or Persons who were the
beneficial owners of the outstanding securities of the Company entitled to vote
generally in the election of directors immediately prior to such Corporate
Transaction, in substantially the same proportions as their ownership
immediately prior to such Corporate Transaction; or

     (iii) the sale, transfer or other disposition of all or substantially all
of the assets of the Company; or

     (iv) the dissolution or liquidation of the Company.

     For purposes of this definition, securities entitled to vote generally in
the election of directors that are issuable upon exercise of an exercise,
conversion or exchange privilege shall be deemed to be outstanding. In addition,
for purposes of this definition the following terms have the meanings set forth
below:

     A Person will be deemed to be the "owner" of any securities of which such
Person would be the "beneficial owner," as such term is defined in Rule 13d-3
promulgated by the Securities and Exchange Commission under the Exchange Act.


                                       -6-

<PAGE>

     "Person" has the meaning used in Section 13(d) of the Exchange Act, except
that "Person" does not include the Company or a wholly owned subsidiary of the
Company or an employee benefit plan (or related trust) of the Company or of a
wholly owned subsidiary.

15. Certain Tax Matters. Employee expressly acknowledges the following:

     a. Employee has been advised to confer promptly with a professional tax
advisor to consider whether Employee should make a so-called "83(b) election"
with respect to the Shares. Any such election, to be effective, must be made in
accordance with applicable regulations and within thirty (30) days following the
date of this Award. The Company has made no recommendation to Employee with
respect to the advisability of making such an election.

     b. The award or vesting of the Shares acquired hereunder, and the payment
of dividends with respect to such Shares, may give rise to "wages" subject to
withholding. Employee expressly acknowledges and agrees that Employee's rights
hereunder are subject to Employee's promptly paying to the Company in cash (or
by such other means as may be acceptable to the Company in its discretion,
including, if the administrator of the Plan so determines, by the delivery of
previously acquired Stock or shares of Stock acquired hereunder or by the
withholding of amounts from any payment hereunder) all taxes required to be
withheld in connection with such award, vesting or payment.

16. No Employment Rights. Nothing in the Plan, the Award or this Agreement
confers upon the Employee any right to continued employment or interferes with
the right of the Company to terminate Employee's employment at any time.

17. Severability; Governing Law. If any provisions of this Agreement shall be
determined to be illegal or unenforceable by any court of law, the remaining
provisions shall be severable and enforceable in accordance with their terms.
This Agreement shall be governed by, and construed in accordance with, the laws
of Delaware, excluding its choice of law provisions.

18. Injunctive Relief. It is acknowledged that it will be impossible to measure
the damages that would be suffered by the Company if Employee fails to comply
with the provisions of this Agreement and that, in the event of any such
failure, the Company will not have an adequate remedy at law. The Company shall,
therefore, be entitled to obtain specific performance of each of Employee's
obligations hereunder and to obtain immediate injunctive relief without the
requirement of posting a bond. Employee shall not urge, as a defense to any
proceeding for such specific performance or injunctive relief, that the Company
has an adequate remedy at law.

19. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns.

20. Amendments. Except as provided below, the Board may at any time or times
amend the Plan or this Agreement for the purpose of satisfying the requirements
of any changes in applicable laws or regulations or for any other purpose which
at the time may be permitted by law. Sections 9 through 11 of this Agreement,
containing restrictions on the transfer of Shares, may be amended or modified
only by a written instrument executed by both the Company and Employee. No
termination or amendment of the Plan or amendment of this Agreement shall,


                                       -7-

<PAGE>

without Employee's consent, adversely affect Employee's rights under the Plan or
this Agreement.

21. Notices. All notices required or permitted hereunder shall be in writing and
deemed effectively given upon personal delivery, upon deposit with the United
States Post Office, by registered or certified mail, postage prepaid, or upon
deposit with a recognized express overnight courier service, addressed, if to
the Company, to 400 Pleasant Street, Watertown, MA 02472, attention: Chief
Financial Officer, and if to Employee, to the address shown beneath his or her
respective signature to this Agreement, or at such other address or addresses as
either party shall designate to the other in accordance with this Section 21.

22. Merger Provision. This Agreement, including the Plan which is incorporated
herein by reference in its entirety, constitutes the entire agreement between
the parties hereto pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements and understandings, whether oral or
written, of the parties hereto concerning the subject matter hereof.

23. Waivers. Any provision contained in this Agreement may be waived, either
generally or in any particular instance, by the Company.

24. Definition. As used in this Agreement, the term "Company" shall include any
subsidiary or parent of the Company as defined in Sections 424(e) and (f) of the
Code.

25. Consistency with Plan. If there is any inconsistency between the provisions
of this Agreement and the provisions of the Plan, the Plan shall control.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]


                                       -8-

<PAGE>

Name of Employee: Michael J. Soja

Number of Shares of Restricted Stock granted: 20,000

Date of Grant: August 16, 2004

The foregoing Restricted Stock Award is hereby accepted and in consideration of
the grant of such Award, the undersigned Employee hereby agrees with Control
Delivery Systems, Inc. that the undersigned will be bound by the foregoing
Restricted Stock Award Agreement:


/s/ Michael J. Soja
-------------------------------------
(Signature of Employee)

Dated: __________, 2004
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.31
<SEQUENCE>17
<FILENAME>y16393exv4w31.txt
<DESCRIPTION>EX-4.31: CONTROL DELIVERY SYSTEMS, INC. RESTRICTED STOCK AWARD AGREEMENT
<TEXT>
<PAGE>
                                                                    Exhibit 4.31

                         CONTROL DELIVERY SYSTEMS, INC.
                               2001 INCENTIVE PLAN

                        Restricted Stock Award Agreement

     The undersigned employee ("Employee") has been granted an award (the
"Award") of restricted stock from Control Delivery Systems, Inc. (the "Company")
under the 2001 Incentive Plan (the "Plan"), subject to the terms set forth below
and in the Plan, a copy of which as currently in effect has been delivered to
Employee. In consideration of the grant of the Award, the Employee agrees with
the Company as follows:

1. Effective Date. This Agreement shall take effect as of the date of grant of
the Award, as indicated on the signature page hereof.

2. Shares Subject to Award. The Award consists of the number of shares set forth
on the signature page hereof (the "Shares") of common stock of the Company
("Stock"). Employee's rights to the Shares are subject to the restrictions
described in this Agreement and the Plan in addition to such other restrictions,
if any, as may be imposed by law.

3. Meaning of Certain Terms. Except as otherwise expressly provided, all terms
used herein shall have the same meaning as in the Plan. The term "vest" as used
herein with respect to any Share means the lapsing of the restrictions described
herein with respect to such Share.

4. Nontransferability of Shares. The Shares cannot be sold, transferred,
pledged, assigned or otherwise encumbered or disposed of until they have vested,
and then only as provided below and in the Plan.

5. Forfeiture Risk. If Employee ceases to be employed by the Company and its
subsidiaries for any reason, including death, any then outstanding and unvested
Shares shall be automatically and immediately forfeited. Employee hereby (i)
appoints the Company as the attorney-in-fact of Employee to take such actions as
may be necessary or appropriate to effectuate a transfer of the record ownership
of any such shares that are unvested and forfeited hereunder, (ii) agrees to
deliver to the Company, as a precondition to the issuance of any certificate or
certificates with respect to unvested Shares hereunder, one or more stock
powers, endorsed in blank, with respect to such Shares, and (iii) agrees to sign
such other powers and take such other actions as the Company may reasonably
request to accomplish the transfer or forfeiture of any unvested Shares that are
forfeited hereunder.

6. Vesting of Shares. The Shares shall vest in accordance with the provisions of
this Paragraph 6 and applicable provisions of the Plan (if not earlier in
accordance with the Plan, including Section 6 of the Plan), as follows:

     100% of the Shares will vest on the earlier to occur of:

          -    October 7, 2005; or

          -    a Liquidity Event Date (as defined below).


                                   PAGE 1 OF 9

<PAGE>

     Notwithstanding the foregoing, in the event that a Liquidity Event Date
that relates to an initial public offering occurs on or before October 7, 2005,
100% of the Shares shall vest on that date which is the six-month anniversary of
the closing of the initial public offering.

     Any securities of the Company or any other entity, and any cash and other
consideration, into which the Shares are converted or for which they are
exchanged, by reason of a merger, consolidation, sale of assets, reorganization
or other transaction, shall vest (by their terms or through the use of an
escrow, a commitment to deliver in the future or such other device as is
determined by the administrator of the Plan) on the same terms as the Shares
from which they were converted or for which they were exchanged.

     A "Liquidity Event" means any public offering, merger, consolidation, sale
of assets, reorganization or other transaction in or as a result of which the
Stock of the Company (or the stock or other securities into or for which such
Stock is converted or exchanged) are or become registered under the Securities
Exchange Act of 1934 or are converted into or exchanged for cash. "Liquidity
Event Date" shall mean the date of the closing of a Liquidity Event.

     Notwithstanding the foregoing, no Shares shall vest on any vesting date
specified above unless Employee is then, and since the date of grant has
continuously been, employed by the Company or its subsidiaries.

7. Legend. Any certificates representing unvested Shares shall bear a legend
substantially in the following form:

     THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED
     HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS (INCLUDING FORFEITURE) OF AN
     INCENTIVE PLAN AND A RESTRICTED STOCK AWARD AGREEMENT ENTERED INTO BETWEEN
     THE REGISTERED OWNER AND CONTROL DELIVERY SYSTEMS, INC. COPIES OF SUCH PLAN
     AND AGREEMENT ARE ON FILE IN THE OFFICES OF CONTROL DELIVERY SYSTEMS, INC.

     As soon as practicable following the vesting of any such Shares, the
Company shall cause a certificate or certificates covering such Shares to be
issued and delivered to Employee, containing a legend substantially in the
following form:

     THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
     RESTRICTIONS UPON TRANSFER SET FORTH IN A RESTRICTED STOCK AWARD AGREEMENT.
     THE CORPORATION WILL FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER OF THIS
     CERTIFICATE UPON WRITTEN REQUEST AND WITHOUT CHARGE.

     If any Shares are held in book-entry form, the Company may take such steps
as it deems necessary or appropriate to record and manifest the restrictions
applicable to such Shares.

8. Dividends, etc. Employee shall be entitled to (i) receive regular cash
dividends, if any, paid with respect to those Shares of which Employee is the
record owner on the record date for


                                       -2-

<PAGE>

such dividend, and (ii) vote any Shares of which Employee is the record owner on
the record date for such vote. Any dividends and distributions (other than any
regular cash dividends) distributed with respect to any Shares or any securities
of the Company or any other entity into which the Shares are converted or for
which they are exchanged (the "associated share"), including without limitation
a distribution of stock by reason of a stock dividend, stock split or otherwise
with respect to an associated share, or a distribution of other securities with
respect to an associated share, shall be subject to the restrictions of this
Agreement in the same manner and for so long as the associated share remains
subject to such restrictions, and shall be forfeited if and when the associated
share is so forfeited. The administrator of the Plan may require that any cash
distribution with respect to the Shares other than a regular cash dividend be
placed in escrow or otherwise made subject to such restrictions as the
administrator of the Plan deems appropriate. References in this Agreement to the
Shares shall refer, with the necessary changes having been made, to any such
restricted amounts.

9. Restriction on Transfer of Vested Shares.

     a. Employee shall not sell, assign, transfer, pledge, hypothecate, give or
otherwise dispose of, by operation of law or otherwise (collectively
"transfer"), any of the Shares once they have vested ("Vested Shares"), or any
interest therein, unless such transfer shall be made in compliance with the
provisions of this Section 9 and the provisions of Sections 10 and 11 of this
Agreement.

     b. Notwithstanding Section 10 hereof, Employee shall not transfer any
Vested Shares unless either (i) a registration statement under the Securities
Act of 1933, as amended (the "Act"), with respect to the Vested Shares shall
have become, and continues to be, effective, or (ii) the Company receives an
opinion of counsel reasonably satisfactory to it that registration of such
Vested Shares is not required under the Act.

10. Right of First Refusal on Dispositions of Vested Shares.

     a. Receipt of Third-Party Offer. If at any time Employee desires to sell
for cash, cash equivalents or any other form of consideration (including a
promissory note) Vested Shares pursuant to an offer or proposed offer from a
third party (the "Proposed Transferee"), Employee shall submit a written offer
(the "Offer") to sell such Vested Shares (the "Offered Shares") to the Company
on terms and conditions, including price, not less favorable to the Company than
those on which Employee proposes to sell such Offered Shares to the Proposed
Transferee. The Offer shall disclose the identity of the Proposed Transferee,
the number of Offered Shares proposed to be sold, the total number of Vested
Shares owned by Employee, the terms and conditions, including price, of the
proposed sale, and any other material facts relating to the proposed sale. The
Offer shall further state that the Company may acquire, in accordance with the
provisions of this Agreement, all or any portion of the Offered Shares for the
price and upon the other terms and conditions, including deferred payment (if
applicable), set forth therein.

     b. Company Notice of Intent to Purchase. If the Company desires to purchase
all or any portion of the Offered Shares, the Company shall give to Employee
written notice of the number of Offered Shares to be purchased by it within 30
days of the date of the Offer. Such communication shall, when taken in
conjunction with the Offer, be deemed to constitute a valid,


                                       -3-

<PAGE>

legally binding and enforceable agreement for the sale and purchase of the
Offered Shares. Sale of the Offered Shares to the Company pursuant to this
Section 10 shall be made at the offices of the Company on the 45th day following
the date of the Offer (or, if such day is not a business day, then on the next
succeeding business day). Such sale shall be effected by Employee's delivery to
the Company of a certificate or certificates evidencing the Offered Shares to be
purchased by the Company, duly endorsed for transfer to the Company, against
payment to Employee of the purchase price therefor by the Company by a certified
or cashier's check.

     c. Sale to Third Party. If, within 30 days of its receipt of notice of the
Offer, the Company fails to deliver written notice to Employee of its intention
to purchase all of the Offered Shares (the Offered Shares which the Company does
not elect to purchase being referred to as the "Refused Shares"), the Refused
Shares not so purchased may be sold by Employee at any time within 90 days after
the date of the Offer, at not less than the price and upon other terms and
conditions, if any, not more favorable to the Proposed Transferee than those
specified in the Offer. If the Refused Shares are not sold within such 90 day
period, they shall continue to be subject to the requirements of a prior offer
pursuant to this Section 10. If the Refused Shares are sold pursuant to this
Section 10 to any purchaser who is not a party to an agreement with the Company
containing restrictions on the transfer of the Vested Shares to the same extent
as those contained herein, the Company, may at its option, require the purchaser
to execute and deliver an agreement containing restrictions on the transfer of
Vested Shares the same as those set forth in this Agreement.

     d. Permitted Transfers. Employee shall have the right to make Permitted
Transfers (as defined below) of Employee's Vested Shares and the provisions of
subsections (a), (b) and (c) above shall not apply to any such Permitted
Transfer by Employee. For purposes of this Agreement, "Permitted Transfer" shall
mean any transfer by Employee during his or her lifetime of all or any portion
of the Vested Shares (i) to the Company; or (ii) to any parent, spouse, child,
grandchild, brother, sister or the spouse of a child, grandchild, brother or
sister (a "Member of the Immediate Family") of Employee, to a trust created for
the benefit of a Member of the Immediate Family of Employee or to a custodian of
a property of one or more such persons, or to a limited partnership or limited
liability company all partners or members of which are Members of the Immediate
Family of Employee, any of such transfers to include transfers by will or the
laws of descent and distribution; provided, however, that, it shall be a
condition of each such transfer, that (x) the transferee agrees to be bound by
the terms of this Agreement, including without limitation Sections 10, 11 and
13, as though no such transfer had taken place, and that (y) Employee has
complied with all applicable laws in connection with such transfer.


                                       -4-

<PAGE>

11. Right of Repurchase of Vested Shares.

     a. Termination of Employment Relationship. If Employee's employment or
other service relationship with the Company terminates, voluntarily or
involuntarily, for any reason, the Company shall have the right to purchase, and
Employee (or Employee's legal representative or transferee(s) pursuant to
Section 10(d) of this Agreement) shall, at the election of the Company, be
obligated to sell, all or any part of Employee's Vested Shares at the purchase
price and on the terms provided in this Section 11 (the "Repurchase Right").

     b. Exercise of Repurchase Right. The Company may exercise the Repurchase
Right by giving to Employee (or Employee's legal representative or transferee(s)
pursuant to Section 10(d) of this Agreement), within 30 days of the date on
which Employee's employment or other service relationship with the Company
terminates (the "Termination Date"), written notice of (i) the number of Vested
Shares to be purchased by it, and (ii) the purchase price, as determined in a
manner provided below, to be paid for such Vested Shares. Such communication
shall be deemed to constitute a valid, legally binding and enforceable agreement
for the sale and purchase of the Vested Shares.

     The purchase price of Vested Shares purchased by the Company pursuant to
this Section 11 shall be the fair market value of such Vested Shares on the
Termination Date, as conclusively determined by the Board of Directors of the
Company after taking into consideration such factors as it deems appropriate.

     Sale of the Vested Shares to the Company pursuant to this Section 11 shall
be made at the offices of the Company on the 45th day following the Termination
Date (or, if such day is not a business day, then on the next succeeding
business day) or such earlier business day of which the Company shall notify
Employee (or Employee's legal representative or transferee(s) pursuant to
Section 10(d) of this Agreement). Such sale shall be effected by the delivery to
the Company of a certificate or certificates evidencing the Vested Shares to be
purchased by the Company, duly endorsed for transfer to the Company, against
payment to Employee (or Employee's legal representative or transferee(s)
pursuant to Section 10(d) of this Agreement) of the purchase price therefor by
the Company by a certified or cashier's check.

12. Effect of Prohibited Transfer. The Company shall not be required (a) to
transfer on its books any Shares which shall have been sold or transferred in
violation of any of the provisions set forth in this Agreement, or (b) to treat
as owner of such Shares or to pay dividends to any transferee to whom any such
Shares shall have been so sold or transferred.

13. Initial Public Offering. Upon the closing of the first underwritten public
offering by the Company under the Act of its Stock for its own account for cash:
(a) Sections 9(a), 10 and 11 of this Agreement shall terminate except as to
Offers accepted and Repurchase Rights exercised by the Company prior to such
date; (b) without the prior written approval of the Company, Employee agrees not
to, directly or indirectly, make or cause any offering, sale, short sale,
hypothecation, pledge or other disposition of any Vested Shares until the date
180 days after the effective date of the registration statement filed with the
Securities and Exchange Commission pursuant to the Act by the Company in
connection with such offering (the "Holdback Period"); and (c) Employee shall,
if so requested by the Company, sign an agreement with the


                                       -5-

<PAGE>

underwriters of the offering containing such terms and provisions requested by
such underwriters substantially similar to those contained in this Section 13.
The Company may impose stop-transfer instructions with respect to the Shares or
other securities subject to the foregoing restrictions until the end of the
Holdback Period.

14. Termination of Restrictions on Transfer. The restrictions on the transfer of
Vested Shares contained in Sections 11 through 13 of this Agreement, and the
obligations of Employee and the Company set forth therein, except as to Offers
accepted and Repurchase Rights exercised by the Company prior to a Change in
Control, shall terminate upon a Change in Control, as defined below. The
transfer of the Shares pursuant to a Change in Control shall not be subject to
the provisions of Sections 9(a) and 10 of this Agreement.

     For purposes of this Section 14, Change in Control shall mean:

     (i) the acquisition by any Person or group of the ultimate beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) of more than 50% of the
then outstanding securities of the Company entitled to vote generally in the
election of directors; excluding, however, the following: (A) any acquisition
directly from the Company (excluding any acquisition by virtue of the exercise
of an exercise, conversion or exchange privilege unless the security being so
exercised, converted or exchanged was itself acquired directly from the
Company), (B) any acquisition by the Company, or (C) any acquisition by an
employee benefit plan (or related trust) sponsored or maintained by the Company
or by any corporation controlled by the Company; or

     (ii) a reorganization, recapitalization, merger or consolidation (a
"Corporate Transaction") of the Company, unless securities representing more
than 50% of the then outstanding securities entitled to vote generally in the
election of directors of the Company or the corporation resulting from or
surviving such Corporate Transaction (or the ultimate parent of the Company or
such corporation after such Corporate Transaction) are beneficially owned
subsequent to such Corporate Transaction by the Person or Persons who were the
beneficial owners of the outstanding securities of the Company entitled to vote
generally in the election of directors immediately prior to such Corporate
Transaction, in substantially the same proportions as their ownership
immediately prior to such Corporate Transaction; or

     (iii) the sale, transfer or other disposition of all or substantially all
of the assets of the Company; or

     (iv) the dissolution or liquidation of the Company.

     For purposes of this definition, securities entitled to vote generally in
the election of directors that are issuable upon exercise of an exercise,
conversion or exchange privilege shall be deemed to be outstanding. In addition,
for purposes of this definition the following terms have the meanings set forth
below:

     A Person will be deemed to be the "owner" of any securities of which such
Person would be the "beneficial owner," as such term is defined in Rule 13d-3
promulgated by the Securities and Exchange Commission under the Exchange Act.


                                       -6-

<PAGE>

     "Person" has the meaning used in Section 13(d) of the Exchange Act, except
that "Person" does not include the Company or a wholly owned subsidiary of the
Company or an employee benefit plan (or related trust) of the Company or of a
wholly owned subsidiary.

15. Certain Tax Matters. Employee expressly acknowledges the following:

     a. Employee has been advised to confer promptly with a professional tax
advisor to consider whether Employee should make a so-called "83(b) election"
with respect to the Shares. Any such election, to be effective, must be made in
accordance with applicable regulations and within thirty (30) days following the
date of this Award. The Company has made no recommendation to Employee with
respect to the advisability of making such an election.

     b. The award or vesting of the Shares acquired hereunder, and the payment
of dividends with respect to such Shares, may give rise to "wages" subject to
withholding. Employee expressly acknowledges and agrees that Employee's rights
hereunder are subject to Employee's promptly paying to the Company in cash (or
by such other means as may be acceptable to the Company in its discretion,
including, if the administrator of the Plan so determines, by the delivery of
previously acquired Stock or shares of Stock acquired hereunder or by the
withholding of amounts from any payment hereunder) all taxes required to be
withheld in connection with such award, vesting or payment.

16. No Employment Rights. Nothing in the Plan, the Award or this Agreement
confers upon the Employee any right to continued employment or interferes with
the right of the Company to terminate Employee's employment at any time.

17. Severability; Governing Law. If any provisions of this Agreement shall be
determined to be illegal or unenforceable by any court of law, the remaining
provisions shall be severable and enforceable in accordance with their terms.
This Agreement shall be governed by, and construed in accordance with, the laws
of Delaware, excluding its choice of law provisions.

18. Injunctive Relief. It is acknowledged that it will be impossible to measure
the damages that would be suffered by the Company if Employee fails to comply
with the provisions of this Agreement and that, in the event of any such
failure, the Company will not have an adequate remedy at law. The Company shall,
therefore, be entitled to obtain specific performance of each of Employee's
obligations hereunder and to obtain immediate injunctive relief without the
requirement of posting a bond. Employee shall not urge, as a defense to any
proceeding for such specific performance or injunctive relief, that the Company
has an adequate remedy at law.

19. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns.

20. Amendments. Except as provided below, the Board may at any time or times
amend the Plan or this Agreement for the purpose of satisfying the requirements
of any changes in applicable laws or regulations or for any other purpose which
at the time may be permitted by law. Sections 9 through 11 of this Agreement,
containing restrictions on the transfer of Shares, may be amended or modified
only by a written instrument executed by both the Company and Employee. No
termination or amendment of the Plan or amendment of this Agreement shall,


                                       -7-

<PAGE>

without Employee's consent, adversely affect Employee's rights under the Plan or
this Agreement.

21. Notices. All notices required or permitted hereunder shall be in writing and
deemed effectively given upon personal delivery, upon deposit with the United
States Post Office, by registered or certified mail, postage prepaid, or upon
deposit with a recognized express overnight courier service, addressed, if to
the Company, to 400 Pleasant Street, Watertown, MA 02472, attention: Chief
Financial Officer, and if to Employee, to the address shown beneath his or her
respective signature to this Agreement, or at such other address or addresses as
either party shall designate to the other in accordance with this Section 21.

22. Merger Provision. This Agreement, including the Plan which is incorporated
herein by reference in its entirety, constitutes the entire agreement between
the parties hereto pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements and understandings, whether oral or
written, of the parties hereto concerning the subject matter hereof.

23. Waivers. Any provision contained in this Agreement may be waived, either
generally or in any particular instance, by the Company.

24. Definition. As used in this Agreement, the term "Company" shall include any
subsidiary or parent of the Company as defined in Sections 424(e) and (f) of the
Code.

25. Consistency with Plan. If there is any inconsistency between the provisions
of this Agreement and the provisions of the Plan, the Plan shall control.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]


                                       -8-

<PAGE>

Name of Employee: Lori Freedman

Number of Shares of Restricted Stock granted: 20,000

Date of Grant: August 16, 2004

The foregoing Restricted Stock Award is hereby accepted and in consideration of
the grant of such Award, the undersigned Employee hereby agrees with Control
Delivery Systems, Inc. that the undersigned will be bound by the foregoing
Restricted Stock Award Agreement:


/s/ Lori Freedman
-------------------------------------
(Signature of Employee)

Dated: _________, 2004
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.32
<SEQUENCE>18
<FILENAME>y16393exv4w32.txt
<DESCRIPTION>EX-4.32: RETENTION AGREEMENT
<TEXT>
<PAGE>
                                                                    Exhibit 4.32


September 29, 2005

PAUL ASHTON

DEAR DR. ASHTON:

     As you know, Control Delivery Systems, Inc. (the "Company") is
contemplating certain strategic transactions, including a possible sale or
merger involving the Company and pSvida Ltd. (the "Potential Acquiror"). There
is no assurance that the Company will enter into an agreement with respect to
any such transaction or consummate any such transaction even if such an
agreement is reached. However, the Company has been advised that the prospects
of a combination with the Potential Acquiror would be advanced if you and
certain other key personnel were to agree to certain undertakings designed to
assure the continuation of your services to the Company for at least a
transition period following any such combination. The Company believes that the
terms of this letter agreement (this "Retention Agreement") will be in the best
interests both of you and the shareholders of the Company by assisting in the
realization of the proposed combination.

     The terms of this Retention Agreement set forth herein are as follows:

     The Company and you are parties to a restricted stock award agreement or
agreements (the "Stock Agreements") pursuant to which you currently hold 20,000
shares of common stock of the Company that is subject to a substantial risk of
forfeiture (the "Restricted Stock"). Schedule A hereto lists the Restricted
Stock shares that you hold and the dates on which those shares were awarded to
you. Notwithstanding the provisions of the Stock Agreements or any other
agreement between you and the Company to the contrary, you hereby agree that the
following vesting and forfeiture rules shall apply:

          (a) Except as hereinafter provided, the Restricted Stock subject to
     the Stock Agreements, including your rights to any cash or property paid
     with respect thereto or exchanged therefor in connection with a Liquidity
     Event, or thereafter, (the Restricted Stock and such other securities,
     cash, property or other rights, if any, being herein referred to as the
     "Restricted Property") shall vest on the date that is six (6) months after
     the Liquidity Event Date if you are then employed by the Company or its
     successor (or a parent or subsidiary thereof) (the "Employer"); provided,
     that if there has been no Liquidity Event Date by December 31, 2005, the
     Restricted Property shall vest on June 30, 2006 if you are then still
     employed by the Employer. The applicable vesting date described in the
     preceding sentence is hereinafter referred to as the "Scheduled Vesting
     Date." For purposes of this Retention Agreement, the terms "Liquidity
     Event" and "Liquidity Event Date" shall have the meaning set forth in the
     Stock Agreements.

          (b) On the Liquidity Event Date relating to the transaction with the
     Potential Acquiror you will be granted shares (American Depository Shares
     or American Depository Receipts, hereinafter "ADSs") of the common equity
     of the Potential Acquiror traded in the U.S. having a fair market value on
     the date of closing equal to $110,000.00 (the "Additional Shares"). The
     Additional Shares shall be subject to the

<PAGE>

     same restrictions as the Restricted Property and shall be treated for all
     purposes of this Retention Agreement as the Restricted Property. For
     purposes of this Retention Agreement, "fair market value" means the average
     of the closing price of pSivida ADSs on the Nasdaq National Market for each
     of the ten (10) trading days ending on the trading day that is four (4)
     full trading days prior to the Liquidity Event Date.

          (c) Subject to the following sentence, if your employment with the
     Employer terminates for any reason prior to the Scheduled Vesting Date all
     of your Restricted Property shall be automatically and immediately
     forfeited or vested to the extent provided in the Stock Agreements, Amended
     and Restated Control Delivery Systems Change of Control Agreement dated
     August 17, 2004 (the "Change of Control Agreement") and Severance Agreement
     dated February 20, 2004, as amended (the "Severance Agreement"), except
     that in applying the provisions of such agreements the Restricted Property
     shall not be deemed to be vested merely because the Stock Agreements would
     have provided for scheduled vesting earlier than the Scheduled Vesting
     Date. Notwithstanding the foregoing, if your employment with the Employer
     is (i) involuntarily terminated, other than for "Cause" as hereinafter
     defined, by the Employer, or (ii) terminated by the Participant for "Good
     Reason" as hereinafter defined, in either case prior to the Scheduled
     Vesting Date, all of your Restricted Property shall be treated for all
     purposes as having vested in full immediately prior to such termination of
     employment. For purposes of the preceding sentence, "Cause" and "Good
     Reason" shall have the meanings assigned to them in your Change of Control
     Agreement.

     Upon the occurrence of the Liquidity Event Date the sections of your Stock
Agreements captioned "Restrictions on Transfer of Vested Shares" (paragraph (a)
only), "Right of First Refusal on Dispositions of Vested Shares" and "Right of
Repurchase of Vested Shares" shall be of no further force and effect.

     Except as expressly provided in this Retention Agreement, the terms of your
Stock Agreements, Change of Control Agreement, Severance Agreement and other
agreements, if any, with the Employer shall remain in full force and effect.

     Nothing in this Retention Agreement shall be construed as either limiting
or expanding such rights, if any, as you may have to continued employment with
the Employer.

     This Retention Agreement shall be binding on and enforceable against the
Company and its successors and assigns and upon and against you and your heirs
and assigns.

     This Retention Agreement shall be construed in accordance with the laws of
the Commonwealth of Massachusetts, except for the conflicts of laws provisions
thereof.


                                       -2-

<PAGE>

     If you agree with the terms of this Retention Agreement, please so indicate
by signing the enclosed copy of this Retention Agreement in the space indicated
below and returning the enclosed copy to Cristin Rothfuss, whereupon this
Retention Agreement shall take effect as of the date first set forth above as an
agreement under seal.

                                        CONTROL DELIVERY SYSTEMS, INC.


                                        By: /s/ Michael J. Soja
                                            ------------------------------------
                                            /s/ Paul Ashton
                                            ------------------------------------
                                            Paul Ashton

The undersigned pSvida Limited hereby
acknowledges its obligations
hereunder as the Potential Acquiror
in the event that a Liquidity Event
involving pSivida occurs and agrees
to be bound by this Agreement and to
perform such obligations upon and
after the closing of a Liquidity
Event involving pSivida.

PSIVIDA LIMITED


By: /s/ Gavin Rezos
    ---------------------------------
Name: Gavin Rezos
      -------------------------------
Title: Managing Director
       ------------------------------


                                       -3-

<PAGE>

SCHEDULE A

                                Restricted Stock

A. 20,000 Shares Issued on 08/16/04




                                       -4-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.33
<SEQUENCE>19
<FILENAME>y16393exv4w33.txt
<DESCRIPTION>EX-4.33: RETENTION AGREEMENT
<TEXT>
<PAGE>
                                                                    Exhibit 4.33


September 29, 2005

MICHAEL SOJA

DEAR MR. SOJA:

     As you know, Control Delivery Systems, Inc. (the "Company") is
contemplating certain strategic transactions, including a possible sale or
merger involving the Company and pSvida Ltd. (the "Potential Acquiror"). There
is no assurance that the Company will enter into an agreement with respect to
any such transaction or consummate any such transaction even if such an
agreement is reached. However, the Company has been advised that the prospects
of a combination with the Potential Acquiror would be advanced if you and
certain other key personnel were to agree to certain undertakings designed to
assure the continuation of your services to the Company for at least a
transition period following any such combination. The Company believes that the
terms of this letter agreement (this "Retention Agreement") will be in the best
interests both of you and the shareholders of the Company by assisting in the
realization of the proposed combination.

     The terms of this Retention Agreement set forth herein are as follows:

     The Company and you are parties to a restricted stock award agreement or
agreements (the "Stock Agreements") pursuant to which you currently hold 20,000
shares of common stock of the Company that is subject to a substantial risk of
forfeiture (the "Restricted Stock"). Schedule A hereto lists the Restricted
Stock shares that you hold and the dates on which those shares were awarded to
you. Notwithstanding the provisions of the Stock Agreements or any other
agreement between you and the Company to the contrary, you hereby agree that the
following vesting and forfeiture rules shall apply:

          (a) Except as hereinafter provided, the Restricted Stock subject to
     the Stock Agreements, including your rights to any cash or property paid
     with respect thereto or exchanged therefor in connection with a Liquidity
     Event, or thereafter, (the Restricted Stock and such other securities,
     cash, property or other rights, if any, being herein referred to as the
     "Restricted Property") shall vest on the date that is six (6) months after
     the Liquidity Event Date if you are then employed by the Company or its
     successor (or a parent or subsidiary thereof) (the "Employer"); provided,
     that if there has been no Liquidity Event Date by December 31, 2005, the
     Restricted Property shall vest on June 30, 2006 if you are then still
     employed by the Employer. The applicable vesting date described in the
     preceding sentence is hereinafter referred to as the "Scheduled Vesting
     Date." For purposes of this Retention Agreement, the terms "Liquidity
     Event" and "Liquidity Event Date" shall have the meaning set forth in the
     Stock Agreements.

          (b) On the Liquidity Event Date relating to the transaction with the
     Potential Acquiror you will be granted shares (American Depository Shares
     or American Depository Receipts, hereinafter "ADSs") of the common equity
     of the Potential Acquiror traded in the U.S. having a fair market value on
     the date of closing equal to $122,497.00 (the "Additional Shares"). The
     Additional Shares shall be subject to the

<PAGE>

     same restrictions as the Restricted Property and shall be treated for all
     purposes of this Retention Agreement as the Restricted Property. For
     purposes of this Retention Agreement, "fair market value" means the average
     of the closing price of pSivida ADSs on the Nasdaq National Market for each
     of the ten (10) trading days ending on the trading day that is four (4)
     full trading days prior to the Liquidity Event Date.

          (c) Subject to the following sentence, if your employment with the
     Employer terminates for any reason prior to the Scheduled Vesting Date all
     of your Restricted Property shall be automatically and immediately
     forfeited or vested to the extent provided in the Stock Agreements, Amended
     and Restated Control Delivery Systems Change of Control Agreement dated
     August 17, 2004 (the "Change of Control Agreement") and Severance Agreement
     dated February 20, 2004, as amended (the "Severance Agreement"), except
     that in applying the provisions of such agreements the Restricted Property
     shall not be deemed to be vested merely because the Stock Agreements would
     have provided for scheduled vesting earlier than the Scheduled Vesting
     Date. Notwithstanding the foregoing, if your employment with the Employer
     is (i) involuntarily terminated, other than for "Cause" as hereinafter
     defined, by the Employer, or (ii) terminated by the Participant for "Good
     Reason" as hereinafter defined, in either case prior to the Scheduled
     Vesting Date, all of your Restricted Property shall be treated for all
     purposes as having vested in full immediately prior to such termination of
     employment. For purposes of the preceding sentence, "Cause" and "Good
     Reason" shall have the meanings assigned to them in your Change of Control
     Agreement.

     Upon the occurrence of the Liquidity Event Date the sections of your Stock
Agreements captioned "Restrictions on Transfer of Vested Shares" (paragraph (a)
only), "Right of First Refusal on Dispositions of Vested Shares" and "Right of
Repurchase of Vested Shares" shall be of no further force and effect.

     Except as expressly provided in this Retention Agreement, the terms of your
Stock Agreements, Change of Control Agreement, Severance Agreement and other
agreements, if any, with the Employer shall remain in full force and effect.

     Nothing in this Retention Agreement shall be construed as either limiting
or expanding such rights, if any, as you may have to continued employment with
the Employer.

     This Retention Agreement shall be binding on and enforceable against the
Company and its successors and assigns and upon and against you and your heirs
and assigns.

     This Retention Agreement shall be construed in accordance with the laws of
the Commonwealth of Massachusetts, except for the conflicts of laws provisions
thereof.


                                       -2-

<PAGE>

     If you agree with the terms of this Retention Agreement, please so indicate
by signing the enclosed copy of this Retention Agreement in the space indicated
below and returning the enclosed copy to Cristin Rothfuss, whereupon this
Retention Agreement shall take effect as of the date first set forth above as an
agreement under seal.

                                        CONTROL DELIVERY SYSTEMS, INC.


                                        By: /s/ Lori Freedman
                                            ------------------------------------
                                            /s/ Michael J.Soja
                                            ------------------------------------
                                            Michael J.Soja

The undersigned pSvida Limited hereby
acknowledges its obligations
hereunder as the Potential Acquiror
in the event that a Liquidity Event
involving pSivida occurs and agrees
to be bound by this Agreement and to
perform such obligations upon and
after the closing of a Liquidity
Event involving pSivida.

PSIVIDA LIMITED


By: /s/ Gavin Rezos
    ---------------------------------
Name: Gavin Rezos
      -------------------------------
Title: Managing Director
       ------------------------------


                                       -3-

<PAGE>

SCHEDULE A

                                Restricted Stock


1. 20,000 Shares Issued on 08/16/04

2. 60,040 Shares Issued on 10/20/04 derived from:

3. 14,040 Shares issued on 05/28/03 (transferred to above grant)

4. 36,000 Shares issued on 10/07/03 (transferred to above grant)

5. 10,000 Shares issued on 10/07/03 (transferred to above grant)


                                       -4-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.34
<SEQUENCE>20
<FILENAME>y16393exv4w34.txt
<DESCRIPTION>EX-4.34: RETENTION AGREEMENT
<TEXT>
<PAGE>
                                                                    Exhibit 4.34

September 29, 2005

LORI FREEDMAN

DEAR LORI FREEDMAN:

     As you know, Control Delivery Systems, Inc. (the "Company") is
contemplating certain strategic transactions, including a possible sale or
merger involving the Company and pSvida Ltd. (the "Potential Acquiror"). There
is no assurance that the Company will enter into an agreement with respect to
any such transaction or consummate any such transaction even if such an
agreement is reached. However, the Company has been advised that the prospects
of a combination with the Potential Acquiror would be advanced if you and
certain other key personnel were to agree to certain undertakings designed to
assure the continuation of your services to the Company for at least a
transition period following any such combination. The Company believes that the
terms of this letter agreement (this "Retention Agreement") will be in the best
interests both of you and the shareholders of the Company by assisting in the
realization of the proposed combination.

     The terms of this Retention Agreement set forth herein are as follows:

     The Company and you are parties to a restricted stock award agreement or
agreements (the "Stock Agreements") pursuant to which you currently hold 20,000
shares of common stock of the Company that is subject to a substantial risk of
forfeiture (the "Restricted Stock"). Schedule A hereto lists the Restricted
Stock shares that you hold and the dates on which those shares were awarded to
you. Notwithstanding the provisions of the Stock Agreements or any other
agreement between you and the Company to the contrary, you hereby agree that the
following vesting and forfeiture rules shall apply:

          (a) Except as hereinafter provided, the Restricted Stock subject to
     the Stock Agreements, including your rights to any cash or property paid
     with respect thereto or exchanged therefor in connection with a Liquidity
     Event, or thereafter, (the Restricted Stock and such other securities,
     cash, property or other rights, if any, being herein referred to as the
     "Restricted Property") shall vest on the date that is six (6) months after
     the Liquidity Event Date if you are then employed by the Company or its
     successor (or a parent or subsidiary thereof) (the "Employer"); provided,
     that if there has been no Liquidity Event Date by December 31, 2005, the
     Restricted Property shall vest on June 30, 2006 if you are then still
     employed by the Employer. The applicable vesting date described in the
     preceding sentence is hereinafter referred to as the "Scheduled Vesting
     Date." For purposes of this Retention Agreement, the terms "Liquidity
     Event" and "Liquidity Event Date" shall have the meaning set forth in the
     Stock Agreements.

          (b) On the Liquidity Event Date relating to the transaction with the
     Potential Acquiror you will be granted shares (American Depository Shares
     or American Depository Receipts, hereinafter "ADSs") of the common equity
     of the Potential Acquiror traded in the U.S. having a fair market value on
     the date of closing equal to $132,497.00 (the "Additional Shares"). The
     Additional Shares shall be subject to the

<PAGE>

     same restrictions as the Restricted Property and shall be treated for all
     purposes of this Retention Agreement as the Restricted Property. For
     purposes of this Retention Agreement, "fair market value" means the average
     of the closing price of pSivida ADSs on the Nasdaq National Market for each
     of the ten (10) trading days ending on the trading day that is four (4)
     full trading days prior to the Liquidity Event Date.

          (c) Subject to the following sentence, if your employment with the
     Employer terminates for any reason prior to the Scheduled Vesting Date all
     of your Restricted Property shall be automatically and immediately
     forfeited or vested to the extent provided in the Stock Agreements, Amended
     and Restated Control Delivery Systems Change of Control Agreement dated
     August 17, 2004 (the "Change of Control Agreement") and Severance Agreement
     dated February 20, 2004, as amended (the "Severance Agreement"), except
     that in applying the provisions of such agreements the Restricted Property
     shall not be deemed to be vested merely because the Stock Agreements would
     have provided for scheduled vesting earlier than the Scheduled Vesting
     Date. Notwithstanding the foregoing, if your employment with the Employer
     is (i) involuntarily terminated, other than for "Cause" as hereinafter
     defined, by the Employer, or (ii) terminated by the Participant for "Good
     Reason" as hereinafter defined, in either case prior to the Scheduled
     Vesting Date, all of your Restricted Property shall be treated for all
     purposes as having vested in full immediately prior to such termination of
     employment. For purposes of the preceding sentence, "Cause" and "Good
     Reason" shall have the meanings assigned to them in your Change of Control
     Agreement.

     Upon the occurrence of the Liquidity Event Date the sections of your Stock
Agreements captioned "Restrictions on Transfer of Vested Shares" (paragraph (a)
only), "Right of First Refusal on Dispositions of Vested Shares" and "Right of
Repurchase of Vested Shares" shall be of no further force and effect.

     Except as expressly provided in this Retention Agreement, the terms of your
Stock Agreements, Change of Control Agreement, Severance Agreement and other
agreements, if any, with the Employer shall remain in full force and effect.

     Nothing in this Retention Agreement shall be construed as either limiting
or expanding such rights, if any, as you may have to continued employment with
the Employer.

     This Retention Agreement shall be binding on and enforceable against the
Company and its successors and assigns and upon and against you and your heirs
and assigns.

     This Retention Agreement shall be construed in accordance with the laws of
the Commonwealth of Massachusetts, except for the conflicts of laws provisions
thereof.


                                       -2-

<PAGE>

     If you agree with the terms of this Retention Agreement, please so indicate
by signing the enclosed copy of this Retention Agreement in the space indicated
below and returning the enclosed copy to Cristin Rothfuss, whereupon this
Retention Agreement shall take effect as of the date first set forth above as an
agreement under seal.

                                        CONTROL DELIVERY SYSTEMS, INC.


                                        By: /s/ Michael Soja
                                            ------------------------------------
                                            /s/ Lori Freedman
                                            ------------------------------------
                                            Lori Freedman

The undersigned pSvida Limited hereby
acknowledges its obligations
hereunder as the Potential Acquiror
in the event that a Liquidity Event
involving pSivida occurs and agrees
to be bound by this Agreement and to
perform such obligations upon and
after the closing of a Liquidity
Event involving pSivida.

PSIVIDA LIMITED


By: /s/ Gavin Rezos
    ---------------------------------
Name: Gavin Rezos
      -------------------------------
Title: Managing Director
       ------------------------------


                                       -3-

<PAGE>

SCHEDULE A

                                Restricted Stock

1. 20,000 shares Issued on 08/16/04

2. 51,700 shares Issued on 10/20/04

3. 11,700 shares issued on 05/28/03 (transferred to above grant)

4. 30,000 shares issued on 10/07/03 (transferred to above grant)

5. 10,000 shares issued on 10/07/03 (transferred to above grant)


                                       -4-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.35
<SEQUENCE>21
<FILENAME>y16393exv4w35.txt
<DESCRIPTION>EX-4.35: NON-COMPETITION AGREEMENT
<TEXT>
<PAGE>
                                                                    Exhibit 4.35

                            NON-COMPETITION AGREEMENT

     IN CONSIDERATION of and as a condition to my (i) receiving consideration
pursuant to the terms of the Agreement and Plan of Merger, dated October 3, 2005
(the "MERGER AGREEMENT") by and among pSivida Limited ("PARENT"), pSivida Inc.
and Control Delivery Systems, Inc. (the "COMPANY"), and (ii) receiving an offer
of employment with Parent consistent with the terms set forth in Section 2(b)
below, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, I, Paul Ashton (referred to herein
as "I", "ME" or as "EXECUTIVE"), agree with Parent as follows:

     1. DEFINITIONS.

          (a) "AGREEMENT" shall mean this Non-Competition Agreement.

          (b) "CAUSE" shall mean, in respect of the termination of Executive's
employment by Parent, (a) willful malfeasance, gross misconduct or gross
negligence in the performance by Executive of the duties of his position that
has a material adverse effect on the Parent, (b) the material breach by
Executive of Sections 3(a), 4, 5 or 6 of this Agreement, (c) fraud or dishonesty
by Executive with respect to Parent or any of its affiliates or his employment,
(d) Executive's conviction of any crime that involves deception, fraud or moral
turpitude or any felony (including, in each case, entry of a guilty or nolo
contendere plea, and, excluding traffic violations or similar minor offenses),
or (e) repeated or prolonged absence from work by Executive other than for
illness, Disability or authorized vacation. Parent may treat a termination of
Executive's employment as termination for Cause only after (i) giving Executive
written notice of the intention to terminate for Cause, including a description
of the conduct that the Parent believes constitutes the basis for a Cause
termination, and of his right to a hearing by Parent's Board of Directors (the
"Board"), (ii) in the event of a termination under clause (a), (b) or (e) above,
providing Executive a 30-day period in which to cure the conduct giving rise to
the Parent's notice of a Cause termination, unless, with respect to clause (a)
and (b) above, (I) in Parent's reasonable judgment, protective action
inconsistent with such cure period (e.g., immediate termination) is necessary to
avoid harm to Parent or (II) Parent reasonably determines that Executive's
conduct is egregious, in which event, Parent may shorten the cure period or
terminate Executive's employment immediately (subject to the requirements set
forth in clauses (iii) and (iv) below), (iii) at least 30 days after giving the
notice, conducting a hearing by the Board at which Executive may be represented
by counsel, and (iv) giving Executive written notice of the results of the
hearing and the factual basis for the Board's determination of Cause, which
shall require a vote of a majority of the members of the Board then in office
other than Executive. Except in connection with Executive's opportunity, if any,
to cure the conduct giving rise to Parent's notice of termination for Cause as
set forth in clause (ii) above, nothing in the foregoing sentence shall prevent
Parent from terminating Executive's employment pending any determination of
Cause as set forth in the foregoing sentence, any such determination shall be
retroactive to the date of termination, and Parent shall not be obligated to
compensate Executive hereunder for the period from such termination until such
time as a determination by Parent's Board of Directors that such termination was
not for Cause. Notwithstanding the foregoing, cause shall not include an act or
failure to act based on authority given pursuant to a resolution duly adopted by
the Board or based on the advice of Parent's General Counsel or willful failure

<PAGE>

due to incapacity resulting from Disability or any actual or anticipated failure
after Executive provides written notice of a termination for Good Cause.

          (c) "CLOSING" shall have the meaning set forth in the Merger
Agreement.

          (d) "DEVELOPMENTS" shall have the meaning set forth in Section 5(a).

          (e) "DISABILITY" shall mean physical or mental incapacity of a nature
which prevents Executive, in the professional judgment of Executive's physician
or, at Parent's election, a board-certified physician mutually agreed upon by
Parent and Executive, from performing the essential functions of Executive's
position with Parent with or without a reasonable accommodation for a period of
ninety (90) consecutive days or one hundred eighty (180) days during any
consecutive 12-month period.

          (f) "EFFECTIVE TIME" shall have the meaning set forth in the Merger
Agreement.

          (g) "GOOD CAUSE" shall mean, in respect of the termination of
Executive's employment by Executive, (i) failure by Parent to maintain Executive
in the positions of Head of R&D Ophthalmology for the Surviving Company and
Executive Director Strategy of Parent, without Executive's consent, (ii) a
material diminution of Executive's duties and responsibilities in such positions
or a material diminution of Executive's authority with respect to such
positions, as described in Section 2(b) hereof and otherwise set forth in the
employment agreement referenced therein (assuming the parties execute such
employment agreement), excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by Parent
promptly after receipt of written notice thereof given by Executive, (iii) a
breach by Parent of any material term of this Agreement or the employment
agreement referenced in Section 2(b) (assuming the parties execute such
employment agreement), or (iv) relocation of Executive's principal place of work
to a location more than thirty (30) miles from Executive's address set forth in
Section 11(e) below without Executive's consent. Executive may treat a
resignation from employment as termination for Good Cause only after (a) giving
Parent written notice of the intention to terminate for Good Cause, (b)
providing Parent at least 30 days after receipt of such notice to cure the
conduct or action giving rise to Good Cause, unless, with respect to clause (i)
and (ii), Executive reasonably determines that Parent's conduct is egregious and
has resulted in significant, irreparable harm to Executive, in which event,
Executive may shorten the cure period or terminate his employment immediately,
and (c) if applicable, Parent has failed to cure the action or conduct giving
rise to Good Cause during the 30 day cure period.

          (h) "MERGER" shall have the meaning set forth in the Merger Agreement.

          (i) "PROPRIETARY INFORMATION" shall have the meaning set forth in
Section 4(a).

          (j) "REAR-OCULAR DRUG DELIVERY BUSINESS" shall have the meaning set
forth in Section 3(b)(i).

          (k) "RESTRICTED ACTIVITIES" shall have the meaning set forth in
Section 3(b).


                                      -2-

<PAGE>

          (l) "SURVIVING COMPANY" shall have the meaning set forth in the Merger
Agreement.

     2. EFFECTIVENESS.

          (a) This Agreement shall enter into full force and effect as of the
Effective Time. In the event that the Merger Agreement is terminated prior to
the Effective Time, this Agreement shall be null and void and neither party
shall have any rights or obligations hereunder.

          (b) Parent represents that, prior to the Effective Time, it shall
provide Executive with an employment agreement setting forth the material terms
of his employment with Parent as of the Effective Time. Such employment
agreement shall include, among other things, the following material terms: (i) a
title Head of Research & Development Ophthalmology of the Surviving Company,
responsible for duties typically associated with such position; (ii) a title
with Parent of Executive Director Strategy, reporting directly to Parent's chief
executive officer, responsible for, among other things, the production of
overall strategic business and development plans; (iii) a title of interim
President of the Surviving Company, responsible for, among other things,
ensuring effective communication among Parent business units particularly with
respect to milestones and participation in the general management of Parent
including regular meetings and discussions with Parent's chief executive officer
and chairman; (iv) a compensation package commensurate with other senior
executives of Parent, which shall include, without limitation: (A) a base salary
of $300,000 per year, (B) annual discretionary bonus eligibility on terms that
are no less favorable than that which Executive was entitled as of the date of
this Agreement, (C) entitlement to benefits that are no less favorable than
those to which Executive was entitled as of the date of this Agreement, and (D)
a grant of options to purchase capital stock in the Parent commensurate with
other senior executives of Parent, including without limitation, subject to
confirmation of Parent's remuneration committee and shareholder approval,
500,000 options vesting as to half in 12 months and the balance in 24 months,
subject to achieving milestones; (v) four (4) weeks paid vacation per calendar
year; (vi) a principal work location located no more than thirty (30) miles from
Executive's address set forth in Section 11(e) below without Executive's
consent; and (vii) eligibility for severance and related post-termination
benefits on terms no less favorable to Executive than those set forth in that
certain Severance Agreement between Executive and Company dated February 20,
2004, as amended on August 17, 2004 (the "Severance Agreement") and no greater
than those set forth in that certain Change in Control Agreement between
Executive and Company dated August 17, 2004 (the "Change in Control Agreement"),
which shall supercede and/or terminate Executive's entitlement to severance and
related post-termination benefits pursuant to the Severance Agreement and the
Change in Control Agreement. Parent and Executive agree to negotiate in good
faith and use their reasonable best efforts to finalize the employment agreement
consistent with the terms of this Agreement and the contracts referenced herein.

          (c) If (i) Parent fails to offer Executive an employment agreement
consistent with the requirements of Section 2(b), or Parent revokes such offer
prior to the Effective Time for any reason and (ii), as a result of any of the
above, Executive declines Parent's offer of employment on or before the
Effective Time, then (I) this Agreement shall be null and void and neither party
shall have any obligations hereunder, and (II) both the Severance Agreement and
Change in Control Agreement shall continue to be in effect as of the Effective
Time.


                                      -3-

<PAGE>

          (d) If (i) Parent offers Executive an employment agreement consistent
with the requirements of Section 2(b) and (ii) Executive declines Parent's offer
of employment for any reason (other than his death or Disability), then (I) this
Agreement shall continue in full force and effect as of the Effective Time and
(II) the Severance Agreement but not the Change in Control Agreement shall
continue to be in effect upon the Effective Time. Such declination by Executive
shall be deemed a termination of employment with Parent by Executive for other
than Good Cause under Section 3(b) below.

     3. COVENANT NOT TO COMPETE.

          (a) I understand that Parent is engaged worldwide in the development,
production and commercialization of drug delivery and other products based on
platform technologies. As of the Effective Time, I agree that I will not, during
my employment with Parent, render (as a provider of services, consultant or
otherwise) any services related to the business of Parent to anyone other than
Parent.

          (b) In the event of: (i) the termination of my employment with Parent
(other than termination by reason of death or Disability) by me for any reason
(whether voluntary on my part, or involuntary) other than Good Cause; or (ii)
the termination of my employment with Parent (other than termination by reason
of death or Disability) by Parent for Cause, I agree that for a period of twelve
(12) months from the date of such termination, I will neither:

               (i) engage directly for myself, or in conjunction with or on
     behalf of any person or entity, or otherwise own, manage, operate, control,
     acquire, hold any interest in, or participate in the ownership, management,
     operation or control of any person or entity engaged in the development,
     production or commercialization of systems for the delivery of therapeutic
     drugs to the tissues in the posterior segment of the eye (the "REAR-OCULAR
     DRUG DELIVERY BUSINESS"), nor

               (ii) work for or become employed by or associated with (in any
     capacity, including without limitation officer, director, employee,
     partner, stockholder, owner, member, proprietor, consultant, investor,
     salesperson, co-owner, trustee, promoter, technician, engineer, analyst,
     agent, representative, distributor, supplier, lender, advisor or manager)
     any person or entity that is engaged in the Rear-Ocular Drug Delivery
     Business (the activities set forth in (i) and (ii) (as modified by the
     following paragraph) are collectively referred to as the "RESTRICTED
     ACTIVITIES").

Notwithstanding the foregoing, Parent accepts that nothing in this Section 3(b)
shall prevent Executive from and after the date six (6) months after termination
of Executive's employment from engaging in activities predominantly academic
(and not commercial) in nature, including without limitation teaching,
lecturing, writing and publishing articles or engaging in research; provided
that (I) unless approved by Parent in writing or otherwise described below,
Executive receives no compensation (including without limitation salary,
benefits, bonus, profit sharing, dividends, commissions, gifts, gratuities, or
any other payments, whether in cash or otherwise, present or future) whatsoever
for such activities, other than reimbursement of expenses, for any period in
which he is receiving severance payments from the Parent under this Agreement,
his employment agreement with Parent or any other agreement between Executive
and Parent,


                                      -4-

<PAGE>

except where the payment of compensation is required by the academic institution
and Executive agrees in writing to donate the full amount of such compensation
to a registered charitable organization; and (II) in the course of engaging in
such activities Executive does not breach his obligations under this Agreement,
including without limitation any obligations under Sections 4 and 5 herein.

Within six (6) months after the termination of my employment for the reasons set
forth above, Parent may at its sole discretion extend my obligations under this
Section 3(b) for an additional twelve-month period; provided that in such a case
Parent will pay me an amount equal to my annual base salary as of the date of
termination, to be paid in equal monthly installments over such additional
twelve-month period.

          (c) In the event of the termination of my employment with Parent
(other than termination by reason of death or Disability) (x) by me for Good
Cause, or (y) by Parent for any reason other than for Cause, I agree that, at
Parent's option, exercisable by written notice given:

               (i)  not less than 30 days after Parent receives notice of such
                    termination by me hereunder; and/or

               (ii) at the time of such termination by Parent hereunder; and/or

               (iii) with respect to a follow-on notice to Executive, no later
                    than six months after the termination of my employment with
                    Parent hereunder,

for a period of up to twenty-four (24) months from the date of such termination,
as specified in Parent's notice or notices, I will not engage in any Restricted
Activities; provided that in such case Parent will pay me an amount equal to
1/24th of $800,000 for each month in the period specified, which amount may be
offset against any severance or other payments owed to me in connection with the
termination of my employment as described in this Section 3(c). I understand
that any payments made to me pursuant to the preceding sentence are made in
consideration of my not engaging in any Restricted Activities or otherwise
violating the terms of this Agreement, and that, in addition to any other rights
or remedies available to Parent at law or in equity, Parent shall have the right
to terminate such payments if, and only if, I engage in Restricted Activities
during the specified period or otherwise violate the terms of this Agreement and
such conduct continues following my receipt of written notice from the Company
that describes the basis for the Company's contention that I have engaged in
Restricted Activities or otherwise violated the terms of this Agreement. I
understand that the Company may provide more than one written notice to extend
the noncompete period under this Section 3(c), provided that such notices are
sent within the six (6) month period after the termination of my employment.

          (d) My obligations under this Section 3 shall extend to all
geographical areas of the world in which Parent, or any of its related
companies, is offering its services, either directly or indirectly, through
licenses or otherwise, during the time period specified in this Section 3.


                                      -5-

<PAGE>

          (e) I further agree that while I remain employed by Parent and for the
duration of any period during which I am prohibited from engaging in the
Restricted Activities pursuant to this Section 3, I will not, on behalf of
myself or any other person or entity, (i) compete for, or engage in the
solicitation of, or attempt to divert or take away from the Company, Parent or
any of their affiliates, any customer of the Company, Parent or any of their
affiliates who has done business with the Company, Parent or any of their
affiliates, as the case may be, during the period of my employment by Parent;
(ii) compete for, solicit or attempt to divert or take away from the Company,
Parent or any of their affiliates, any prospective customer that has within the
twelve (12) month period prior to such termination, expressed an interest in
doing business with the Company, Parent or any of their affiliates and about
which I learned during my employment with Parent; or (iii) hire or engage or
attempt to hire or engage any individual, or attempt to induce an individual to
terminate their employment or other service arrangement, who was an employee of
or other service provider to the Company, Parent or any of their affiliates at
any time during the twelve (12) month period prior to my termination from
employment.

          (f) Further, while I remain employed by Parent and for the duration of
any period during which I am prohibited from engaging in the Restricted
Activities pursuant to this Section 3, I shall not, directly or indirectly, make
or cause to be made to any Person any disparaging, derogatory or other negative
statement about the Company, Parent or any of their affiliates, including their
businesses, products, services, policies, practices, operations, employees,
sales representatives, agents, officers, members, managers or directors.
Similarly, during the period set forth in the preceding sentence, Parent shall
not and shall not authorize or encourage any members of its Board of Directors
or employees to directly or indirectly, make or cause to be made to any person
any disparaging, derogatory or other negative statement about Executive,
including the performance of his duties on behalf of the Company or the
circumstances surrounding his separation from employment.

          (g) I REPRESENT AND WARRANT THAT THE KNOWLEDGE, SKILLS AND ABILITIES I
POSSESS ARE SUFFICIENT TO PERMIT ME, IN THE EVENT OF TERMINATION OF MY
EMPLOYMENT WITH PARENT FOR ANY REASON, TO EARN, FOR A PERIOD OF UP TO
TWENTY-FOUR (24) MONTHS FROM SUCH TERMINATION, A LIVELIHOOD SATISFACTORY TO ME
WITHOUT VIOLATING ANY PROVISION OF SECTION 3 HEREOF, FOR EXAMPLE BY USING SUCH
KNOWLEDGE, SKILLS AND ABILITIES, OR SOME OF THEM, IN THE SERVICE OF A PERSON OR
ENTITY WHO OR WHICH DOES NOT COMPETE WITH PARENT AS DESCRIBED HEREIN.

     4. PROPRIETARY INFORMATION.

          (a) I agree that all information and know-how, whether or not in
writing, of a private, secret or confidential nature concerning the Company,
Parent or any of their affiliates or their respective businesses, financial
affairs or operations (collectively, "PROPRIETARY INFORMATION") is and shall be
the exclusive property of the Company, Parent or any of their affiliates, as the
case may be. By way of illustration, but not limitation, Proprietary Information
may include inventions, products, manufacturing and other processes, methods,
techniques, formulas, compositions, compounds, projects, developments, plans,
research data, financial data, personnel data, computer programs, and customer
and supplier lists. I will not disclose any Proprietary Information to others
outside the Company, Parent or any of their affiliates, provided


                                      -6-

<PAGE>

that my obligation not to disclose shall not apply to any information that (i)
has become generally available to the public other than as a result of a breach
by Executive of his obligations hereunder, (ii) may be required or appropriate
in response to any summons or subpoena or in connection with any litigation, or
investigation or review by any governmental agency or authority and (iii) must
be disclosed in order to comply with any law, order, regulation or ruling
applicable to Executive. I will not use any Proprietary Information for any
purposes other than my work for the Company, Parent or any of their affiliates,
without prior written approval by the Board of Directors of Parent, either
during or after my providing services. If I have any questions as to what
constitutes Proprietary Information, I will consult with the Board of Directors
of Parent or an individual designated by the Board of Directors for this
purpose.

          (b) I agree that all files, letters, memoranda, reports, records,
data, sketches, drawings, program listings, or other written, photographic, or
other tangible material containing Proprietary Information, whether created by
me or others, which shall come into my custody or possession, shall be and are
the exclusive property of the Company, Parent or any of their affiliates, as the
case may be, to be used by me only in the performance of my duties for Parent.
All such records or copies thereof and all tangible property of the Company,
Parent or any of their affiliates in my custody or possession shall be delivered
to Parent within ten (10) calendar days from the earlier of (i) a request by
Parent or (ii) termination of my providing services to Parent. After such
delivery, I shall not retain any such records or copies thereof or any such
tangible property.

          (c) I agree that my obligation not to disclose or to use information,
know-how and records of the types set forth in paragraphs (a) and (b) above, and
my obligation to return records and tangible property, set forth in paragraph
(b) above, also extends to such types of information, know-how, records and
tangible property of customers of the Company, Parent or any of their affiliates
or suppliers to the Company, Parent or any of their affiliates or other third
parties who may have disclosed or entrusted the same to Parent or to me in the
course of Parent's business with an expectation or understanding that such
information was to be maintained as confidential.

     5. DEVELOPMENTS.

          (a) I will make full and prompt disclosure to Parent of all
inventions, improvements, discoveries, methods, developments, products,
processes, techniques, formulas, compositions, compounds, software, works of
authorship and all ideas for trademarks, trade-names and the like, related in
any way to the Parent's current, planned or potential products or services,
whether patentable or not and whether copyrightable or not, which are created,
made, conceived or reduced to practice by me or under my direction or jointly
with others during my employment by Parent, whether or not during normal working
hours or on the premises of Parent (all of which are collectively referred to in
this Agreement as "DEVELOPMENTS").

          (b) Except as hereinafter provided, I agree to assign and do hereby
assign to Parent (or any person or entity designated by Parent) all my right,
title and interest in and to all Developments and all related patents, patent
applications, copyrights and copyright applications. I expressly agree that all
of my Developments capable of protection under copyright laws shall be deemed
and are works made for hire with the understanding that Parent shall own all of
the


                                      -7-

<PAGE>

exclusive rights to such developments under the United States Copyright Act and
all international copyright conventions and foreign laws, and any successor laws
thereto.

          (c) I agree to cooperate fully with Parent, both during and after my
employment with Parent, with respect to the procurement, maintenance and
enforcement of copyrights and patents (both in the United States and foreign
countries) relating to Developments. I shall sign all papers, including, without
limitation, copyright applications, patent applications, trademark or service
mark applications, declarations, oaths, formal assignments, assignment of
priority rights, and powers of attorney, which Parent may deem necessary or
desirable in order to protect its rights and interests in any Development.

     6. CURRENT EMPLOYMENT; NO CONTRARY AGREEMENTS.

          I hereby represent that I am not bound by the terms of any agreement
with any current or previous employer or other party to refrain from using or
disclosing any trade secret or confidential or Proprietary Information in the
course of my employment with Parent or to refrain from competing, directly or
indirectly, with the business of such previous employer or any other party. I
further represent that, and agree that, in the performance of my duties as a
provider of services to Parent, I will not breach any agreement to keep in
confidence Proprietary Information, knowledge or data acquired by me in
confidence or in trust prior to my employment with Parent, and I will not
disclose to Parent or induce Parent to use any confidential or proprietary
information or material belonging to any previous employer or others. I
represent and warrant to Parent that I am not now under any obligation of a
contractual nature to any person, firm or corporation which is inconsistent or
in conflict with this Agreement.

     7. INJUNCTIVE RELIEF.

          The restrictions contained herein are necessary for the protection of
the business and goodwill of the Company, Parent and their affiliates and are
considered by me to be reasonable for such purposes. I understand and agree that
Parent will suffer irreparable harm in the event that I breach any of my
obligations under this Agreement and that monetary damages will be inadequate to
compensate Parent for such breach. Accordingly, I agree that, in the event of a
breach or threatened breach by me of any of the provisions of this Agreement,
Parent, in addition to and not in limitation of any other rights, remedies or
damages available to Parent at law or in equity, shall be entitled to a
permanent injunction in order to prevent or to restrain any such breach by me,
or by my partners, agents, representatives, employers, employees and/or any and
all persons directly or indirectly acting for or with me.

     8. ACCOUNTING FOR PROFITS.

          I covenant and agree that, if I shall violate any of my covenants or
agreements under this Agreement, Parent, at its own expense, shall be entitled
to an accounting and repayment of all profits, compensation, commissions,
remunerations or benefits which I directly or indirectly have realized and/or
may realize as a result of, growing out of or in connection with any such
violation; such remedy shall be in addition to and not in limitation of any
injunctive relief or other rights or remedies to which Parent is or may be
entitled at law, in equity or under this Agreement.


                                      -8-

<PAGE>

     9. NO EMPLOYMENT CONTRACT.

          I understand that this Agreement does not constitute a contract of
employment and does not imply that my employment will continue for any period of
time.

     10. ENFORCEABILITY AND SCOPE.

          In the event that any Section of this Agreement, or any provision of
any such Section, shall for any reason be held to be wholly invalid, illegal or
unenforceable, such invalidity, illegality, or unenforceability shall not affect
any other Section hereof, or any other provision of an affected Section, and
this Agreement shall be construed as if, and enforced as fully as if, such
invalid, illegal or unenforceable Section or provision had never been contained
herein. In the event any Section, or any provision thereof, is found to be
partially invalid, illegal or unenforceable (on the ground, for example, that it
is excessive in scope), then such Section or provision shall be enforced to the
extent not invalid, illegal or unenforceable, and its partial invalidity,
illegality or unenforceability shall not affect any other Section or provision
of this Agreement. If any restriction set forth in Section 3 above is found by a
court of competent jurisdiction to be unenforceable because it extends for too
long a period of time, over too great a range of activities or in too broad a
geographic area, such restriction shall be interpreted to extend only over the
maximum period of time, maximum range of activities or maximum geographic area
as to which it may be deemed to be enforceable.

     11. GENERAL.

          (a) This Agreement supersedes all prior agreements, written or oral,
between me and Parent relating to the subject matter of this Agreement, except
for the the Change in Control Agreement and the Severance Agreement, which are
referenced herein. This Agreement may not be modified, changed or discharged in
whole or in part, except by an agreement in writing signed by me and Parent. I
agree that any change or changes in my duties, salary or compensation after the
signing of this Agreement shall not affect the validity or scope of this
Agreement.

          (b) This Agreement will be binding upon my heirs, executors and
administrators and will inure to the benefit of and be binding upon Parent and
its successors and assigns.

          (c) No delay or omission by Parent in exercising any right under this
Agreement will operate as a waiver of that or any other right. A waiver or
consent given by Parent on any one occasion is effective only in that instance
and will not be construed as a bar to or waiver of any right on any other
occasion.

          (d) I expressly consent to be bound by the provisions of this
Agreement for the benefit of the Company, Parent or any of their affiliates to
whose employ or other service providing arrangement I may be transferred without
the necessity that this Agreement be re-signed at the time of such transfer.


                                      -9-

<PAGE>

          (e) Any notices required or permitted to be sent under this Agreement
shall be effective when delivered by hand or mailed by registered or certified
mail, return receipt requested, and addressed as follows:

     If to Parent:

          pSivida Limited
          Level 12, BGC Centre
          28 The Esplanade, Perth
          WA 6000 Australia
          GPO Box 2535
          Perth, WA 6831

     With a copy to:

          Curtis, Mallet-Prevost, Colt & Mosle LLP
          101 Park Avenue
          New York, NY 10178
          Attn: Lawrence Goodman, Esq.

     If to Executive:

          Paul Ashton
          19 Brimmer Street
          Boston, MA 02108

Either party may change its address for receiving notices by giving notice to
the other party.

          (f) This Agreement is governed by and will be construed as a sealed
instrument under and in accordance with the laws of the Commonwealth of
Massachusetts.

     I ACKNOWLEDGE AND UNDERSTAND THAT THIS AGREEMENT AFFECTS MY RIGHTS TO
COMPETE WITH PARENT OR TO DISCLOSE AND USE PARENT'S PROPRIETARY INFORMATION OR
DURING AND AFTER MY EMPLOYMENT.

     I HAVE READ ALL OF THE PROVISIONS OF THIS AGREEMENT CAREFULLY AND I
UNDERSTAND, AND AGREE TO, EACH OF SUCH PROVISIONS.

                     [SIGNATURE PAGE TO IMMEDIATELY FOLLOW]


                                      -10-

<PAGE>

     IN WITNESS WHEREOF, I have executed this Agreement under seal as of this 3
day of October, 2005.


                                        /s/ Paul Ashton
                                        ----------------------------------------
                                        Paul Ashton

ACKNOWLEDGED AND AGREED:

PSIVIDA LIMITED


By: /s/ Gavin Rezos
    ---------------------------------
Name: Gavin Rezos
Title: Managing Director
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.36
<SEQUENCE>22
<FILENAME>y16393exv4w36.txt
<DESCRIPTION>EX-4.36: OPTION AGREEMENTS
<TEXT>
<PAGE>
                                                                    Exhibit 4.36

                         Control Delivery Systems, Inc.

                                  Stock Option
                    Granted Under the 1997 Stock Option Plan
                    ----------------------------------------

     Stock Option granted by Control Delivery Systems, Inc., a Delaware
corporation (the "Company"), to Paul Ashton (the "Optionee") pursuant to the
Company's 1997 Stock Option Plan (the "Plan").

1.   Grant of Option.
     ---------------

     This certificate evidences the grant by the Company on September 18, 1997
to Optionee of an option to purchase, in whole or in part, on the terms herein
provided, a total of 15,000 shares of common stock of the Company (the
"Shares") at $6.25 per Share, which is not less than the fair market value of
the Shares on the date of grant of this option. This option must be exercised
before 5:00 p.m., E.S.T. on September 18, 2007 ("Final Exercise Date").

     This option is exercisable in the following installments prior to the
Final Exercise Date:

up to 3,750 shares on and after September 18, 1998;
up to an additional 3,750 shares on and after September 18, 1999;
up to an additional 3,750 shares on and after September 18, 2000; and
up to an additional 3,750 shares on and after September 18, 2001.

2.   Exercise of Option.

     Each election to exercise this option shall be in writing, signed by the
Optionee or Optionee's executor or administrator or the person or persons to
whom this option is transferred by will or the applicable laws of descent and
distribution (the "Legal Representative"), and received by the Company at its
principal office, accompanied by this certificate, and payment in full as
provided in the Plan. The exercise price may be paid by delivery of cash, a
certified check, bank draft or money order payable to the Company, common stock
of the Company which have been outstanding at least six months and which have a
fair market value equal to an unconditional and irrevocable undertaking by a
broker to deliver promptly to the Company sufficient funds to pay the exercise
price, or any combination of the foregoing. In the event that this option is
exercised by the Optionee's Legal Representative, the Company shall be under no
obligation to deliver Shares hereunder unless and until the Company is
satisfied as to the authority of the person or persons exercising this option.

3.   Notice of Disposition.
     ---------------------

                                      -1-

<PAGE>
     The person exercising this option shall notify the Company when making any
disposition of the Shares acquired upon exercise of this option, whether by
sale, gift or otherwise.

4.   Application of Stock Transfer Agreement.

     If at the time this option is exercised the Company is a party to any
agreement restricting the transfer of any outstanding shares of its Common
Stock, this option may be exercised only if the Shares so acquired are made
subject to the transfer restrictions set forth in that agreement (or if more
than one such agreement is then in effect, the agreement specified by the Board
of Directors of the Company).

5.   Withholding.

     No Shares will be issued pursuant to the exercise of this option unless and
until the person exercising this option shall have remitted to the Company an
amount sufficient to satisfy any federal, state or local withholding tax
requirements, or shall have made other arrangements satisfactory to the Company
with respect to such taxes.

6.   Nontransferability of Option.

     This option is not transferable by the Optionee otherwise than by will or
the laws of descent and distribution, and is exercisable during the Optionee's
lifetime only by the Optionee.

7.   Provisions of the Plan.

     This option is subject to the provisions of the Plan, as amended from time
to time, which shall be controlling in the event of any conflicting or
inconsistent provisions. A copy of the Plan has been provided to the Optionee
previously.

     IN WITNESS WHEREOF, the Company has caused this option to be executed under
its corporate seal by its duly authorized officer. This option shall take effect
as a sealed instrument.


                                       Control Delivery Systems, Inc.

                                       By: /s/ Michael J. Soja
                                           --------------------------

Dated: July 10, 2002


                                      -2-
<PAGE>
                         Control Delivery Systems, Inc.

                             Incentive Stock Option
                    Granted Under the 1997 Stock Option Plan

     Incentive Stock Option granted by Control Delivery Systems, Inc., a
Delaware corporation (the "Company"), to Paul Ashton (the "Optionee") pursuant
to the Company's 1997 Stock Option Plan (the "Plan").

1.   Grant of Option

     This certificate evidences the grant by the Company on August 26, 1999 to
Optionee of an option to purchase, in whole or in part, on the terms herein
provided, a total of 10,000 shares of common stock of the Company (the "Shares")
at $8.00 per Share, which is not less than [110%] of the fair market value of
the Shares on the date of grant of this option. This option must be exercised
before 5:00 p.m., E.S.T. on August 25, 2009 ("Final Exercise Date"). It is
intended that the option evidenced by this certificate shall be an incentive
stock option as defined in section 422 of the Internal Revenue Code of 1986, as
amended from time to time, (the "Code").

     This option is exercisable in the following installments prior to the
Final Exercise Date:

up to 3,333 shares on and after August 26, 2000;
up to an additional 3,333 shares on and after August 26, 2001; and
up to an additional 3,334 shares on and after August 26, 2002.

2.   Exercise of Option.

     Each election to exercise this option shall be in writing, signed by the
Optionee or Optionee's executor or administrator or the person or persons to
whom this option is transferred by will or the applicable laws of descent and
distribution (the "Legal Representative"), and received by the Company at its
principal office, accompanied by this certificate, and payment in full as
provided in the Plan. The exercise price may be paid by delivery of cash, a
certified check, bank draft or money order payable to the Company, common stock
of the Company which have been outstanding at least six months and which have a
fair market value equal to an unconditional and irrevocable undertaking by a
broker to deliver promptly to the Company sufficient funds to pay the exercise
price, or any combination of the foregoing. In the event that this option is
exercised by the Optionee's Legal Representative, the Company shall be under no
obligation to deliver Shares hereunder unless and until the Company is
satisfied as to the authority of the person or persons exercising this option.

                                      -1-
<PAGE>
3.   Notice of Disposition.

     The person exercising this option shall notify the Company when making any
disposition of the Shares acquired upon exercise of this option, whether by
sale, gift or otherwise.

4.   Application of Stock Transfer Agreement.

     If at the time this option is exercised the Company is a party to any
agreement restricting the transfer of any outstanding shares of its Common
Stock, this option may be exercised only if the Shares so acquired are made
subject to the transfer restrictions set forth in that agreement (or if more
than one such agreement is then in effect, the agreement specified by the Board
of Directors of the Company).

5.   Withholding

     No Shares will be issued pursuant to the exercise of this option unless
and until the person exercising this option shall have remitted to the Company
an amount sufficient to satisfy any federal, state or local withholding tax
requirements, or shall have made other arrangements satisfactory to the Company
with respect to such taxes.

6.   Nontransferability of Option.

     This option is not transferable by the Optionee otherwise than by will or
the laws of descent and distribution, and is exercisable during the Optionee's
lifetime only by the Optionee.

7.   Provisions of the Plan.

     This option is subject to the provisions of the Plan, as amended from time
to time, which shall be controlling in the event of any conflicting or
inconsistent provisions. A copy of the Plan has been provided to the Optionee
previously.



     IN WITNESS WHEREOF, the Company has caused this option to be executed
under its corporate seal by its duly authorized officer. This option shall take
effect as a sealed instrument.


                                       Control Delivery Systems, Inc.


                                       By /s/ ILLEGIBLE
                                          -----------------------------


Dated: July 10, 2002
       -------------



ASHTON P. 8.26.99                      -2-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-8.1
<SEQUENCE>23
<FILENAME>y16393exv8w1.txt
<DESCRIPTION>EX-8.1: LIST OF SUBSIDIARIES
<TEXT>
<PAGE>
                                                                     Exhibit 8.1


                   Exhibit 8.1 to Annual Report on Form 20-F
                              Of pSivida Limited

                             List of Subsidiaries


AION Diagnostics Limited, Australia
pSiMedica Limited, United Kingdom
pSiOncology Pte. Limited, Singapore
pSivida Inc., United States


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12.1
<SEQUENCE>24
<FILENAME>y16393exv12w1.txt
<DESCRIPTION>EX-12.1: CERTIFICATION OF CHIEF EXECUTIVE OFFICER
<TEXT>
<PAGE>
EXHIBIT 12.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a) AND RULE
15d-14(a) OF THE SECURITIES EXCHANGE ACT, AS AMENDED.

                                 CERTIFICATIONS

I, GAVIN REZOS, certify that:

1. I have reviewed this annual report on Form 20-F of PSIVIDA LIMITED;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the company as of,
and for, the periods presented in this report;

4. The company's other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) for the company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;

(b) [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986];

(c) Evaluated the effectiveness of the company's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

(d) Disclosed in this report any change in the company's internal control over
financial reporting that occurred during the period covered by the annual report
that has materially affected, or is reasonably likely to materially affect, the
company's internal control over financial reporting; and

5. The company's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
company's auditors and the audit committee of the company's board of directors
(or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the company's ability to record, process, summarize
and report financial information; and

(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the company's internal control over
financial reporting.

Date: JANUARY 18, 2006


/s/ GAVIN REZOS*
---------------------------------------------
Gavin Rezos

CHIEF EXECUTIVE OFFICER AND MANAGING DIRECTOR
---------------------------------------------
Title

*The originally executed copy of this Certification will be maintained at the
Company's offices and will be made available for inspection upon request.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12.2
<SEQUENCE>25
<FILENAME>y16393exv12w2.txt
<DESCRIPTION>EX-12.2: CERTIFICATION OF CHIEF FINANCIAL OFFICER
<TEXT>
<PAGE>
EXHIBIT 12.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14(a) AND RULE
15d-14(a) OF THE SECURITIES EXCHANGE ACT, AS AMENDED.

                                 CERTIFICATIONS


I, AARON FINLAY, certify that:

1. I have reviewed this annual report on Form 20-F of PSIVIDA LIMITED;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the company as of,
and for, the periods presented in this report;

4. The company's other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e) for the company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;

(b) [Paragraph omitted pursuant to SEC release Nos. 33-8238 and 34-47986];

(c) Evaluated the effectiveness of the company's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

(d) Disclosed in this report any change in the company's internal control over
financial reporting that occurred during the period covered by the annual report
that has materially affected, or is reasonably likely to materially affect, the
company's internal control over financial reporting; and

5. The company's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
company's auditors and the audit committee of the company's board of directors
(or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the company's ability to record, process, summarize
and report financial information; and

(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the company's internal control over
financial reporting.

Date: JANUARY 18, 2006


/s/ AARON FINLAY*
---------------------------------------------
Aaron Finlay


CHIEF FINANCIAL OFFICER AND COMPANY SECRETARY
---------------------------------------------
Title


*The originally executed copy of this Certification will be maintained at the
Company's offices and will be made available for inspection upon request.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13.1
<SEQUENCE>26
<FILENAME>y16393exv13w1.txt
<DESCRIPTION>EX-13.1: CERTIFICATION OF CHIEF EXECUTIVE OFFICER
<TEXT>
<PAGE>
Exhibit 13.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.

     In connection with the Annual Report of pSivida Limited (the "Company") on
Form 20-F for the period ending June 30, 2005, as filed with the Securities and
Exchange Commission on the date hereof (the "Report"). I, Gavin Rezos, Chief
Executive Officer and Managing Director of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002, that: (1) The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The
information contained in the Report fairly presents, in all material respects,
the financial condition and result of operations of the Company.

Date: JANUARY 18, 2006

/s/ Gavin Rezos*
------------------------
Gavin Rezos

CHIEF EXECUTIVE OFFICER AND MANAGING DIRECTOR
------------------------------------------------
Title

*The originally executed copy of this Certification will be maintained at the
Company's offices and will be made available for inspection upon request.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13.2
<SEQUENCE>27
<FILENAME>y16393exv13w2.txt
<DESCRIPTION>EX-13.2: CERTIFICATION OF CHIEF FINANCIAL OFFICER
<TEXT>
<PAGE>
EXHIBIT 13.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.

     In the connection with the Annual Report of pSivida Limited (the "Company")
on Form 20-F for the period ending June 30, 2005, as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Aaron Finlay,
Chief Financial Officer and Company Secretary of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and (2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.

Date:  JANUARY 18, 2006

/s/ AARON FINLAY*
---------------------
    Aaron Finlay

CHIEF FINANCIAL OFFICER AND COMPANY SECRETARY
--------------------------------------------------
Title

*The originally executed copy of this Certification will be maintained at the
Company's offices and will be made available for inspection upon request.
</TEXT>
</DOCUMENT>
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end
</TEXT>
</DOCUMENT>
</SUBMISSION>
