IMAGE RESOURCES NL

IMAGE RESOURCES NL

ABN: 57 063 977 579

ANNUAL REPORT

FINANCIAL YEAR 2005 - 2006

CONTENTS EXECUTIVE

Corporate Directory	3
Review of Operations	$\overline{4}$
Directors' Report	13
Corporate Governance Statement	20
Income Statement	25
Balance Sheet	26
Statement of Changes in Equity	27
Cash Flow Statement	28
Notes to and forming part of the Financial Statements	29
Directors' Declaration	52
Independent Audit Report	53
Tenement Schedule	54
Other Information	58

CORPORATE DIRECTORY

DIRECTORS

PETER THOMAS Non-Executive Chairman

ROGER THOMSON Managing Director

GEORGE SAKALIDIS Executive Director - Exploration

COMPANY SECRETARY Malcolm Smartt

REGISTERED OFFICE

2^nd Floor 35 Outram Street, West Perth WA 6005 Telephone (08) 9485 2410 Facsimile (08) 9485 2840

WEBSITE www.imageres.com.au

FOR SHAREHOLDER INFORMATION CONTACT

SHARE REGISTRY Computershare Investor Services Limited Level 2 Reserve Bank Building 45 St George's Terrace, Perth WA 6000 Telephone (08) 9323 2000 Facsimile (08) 9323 2033

FOR INFORMATION ON THE COMPANY CONTACT

PRINCIPAL & REGISTERED OFFICE

2^nd Floor 35 Outram Street, West Perth WA 6005 Telephone (08) 9485 2410 Facsimile (08) 9485 2840

SOLICITORS TO THE COMPANY

Smyth & Thomas 10 Walker Avenue, West Perth WA 6005

BANKERS Bank of Western Australia Ltd Hay Street, West Perth WA 6005

AUDITORS Somes & Cooke Chartered Accountants Level 1, 1304 Hay Street, West Perth WA 6005

STOCK EXCHANGE Australian Stock Exchange

COMPANY CODE IMA (Fully paid shares)

ISSUED CAPITAL 73,897,978 fully paid ordinary shares 1,035,000 options exercisable at 25 cents by 4 July 2007 1,850,000 options exercisable at 33.5 cents by 27 November 2008 2,000,000 options exercisable at 39 cents by 26 November 2009 2,000,000 options exercisable at 37 cents by 21 November 2010

PROJECTS SUMMARY

IMAGE RESOURCES HAS ACHIEVED SIGNIFICANT SUCCESS AT ITS MINERAL SAND PROJECTS AT COOLIARLOO AND BIDAMINNA IN THE NORTH PERTH BASIN. RECORD PRICES FOR ZIRCON AND A HEALTHY OUTLOOK FOR TITANIUM MINERALS CONTINUE TO REINFORCE IMAGE'S FOCUS ON MINERAL SANDS. IMAGE REMAINS WELL FUNDED, PLACING IT IN A STRONG POSITION TO AGGRESSIVELY PURSUE ITS MINERAL SANDS AND OTHER INTERESTS.

Image Resources holds an extensive portfolio of tenements, totalling in excess of 15,000sq km mainly in Western Australia and particularly in the fertile North Perth Basin and Yilgarn Craton. Image is a diversified explorer for a range of commodities including mineral sands, gold, nickel and uranium. Image continues to pursue its strategy of identifying and acquiring prospective areas using aeromagnetic data and seeking to add value for shareholders by applying innovative exploration techniques to early stage exploration and by partnering with well funded mid-cap companies.

As part of an increased focus on mineral sands Image is proposing to farm-out some 63 exploration licences totalling 6,600sq km to Magnetic Resources NL and to assist this company to list on ASX. This will allow Image to focus on its core heavy mineral projects and generate new projects while ensuring a dedicated exploration focus by Magnetic Resources on the joint venture tenements.

Ongoing joint venturers include Emu Lake (nickel, Jubilee Mines earning 60%); Trojan (gold and base metals, Troy Resources earning 60%); Jilbadgie (nickel, Westonia Mines earning 65%); Bronco Plains (gold, Troy Resources earning 60%); Woodline (gold, Sipa Resources earning 60%); Meteoric (gold and base metals, Meteoric Resources 100%, Image retaining a 1% gross royalty).

Cooljarloo (Image earning 70%)

As part of its mineral sands strategy Image entered and agreement with Metal Sands Pty Ltd to earn a majority interest in a 77sq km exploration licence at Cooljarloo in the North Perth Basin, a region which has been the world's largest source of high TiO2 (58%-63%) chloride-grade ilmenite, the largest source of zircon and a major source of rutile. The exploration licence is strategically situated between Tiwest's Cooljarloo and Jurien mineral sand operations and is 80km south of Iluka's world-class Eneabba operation, in an area of well-established infrastructure.

Historical exploration in the 1980's and 1990's discovered several paleo strandlines with significant heavy mineral (HM) concentrations and reported Inferred Resources on three strands with identified resources totalling in excess of 80Mt containing 2.4Mt of HM concentrate, the bulk of these resources occur within the joint venture tenement.

Deposit	Inferred Resource Tonnes	Grade % HM	HМ Tonnes	Ilmenite Tonnes	Rutile Tonnes	Leucoxene Tonnes	Zircon Tonnes
28000	850.000	8.6	73.000	25.000	8.000	6.700	9.800
Mid Level	49.000.000	2.3	1.127.000	531.000	96.000	60.500	91.000
35 ADH	30.860.000	4.0	1.234.000	na	na	na	na
TOTAL	80,710,000	3.0	2,434,000

na - information not available

Image is aggressively advancing exploration on a number of fronts at Cooljarloo by:

(a) Drilling out of the 35AHD and 28,000 resources to Measured Resource status.
(b) Testing of the Mid Level resource and new targets identified from ground magnetics (in excess of 20km in length).
(c) Drilling of new large-tonnage potential channel targets which can be up to 40m in thickness and which are interpreted from ground magnetics to be over 10km in length.
(d) Completing ground magnetic coverage of Cooljarloo North and starting drilling more than 11km of high priority targets already identified.
(e) Initiating prefeasibility work including analysis of mineral assemblage, TiO2 content of the ilmenite product and economic parameters for the 35 AHD and 28,000 resources.
(f) Investigating new tenement acquisitions in the North Perth Basin.

Cooljarloo Project - Interpreted Strandlines with HM Resources

To date Image has completed 517 aircore drill holes totalling some 11,000m. Scout drilling intersected a new style of mineralisation in what are interpreted to be paleo-channels developed below the strandline mineralisation. At least two mineralised channels have been intersected some 200m in apparent width and discordant to the flat-lying strandlines that occur above them. Based on historical drilling results a further four possible channels have been identified in the southeastern part of the project area, some of which straddle the project boundary. The scout drilling intersected 12m at 2.7% HM from 28m in free running sand overlain by 2m at 9.2% HM from 16m, indicating potential for large tonnages of mineral sands in the channels.

Cooljarloo Project - Cross-Section 6620905mN

Infill drilling on the northern part of the 35AHD strand has outlined to shallow high-grade zones which have excellent north-south continuity over a strike length of 1.7km. The high-grade zones are linked and surrounded by a lower grade envelope which provides an attractive target for possible future mining. These high-grade zones extend a further 3.5km to the south on the tenement, where wide-spaced historical drilling intersected high-grades of 10.5m at 11.5% HM from surface (eastern strand) and 6m at 24.1% HM from 3m (western strand). Drilling of the 28,000 and Mid Level strands is currently in progress.

Hole No		Collar Coordinates	From	Tо	Interval	Grade
	E	N	m	m	m	% $HM$
351	2180	21030	$\overline{2}$	10	8	13.4
		including	4	8	4	25.0
369	2220	21400	4	12	8	5.0
		including	4	6	2	10.9
378	2220	21600	$\overline{2}$	10	8	5.6
		including	4	6	2	11.8
384	2040	21600	$\overline{2}$	12	10	8.0
		including	4	8	4	15.5
396	2220	21800	4	6	$\overline{2}$	12.5
397	2240	21800	4	10	6	10.9
		including	4	8	4	15.1
472	2080	21030	6	10	4	10.7
		including	6	8	2	18.6
474	2040	21030	6	8	2	10.4
492	2180	21110	4	14	10	7.0
		including	2	6	4	12.0
493	2200	21110	$\overline{2}$	12	10	12.0

35 AHD Aircore Drill Intersections

Hole No		Collar Coordinates	From	Tо	Interval	Građe
			m	m	m	% HM
						24.5
511	2080	21300				8.O
514	2020	21300				0.0

Under the terms of the agreement with Metal Sands, Image may earn a 51% interest by sole funding expenditure of \$500,000 by February 2010 and may elect to earn up to a 70% interest by expenditure of an additional \$300,000 by February 2012.

A 26sq km tenement has been applied for at Cooljarloo North covering 17km of interpreted mineral strands thought to be the northern extension of the 35 AHD strand. At the Jurien mine to the north of this tenement, Ticor has reported a significant resource (53Mt at 4.7% HM) which appears to be the northern extension of the interpreted shallow strands on Image's ground. Detailed ground magnetic surveys of the Cooljarloo North area are in preparation.

Bidaminna (Image 100%)

Image holds a 48km-long belt of tenements covering heavy mineral (HM) bearing paleo coastlines near Gingin in the North Perth Basin in an area of good infrastructure close to existing HM mines and treatment plants. The tenements cover a significant part of the Bidaminna paleo shoreline which contains the Bidaminna HM deposit with a reported resource of 44Mt at 3% HM, part of which occurs on the Image tenements.

Bidaminna Project - Interpreted Strandlines and Drilling

Image has carried out detailed ground magnetic surveys in the southern part of the project area and using its magnetic mapping technique, defined three interpreted large HM strands totalling some 16km in aggregate length. The length and average magnetic amplitude of the interpreted strands (Ganymede, Callisto and Io) indicate potential for sizeable deposits of high grade mineral sands when compared to the Bidaminna

deposit which is 6km in length and significantly lower in magnetic amplitude. Aeromagnetic data indicates potential for further extensions to these mineral strands.

Bidaminna Project - Callisto Strand Drill Sections

During the year Image completed 58 reconnaissance aircore drill holes totalling 3,048m and outlined a broad zone of mineralisation more than 500m in width at Callisto with a best intersection of 12m at 5.4% HM from 34m. Heavy mineral concentrations intersected on a further two lines of drilling (200m separations) confirm that the ground magnetics over the Callisto strands are related to potentially economic heavy minerals. The drilling also shows that Callisto is one wide strand instead of several narrower strands as previously interpreted. Further south Callisto is interpreted from ground magnetics to be at least 7km long and up to 800m wide in its widest section. Preparations are in hand to drill a 1.5km strike extension south of the recent drilling at Callisto. Further drilling is planned when landowner access and environmental approvals are forthcoming.

More recently, Image has applied for two strategically situated tenements near Gingin south of Bidaminna, increasing its landholding in the North Perth Basin to 520sq km. The new tenements occur to the south and west of the Iluka-owned Gingin mine (8.4Mt at 16.7% HM, 1.4Mt contained HM) and cover a range of potential strand positions. Previous exploration in the area includes an aeromagnetic survey with limited wide-spaced drilling. The aeromagnetic data clearly shows the mineral strand being mined at Gingin and also identifies a further eight targets which remain untested. Image has started ground magnetic surveys and plans to complete coverage to help define drill targets.

Gingin Prospect - Interpreted Strandlines and DEM trends

Barton (Image earning up to 70% of HM)

Image is farming in to Mithril Resources' Barton project situated 50km northeast of Iluka's recent zircon-rich mineral sand discoveries at Jacinth and Ambrosía in the Eucla Basin of South Australia. Image may earn up to a 70% interest in the mineral sand rights by expenditure of \$500,000 within five years. The joint venture will commence upon finalising heritage and land access agreements with the traditional owners.

The 992sq km joint venture tenement covers part of the Barton Range Shoreline, an older but similar paleo coastal barrier to that which hosts the Jacinth and Ambrosia discoveries. Wide-spaced government drilling within the tenement has identified heavy mineral concentrations comprising 56% altered ilmenite, 17%

zircon, 15% leucoxene and 3% rutile at a depth of 16-22m, demonstrating the presence of potentially economic mineral sands. Image plans to use its magnetic mapping technique to identify drill targets.

Eucla Basin (Image 100%)

Image has applied for 1,974sq km of tenements covering interpreted paleo shorelines on the South Australia-Western Australia border region of the Eucla Basin. Upon grant of the tenements and negotiation of land access agreements, Image plans to explore for zircon-rich heavy minerals similar to the Jacinth discovery (108Mt at 6% HM with a high zircon content of 55%). Record zircon prices continue to make these mineral sands attractive exploration targets.

Emu Lake (Image 30%)

Jubilee Mines completed two wide-spaced diamond drill holes at the Emu Lake nickel project situated 70km northeast of Kalgoorlie. The drilling targeted the depth extensions of high-grade nickel sulphide intersected in previous drilling at the Gossan Zone. The previous high-grade intercepts include 2m at 6.20% Ni, 1.78% Cu and 2.17g/t Pt+Pd from 338m and 2m at 2.63% Ni, 1.05 Cu and 4.19g/t Pt+Pd from 345.5m both in drill hole ELD15 and 0.28m at 6.66% Ni, 0.24% Cu and 0.65g/t Pt+Pd from 337m in ELD16. Both the diamond drill holes intersected narrow intervals of massive nickel sulphides grading up to 10% Ni as shown below.

Hole No	Collar Coordinates		From	То	Interval	Ni	Cu	$Pt+Pd$
			m	m		$\frac{4}{9}$	ppm	g/t
ELD 025	48316	9658	346.60	346.70	0.10	10.9	757	-4.17
ELD 026	48446	9655	414.10	414.21	0.11	1.94	830	0.20
			414.53	414.58	0.05	2.42	668	0.52

These results are significant as they show high tenor nickel sulphides and occur on the main mineralised contact, substantially expanding the area of massive sulphide mineralisation. Grade-thickness contours indicate the presence of two south-plunging shoots within a broad sulphide-bearing contact zone some 300m in strike length, open at depth.

Emu Lake - Gossan Zone Longitudinal Section

Jubilee has also completed an extensive geochemical survey and identified at least two geochemical anomalies worthy of high priority follow up.

Bronco Plains (Image 100% diluting)

A new joint venture has been agreed with Troy Resources on Image's Bronco Plains gold project situated 140km east of Kalgoorlie. A geochemical survey carried out by Image covered targets identified from interpretation of aeromagnetic data. The wide-spaced sampling identified several extensive gold anomalies (up to 54ppb Au compared to a background of 5ppb). In some cases the anomalies remain open on to an adjacent Image tenement.

Under the terms of the agreement Troy may earn a 60% interest in two contiguous exploration licences by sole funding \$500,000 of expenditure over five years. Troy has commenced follow-up soil sampling.

Soil Geochemistry Contours over Aeromagnetics

Binti Bore (Image 100%)

Moving loop EM geophysical surveys over geochemically anomalous nickel and copper targets at Binti Bore, about 80km north-northeast of Kalgoorlie and 15km north of Image's 30%-owned Emu Lake nickel project, have identified three discrete EM anomalies from 50m to 240m in depth and termed BBC1 to 3. The strike lengths of the conductors range from 200m to 300m with amplitudes ranging from moderate to very strong. Two of the conductors (BBC1 and BBC3) occur in areas of extensive soil cover with BBC3 also coinciding with a discrete magnetic anomaly. These conductors form attractive drilling targets.

Trojan JV (Image 100%, diluting)

Troy Resources is earning a 60%-interest in three projects at Woongaring, Scorpion Well and Adam Range by expenditure of \$2 million before July 2008. Exploration of an under-explored greenstone belt at Woongaring 30km northeast of Mukinbudin has defined several nickel-copper geochemical anomalies associated with ultramafic rocks. Scout RAB drilling and EM surveys over three targets have not yet defined any deeper drilling targets. More recent geochemical sampling has defined an anomalous gold zone and a further nickel-copper anomaly warranting follow-up.

Further drilling is being proposed at Scorpion Well 10km southeast of the 2Moz Centenary gold mine where early scout drilling confirmed the presence of favourable host rocks within a structured corridor passing

through the nearby Darlot and Centenary mines. At Adam Range near Laverton scout drilling of an interpreted structural target for gold is proposed.

Lake Percy (Image $100\%$ )

Ground EM surveys of the Bondi and Town Hall prospects 40km northwest of the Emily Ann nickel mine tested nickel-copper anomalies for nickel sulphides. A moderate conductor was identified at Bondi which is interpreted to lie below the previous drilling in this area. Further drilling to test this target is being planned.

Uranium Prospects (Image 100%)

Image has applied for exploration licences totalling 268sq km in the Southern Cross-Esperance region covering six strong radiometric anomalies evident in government airborne survey data released during the year. The radiometric anomalies acquired by Image range from 11ppm to 41ppm uranium equivalent (UEq) compared to backgrounds of 1-5ppm UEq (uranium equivalent is a standard method of comparing radiometric survey data). Geochemical sampling on Image's 26 Mile Rock prospect situated 45km northwest of Norseman has identified elevated uranium values up to 10 times background coinciding with an airborne radiometric anomaly and warranting further sampling.

Magnetic JV (Image 100%, diluting)

Image is proposing to farm out a large package of properties in the Yilgarn Craton of WA to Magnetic Resources NL, subject to this company listing on ASX. The package comprises some 63 exploration licences totalling 6,670q km. The object of this arrangement is to allow Image to focus on tis core heavy mineral projects, generate new projects from its extensive aeromagnetic database and continue with existing joint ventures while Magnetic Resources will focus its energies on its extensive portfolio of tenements.

These tenements were acquired mainly on the basis of geophysical interpretation of newly released aeromagnetic and radiometric data covering the southern part of the Yilgarn Craton. Most of the tenements cover poorly exposed rocks and consequently were neglected by early prospectors. The main mineral commodities sought are gold and nickel although some of the areas are prospective for nickel.

Under the terms of the joint venture Magnetic Resources will pay Image \$150,000 in partial reimbursement of past expenditure and may spend \$2 million within two years of listing on ASX to earn an 80% interest in the tenements. Magnetic has the right to increase its interest to 100% by spending an aggregate \$3 million over three years and converting Image's interest to a 1% royalty.

DIRECTORS' REPORT

Your directors present their report on the Company for the year ended 30 June 2006.

DIRECTORS

The following persons were directors of Image Resources NL ("Image") during the whole of the year (unless otherwise stated) and up to the date of this report:

Peter Thomas Roger Thomson George Sakalidis

PRINCIPAL ACTIVITIES

The principal activities of the Company during the year were the acquisition of additional tenements and the exploration of mineral tenements in Western Australia, Northern Territory and South Australia.

RESULTS FROM OPERATIONS

During the year the Company recorded an operating loss of \$1,889,046 (2005: \$4,013,679). Last year's loss included the financial impact of significant accelerated write-offs totalling \$3,668,045 in order to comply with the transition to Australian Equivalents to International Financial Reporting Standards ("AIFRS") as from the beginning of that financial reporting period.

DIVIDENDS

No amounts have been paid or declared by way of dividend by the Company since the end of the previous financial year and the Directors do not recommend the payment of any dividend.

REVIEW OF OPERATIONS

A review of operations is covered elsewhere in this Annual Report.

EARNINGS PER SHARE

Basic Loss per share for the financial period was 2.74 cents (2005: 7.18 cents). Diluted Loss per share is not significantly different from Basic Loss per Share. The quantum of last year's result was significantly increased by the adoption of AIFRS as from the beginning of that financial reporting period.

SIGNIFICANT CHANGES IN STATE OF AFFAIRS

Significant changes in the state of affairs of the Company during the financial period were the placement of 3,058,030 shares at \$0.33 each, made on 19 August 2005 and ratified by shareholders at the annual general meeting of shareholders held 21 November 2005;

MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL PERIOD

Since the end of the financial year, the Company has received funds of \$3,302,723 in respect of the exercise of 13,210,893 options which were due to expire 26 August 2006.

No other material matters have occurred subsequent to the end of the financial year which require reporting on other than the matters referred to in the previous paragraph or as reported to ASX.

LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS

Likely developments in the operations of the Company and the expected results of those operations in future financial years have not been included in this report as the directors believe, on reasonable grounds, that the inclusion of such information would be likely to result in unreasonable prejudice to the Company.

ENVIRONMENTAL ISSUES

The Company carries out operations in Western Australian, South Australia and the Northern Territory which are subject to environmental regulations under both Commonwealth and State legislation in relation to its exploration activities.

The Company has formal procedures in place to ensure regulations are adhered to. During or since the financial period there have been no known significant breaches of these regulations.

INFORMATION ON DIRECTORS AND COMPANY SECRETARIES

Peter Thomas

Chairman

Mr Thomas is a practising Solicitor with more than twenty-five years national and international experience in the resource sector (both oil and minerals) specialising in the provision of general contractual and corporate advice to both miners and explorers. He has been responsible for the structuring, restructuring and reconstruction of a number of companies and has been a director of a number of listed companies. He is also chairman of Meteoric Resources NL and Sandfire Resources NL. He was a director of Magnetic Minerals Limited until it was taken over, delivering substantial value to its shareholders.

Mr Thomas has a direct interest in 312,000 ordinary fully paid shares and 400,000 unquoted options exercisable at \$0.335 each by 27 November 2008. He also holds, through an associated entity, an interest in 257,000 fully paid ordinary shares, 400,000 unquoted options exercisable at \$0.39 each by 26 November 2009 and 400,000 unquoted options exercisable at \$0.37 each by 21 November 2010. None of these shares or options are subject to escrow provisions.

Roger Thomson

Managing Director

Mr Thomson is a geologist with more than thirty years experience in mineral exploration, mining geology and management in Australia, Africa, South America and SE Asia. Mr Thomson has held the positions of General Manager Exploration with Delta Gold Ltd and Sons of Gwalia Ltd and has been responsible for, or closely associated with, making economic discoveries of gold and tantalum in Australia. He successfully managed the programme that led to the discovery of the multi-million ounce Sunrise gold deposit, near Laverton in Western Australia. Mr Thomson is an Associate of the Royal School of Mines, a Member of the Australasian Institute of Mining and Metallurgy and a Member of the Society of Economic Geologists. He is a director of Meteoric Resources NL and unlisted Mariana Resources NL.

Mr Thomson has a direct interest in 916,015 ordinary fully paid shares, 800,000 unquoted options exercisable at \$0.335 each by 27 November 2008, 800,000 unquoted options exercisable at \$0.39 each by 26 November 2009 and 800,000 unquoted options exercisable at \$0.37 each by 21 November 2010. He also holds, through associated entities, an interest in 260,000 ordinary fully paid shares. None of these shares or options are subject to escrow provisions

George Sakalidis

Exploration Director

Mr Sakalidis is an exploration geophysicist with over twenty-five years industry experience, during which time his career has included extensive gold, diamond, base metals and mineral sands exploration. He was involved in the compilation of what the Board believes to be one of the largest aeromagnetic databases held by any Australian junior explorer, which is now held by Image. Using this database, Mr Sakalidis has been involved in a number of significant mineral discoveries, including the Three Rivers and Rose gold deposits in Western Australia and the tenement applications over the Silver Swan nickel deposit. He was also instrumental in the design of the magnetic surveys and exploration drilling program that led to the discovery of the large mineral sands resources at Magnetic Minerals Limited's Dongara Project. Mr Sakalidis was a founding director of Magnetic Minerals Limited and was previously a director of North Star Resources NL. He is also a director of Meteoric Resources NL.

Mr Sakalidis has an interest in 5,758,220 ordinary fully paid shares, 650,000 unquoted options exercisable at \$0.335 each by 27 November 2008, 800,000 unquoted options exercisable at \$0.39 each by 26 November 2009 and 800,000 unquoted options exercisable at \$0.37 each by 21 November 2010. He also holds, through associated entities, an interest in 322,000 fully paid ordinary shares. None of these shares or options are subject to escrow provisions.

Malcolm K Smartt

Company Secretary - Appointed 16.6.2006

Mr Smartt has held a number of senior finance positions within the resource sector over the past 20 years and completes the finance and company secretarial functions for several listed resources companies.

Rudolf Tieleman

Company Secretary - Resigned 16.6.2006

Mr Tieleman is an accountant with over 21 years experience in public practice. He has extensive knowledge in matters relating to the operation of business in Australia.

AUDIT COMMITTEE

At the date of this report the Company does not have a separately constituted Audit Committee as all matters normally considered by an audit committee will be dealt with by the full board.

NON AUDIT SERVICES

The only non audit services provided by the auditor were for option valuation services as shown at Note 6.

A copy of the Auditor's Independence declaration as required by Section 307c of the Corporations Act is set out on page 20.

The board is satisfied that the provision of non- audit services by Somes & Cooke during the year did not compromise the independence of the auditor (Kevin Somes) as required by the Corporations Act because he did not provide any of the non audit services, he has only assumed the role of auditor of the Company this year, the non-audit services rendered were inconsequential in terms of quantum (\$650) relative to the potential loss and exposure arising out of any failure to act in a fit and proper manner with due independence in an entirely disinterested but diligent manner.

MEETINGS OF DIRECTORS

During the financial period ended 30 June 2006, there were 8 meetings of directors. All meetings were attended by all the directors.

DIRECTORS AND EXECUTIVES REMUNERATION REPORT

The Company's policy for determining the nature and amount of emoluments of board members and senior executives (if any) of the Company is as follows:

The remuneration structure for executive officers, including executive directors, seeks to emphasise payments for results through providing various reward schemes, for example the incorporation of Share Option Incentive Schemes. The objective of the reward schemes is to both re-inforce the short and long term goals of the Company and to provide a common interest between management and shareholders is set out below:

$(a)$ The names of directors who have held office during the financial year are -

Peter Thomas Roger Thomson George Sakalidis

$(b)$ Retirement and Superannuation Payments

Prescribed benefits were provided by the Company to all executive directors by way of superannuation contributions to complying superannuation funds during the year. These benefits were paid in accordance with the statutory superannuation contribution guarantee requirements.

$(c)$ Non-executive director

Fees and payments to the only non-executive director, the Chairman, reflects the demands made on him and his responsibilities. His directors fees are reviewed annually by the Board and are determined independently to the fees of executive directors and are based on comparative roles in the external market. The Chairman is not present at any discussions relating to determination of his own remuneration. Non-executive directors may receive share based payments which are required to be approved by shareholders in general meeting.

$(d)$ Director's fee

The current base remuneration was effective from 1 July 2005, was last reviewed August 2005. The Chairman's remuneration is inclusive of fees paid whilst chairing the meetings of executives and officers while executive directors who chair a meeting receive no additional yearly fees.

Non-executive directors fees are determined within an aggregate directors' fee pool limit, which is periodically recommended for approval by shareholders. The maximum currently stands at \$150,000 per the group of non-executive directors.

Retirement allowances for director $(e)$

The Company does not have a policy for the payment of retirement allowances to non-executive directors.

$(f)$ Executive pay

The executive pay and reward framework has three components: Base pay;

Incentive options;

Other remuneration such as superannuation.

The combination of these comprise the executives' total remuneration.

Base Pay

Structured as a total employment cost package which may be delivered as a mix of cash and prescribed non-financial benefits at the executives' discretion.

The executives have been offered a competitive base pay that comprises the fixed component of pay and rewards. Base pay for the senior executives is reviewed annually. At the expiry of the term of employment, the executives' base pays are reviewed to remain competitive with the market.

There are no guaranteed base pay increases fixed in the senior executives' contracts.

The emoluments of each Director and each executive officer for the financial period are as follows:

Executive and Position	Primary	Post Employment	Equity	Total
	Salary & fees	Super- annuation	Options (1)
Peter Thomas Non-Executive Chairman	\$40,000	100% of salary & salary equivalents by way of salary sacrifice	\$58,920	\$98,920
Roger Thomson Executive Managing Director	\$95,323	\$8,579	\$117,840	\$221,742
George Sakalidis Executive Director	\$143,772	\$12,939	\$117,840	\$274,551
Rudolf Tieleman- Company Secretary Resigned 16.6.2006	\$40,327			\$40,327
Mal Smartt - Company Secretary Appointed 16.6.2006
Total	\$319,422	\$21,518	\$294,600	\$635,540

Note $(1)$

Equity remuneration represents share options granted during the year as approved at the general meeting of shareholders held 21 November 2005. These options have been valued at grant date using the Black-Scholes option valuation methodology.

Service agreements -

Remuneration and other terms of employment have been agreed with RM Thomson and G Sakalidis. Major provisions of the agreement relating to remuneration are set out as follows:

	Term of agreements	Base remuneration	Review periods	Increase
RM Thomson	3 years from 4 July 2005	\$109.69 per hour	Annually on 4 July
G Sakalidis	3 years from 4 July 2005	$$100.92$ per hour to 31.5.2006 \$109.69 per hour from 1.6.2006	Annually on 4 July	Discretionary by Board

DIRECTORS' REPORT

EMPLOYEES

The Company had three employees at 30 June 2006 (2005: Three employees). For tax purposes, directors are treated as employees but for the purpose of this disclosure, they are not.

CORPORATE STRUCTURE

Image Resources NL is a no liability company limited by shares and is incorporated and domiciled in Australia.

INDEMNIFICATION & INSURANCE OF DIRECTORS AND OFFICERS

The Company has entered into agreements indemnifying, to the extent permitted by law, all the directors and officers of the Company against all losses or liabilities incurred by each director and officer in their capacity as directors and officers of the Company.

OPTIONS

As at the date of this report there are the following options over un-issued ordinary shares in the Company:

Unlisted:

$(a)$ 1,035,000 exercisable at \$0.25 per option on or before 4 [uly 2007. These options were issued pursuant to the Company's Employee Share Option Plan;
$(b)$ 1,850,000 exercisable at \$0.335 per option on or before 27 November 2008;
$(c)$ 2,000,000 exercisable at \$0.39 per option on or before 26 November 2009;
$(d)$ 2,000,000 exercisable at \$0.37 per option on or before 21 November 2010;

During the year:

2,000,000 options were issued to the directors as approved at the Company's annual general meeting $(a)$ held on 21 November 2005.
$(b)$ 1,085,465 quoted options were exercised at \$0.25 each.

Since the end of the financial year, 13,210,893 quoted options have been exercised at \$0.25 each and 53,500 quoted options lapsed due to not being exercised by their due date.

Signed in accordance with a resolution of the directors

G SAKALIDIS Director Perth 29 September 2006

DIRECTORS' REPORT

Auditor's Independence Declaration to the Directors of Image Resources NL

In relation to the audit of the financial report of Image Resources NL for the year ended 30 June 2006, I declare that to the best of my knowledge and belief, there have been no contraventions of:

$(i)$ the auditor independence requirements of the Corporations Act 2001 in relation to the review; or
$(ii)$ any applicable code of professional conduct in relation to the review.

Yours sincerely

K. C. Somes

SOMES and COOKE Chartered Accountants

GOOD GOVERNANCE AND PRACTICE RULES

The Australian Stock Exchange Corporate Governance Council has determined a total of ten Governance and Good Practice Rules which must be listed and an explanation provided on whether the Company complies with the rule, or a reason why it does not.

	PRINCIPLE	COMPLIANCE OR DETAILS OF PLANNING
	PRINCIPLE 1: Lay solid foundations for management and oversight
1.1	Formalise and disclose the functions reserved to the Board and those delegated to management	A committee has been established to document Board prepare for consideration.
	PRINCIPLE 2: Structure the Board to add value
2.1	A majority of the Board should be independent directors	Not complied with for economic reasons.
2.2	The Chairperson should be an independent director	Complied with.
$\overline{2.3}$	The roles of Chairperson and Chief Executive Officer should not be exercised by the same individual	Complied with.
2.4	The Board should establish a nomination committee	Board fulfils The the role of Nomination Committee.
	PRINCIPLE 3: Promote ethical and responsible decision-making
3.1	Establish a code of conduct to guide the directors, the Chief Executive Officer (or equivalent), the Chief Financial Officer (or equivalent) and any other key executives as to: The practices necessary to maintain confidence in the Company's 3.1.1 integrity; 3.1.2 The responsibility and accountability of individuals for reporting or investigating reports of unethical practices.	Not complied with. The law embodies sufficient codes of conduct for a company of this size.
3.2	Disclose the policy concerning trading in Company securities by directors, officers and employees.	A strict policy has been adopted and signed by each director.
	PRINCIPLE 4: Safeguard integrity in financial reporting
4.1	Require the Chief Executive Officer (or equivalent) to state in writing to the Board that the Company's financial reports present a true and fair view, in all material respects, of the Company's financial condition and operational results and are in accordance with relevant accounting standards.	Completed by Managing Director in conjunction with company secretary and auditor.
4.2	The Board should establish an audit committee.	The role of Audit Committee has been assumed by the full Board.
4.3 $4.4\,$	Structure the audit committee so that it consists of: Only non-executive directors A majority of independent directors An independent chairperson who is not the chairperson of the Board At least three members The audit committee should have a formal operating charter.	Not complied with - see 4.2 above. Not complied with - see 4.2 above.

CORPORATE GOVERNANCE STATEMENT

	PRINCIPLE 5: Make timely and balanced disclosure
5.1	Establish written policies and procedures designed to ensure compliance	No written policy as such, other than
	with ASX Listing Rule disclosure requirements and to ensure	in relation to 3.2 above. Minutes of
	accountability at a senior management level for that compliance.	Board meetings frequently address
		compliance issues. Both the Chairman
		and the company secretary have
		detailed knowledge of and long
		working backgrounds in application
		of those rules. The executive directors
		have a good general grasp of these
		rules and consult the Chairman and
		company secretary as required. Every
		member of the Board and company
		secretary is fully familiar with
		of requirements continuous
		disclosure rules and standards
		expected of them in relation to
		trading in company securities.
	PRINCIPLE 6: Respect the rights of shareholders
6.1	Design and disclose a communications strategy to promote effective	Fully designed and disclosed by
	communication with shareholders and encourage effective participation	directors' conduct.
	at general meetings.
6.2	Request the external auditor to attend the annual general meeting and be	Complied with.
	available to answer shareholder questions about the audit and the preparation and contents of the auditor's report.
	PRINCIPLE 7: Recognise and manage risk.
7.1	The Board or appropriate board committee should establish policies on	Complied with.
	risk oversight and management.
7.2	The Chief Executive Officer (or equivalent) and the Chief Financial	Complied with.
	Officer (or equivalent) should state to the Board in writing that:
7.2.1	The statement given in accordance with best practice recommendation
	4.1 (the integrity of financial statements) is founded on a sound system of
	risk management and internal compliance and control which
	implements the policies adopted by the Board.
7.2.2	The Company's risk management and internal compliance and control system is operating efficiently and effectively in all material aspects.

	PRINCIPLE 8: Encourage enhanced performance.
8.1	Disclose the process for performance evaluation of the Board, its'	Complied with.
	committees and individual directors and key executives.

	PRINCIPLE 9: Remunerate fairly and responsibly.	Complied with.
9.1	Provide disclosure in relation to the Company's remuneration policies to enable investors to understand the cost and benefits of these policies and
	the link between remuneration paid to directors and key executives and
	corporate performance.
9.2	The Board should establish a remuneration committee.	Complied with.
9.3	distinguish structure of directors' Clearly the non-executive	Complied with.
	remuneration from that of executive directors.
9.4	Ensure that payment of equity-based executive remuneration is made in	Complied with.
	accordance with thresholds set in plans approved by shareholders.

10.1	PRINCIPLE 10: Recognise the legitimate interest of stakeholders.	See 3.1 and 5.1 above.
	Establish and disclose a code of conduct to guide compliance with legal and other obligations to legitimate stakeholders.

General:

The Board of Directors of Image Resources NL is responsible for the corporate governance of the Company. The Board guides and monitors the business and affairs of the Company on behalf of the shareholders by whom they are elected and to whom they are accountable.

The substance of the best practice recommendations of the ASX Corporate Governance Council, including corporate governance practices and suggested disclosures (which in unabridged form may be accessed from the ASX website) as adopted with variations by the Company, are set out herein and have been applied for the entire financial year ended 30 June 2006. Where there has been any variation from the recommendations it is because the Board believes that the Company is not as yet of a size, nor are its financial affairs of such complexity to justify some of those recommendations and as such those practices continue to be the subject of the scrutiny of the full Board.

Board Composition:

The Board is comprised of three Directors, of which the Managing Director and Exploration Director are the Executive Directors.

The skills, experience and expertise relevant to the position of each Director who is in office at the date of the annual report, his attendance at meetings and his term of office are detailed in the Directors' Report. Due to the size of the Company, only the Chairman is an independent Director. This situation will be monitored and changes made as the Board sees fit. The names of the Directors of the Company in office at the date of this statement are:

Name	Position	Committees
Peter Sisely Thomas	Non Executive Chairman	Refer details
		herein
Roger Michael Thomson	Managing Director	Refer details
		herein
George Sakalidis	Exploration Director	Refer details
		herein

When determining whether a Director is independent, the Board has determined that the Director must not be an executive and:

is not a substantial shareholder of the Company or an officer of, or otherwise associated directly $\bullet$ with, a substantial shareholder of the Company;
within the last three last years has not been employed in an executive capacity by the Company or $\bullet$ been a Director after ceasing to hold any such employment;
within the last three years has not been a principal or employee of a professional adviser or a $\bullet$ consultant to the Company or an employee associated with the service provided where the quantum of the remuneration in respect thereof are regarded as material to either the company or that person;
is not a material supplier or customer of the Company or an officer of or otherwise associated $\bullet$ directly or indirectly with a significant supplier or customer;
has no material contractual relationship with the Company other than as a Director of the Company; $\bullet$
is free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the Director's ability to act in the best interests of the Company.

Directors have the right to seek independent professional advice in the furtherance of their duties as Directors, at the Company's expense, subject to those expenses being reasonable or incurred with the chairman's approval, such approval not to be unreasonably withheld.

The Board and Board Nominations:

The Company does not operate a nomination committee. As such, the full Board (subject to members' voting rights in general meeting) is responsible for selection of new members and has regard to a candidate's experience and competence.

Under the Company's Constitution:

the maximum number of Directors on the Board is ten;
a Director (other than the Managing Director) may not retain office for more than three years without submitting for re-election; and
at the Annual General Meeting each year effectively one third of the Directors in office (other than the Managing Director) retire by rotation and must seek re-election by shareholders.

Securities Trading Policy:

The Company has adopted a formal securities trading policy whereby Directors and employees are restricted from acting on material information until it has been released to the market in accordance with the ASX requirements of continuous disclosure and the market has had sufficient time to absorb that information.

Directors' Remuneration and Policies:

The Company forms a remuneration committee comprising members of the Board and sometime a member of the board and the company secretary who do not have a personal interest in the remuneration and policies being discussed. Due to the number of directors on the Board at this time, any decision is therefore required to be unanimous.

All compensation arrangements for Directors including the Managing Director are determined by disinterested Directors after taking into account the current competitive rates prevailing in the market.

The amount of remuneration for all Directors including the full remuneration packages, comprising all monetary and non-monetary components of the Executive and Non Executive Directors, are detailed in the Directors' Report.

Executives receive base salary, superannuation and in some cases, fringe benefits and share-based incentives. These packages are reviewed on an ongoing basis.

All remuneration paid to present or future executives is accounted for in accordance with the law.

The Board expects that the remuneration structure that is implemented will result in the Company being able to attract and retain the best executives to manage the Company. It will also provide the executives with the necessary incentives to work to grow long-term shareholder value.

The Board can exercise its discretion in relation to approving incentives, bonuses and options.

There are no schemes for retirement benefits other than statutory superannuation for any of the Directors.

External auditors:

The auditors of the Company have open access to the Board of Directors at all times. Somes & Cooke have audited the Company for the last four years. Somes & Cooke attend the Company's annual general meeting.

Audit committee:

The Company does not operate an audit committee separate from the Board, however, there is a recognition that a separate committee may be required in the future in order to comply with good Corporate Governance.

Managing risks:

The Board meets regularly to evaluate, control, review and implement the Company's operations and objectives.

Regular controls established by the Board include:

detailed monthly financial reporting;
delegation of authority to the Managing Director to ensure approval of expenditure obligations within the constraints of an approved budget;
implementation of operating plans, cash flows and budgets by management and Board monitoring of progress against projections; and
procedures to allow Directors, and management in the furtherance of their duties, to seek independent professional advice via the utilisation of various external technical consultants.

The Board recognises the need to identify areas of significant business risk and to develop and implement strategies to mitigate these risks.

Commitment to stakeholders & ethical standards:

The Board supports high standards of corporate governance and requires its members and the management and staff of the Company to act with integrity and objectivity in relation to:

compliance with laws and regulations affecting the Company's operations; $\bullet$
the ASX's Corporate Governance;
employment practices;
responsibilities to: $\bullet$
the community; $\bullet$
the individual; $\bullet$
the environment; $\bullet$
conflict of interests:
confidentiality;
ensuring that shareholders and the financial community are at all times fully informed in accordance with the spirit and letter of the ASX's continuous disclosure requirements;
protection of and proper use of the Company's assets.

Monitoring of the Board's Performance and Communication to Shareholders:

In order to ensure that the Board continues to discharge its responsibilities in an appropriate manner, the performance of all Directors is regularly reviewed by the Chairman. The Company does not have an evaluation of the Board or Board members performed by an independent consultant.

The Board of Directors aims to ensure that shareholders are informed of information necessary to assess the performance of the Company. Information is communicated to the shareholders, subject to the exceptions to the requirements for continuous disclosure permitted by law, through:

the Quarterly Reports;
the Half-Yearly Report; ٠
the Annual Report; $\bullet$
adherence to continuous disclosure requirements; $\bullet$
the Annual General Meeting and other meetings so called to obtain shareholder approval for Board ٠ action as appropriate; and
٠ the provision of the Company's website containing all of the above mentioned reports and its constant update and maintenance.

INCOME STATEMENT For the Year Ended 30 June 2006

	Notes	2006 $($ \$)	2005 (5)
Revenue from ordinary activities	3	223,752	225,452
Revenue/(loss) from non-ordinary activities			1,341
Borrowing expenses
Depreciation and amortisation expense	3	(21,741)	(2,074,300)
Exploration costs written-off	3	(1,222,027)	(1,614,698)
Other expense from ordinary activities	3	(869,030)	(551, 474)
Loss from ordinary activities before related income tax expense		1,889,046	4,013,679
Income tax expense	$\overline{4}$
Loss from ordinary activities after related income tax expense		1,889,046	4,013,679
Net loss attributable to members of Image Resources NL		1,889,046	4,013,679
Basic loss per share (cents per share) Diluted loss per share (cents per share)	7 7	(3.17) (3.17)	(7.18) (7.18)

BALANCE SHEET As at 30 June 2006

	Notes	2006 $($ \$)	2005 (5)
Current Assets
Cash Assets	8	2,125,507	2,659,488
Receivables	9	187,421	129,530
Prepayments	10	10,570	13,956
		2,323,498	2,802,974
Non-Current Assets
Plant and equipment	12	45,983	64,179
Aeromagnetic database	13
Mineral interests	14
Other financial assets	11	1,246,115	55,001
		1,292,098	119,180
TOTAL ASSETS		3,615,596	2,922,154
Current Liabilities
Payables	15	87,152	102,312
NET ASSETS		3,528,444	2,819,842
Equity
Contributed equity	16	11,458,098	9,911,943
Reserves		1,346,093
Accumulated (losses)		(8,981,147)	(7,092,101)
TOTAL EQUITY		3,528,444	2,819,842

STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2006

	Share Capital (S)	Available for Sale Financial Assets Reserve Capital (\$)	Employee Benefit Reserve (S)	Accumulated Losses $($ \$ $)$	Total (S)

Balance at 1.7.2004	9,911,943			(3,078,422)	6,833,521
Loss for period				(4,013,679)	(4,013,679)
Balance at 30.6.2005	9,911,943			(7,092,101)	2,819,842

Balance at 1.7.2005	9,911,943			(7,092,101)	2,819,842
Shares issued during the period	1,280,516				1,280,516
Share based payments			294,600		294,600
Changes in fair value of available for sale assets		1,051,493			1,051,493
Share issuance costs	(28,961)				(28,961)
Loss for period				(1,889,046)	(1,889,046)
Balance at 30.6.2006	11,163,498	1,051,493	294,600	(8,981,147)	3,528,444

CASH FLOW STATEMENT For the Year Ended 30 June 2006

	Notes	2006 $($ \$)	2005 (5)
CASH FLOWS FROM OPERATING ACTIVITIES
Receipt from customers
Cash payments to suppliers and contractors		(545, 332)	(143,590)
Interest and dividends received		158,952	157,956
Net cash (used in) operating activities	17	(386, 380)	14,366
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of plant and equipment		(3,545)	(32,846)
Payments for exploration and evaluation		(1,314,731)	(658, 658)
Purchase of new prospects		(122, 217)	(221,996)
Recoupment of exploration costs		180,958	288,938
Purchase of investments		(139, 621)	(55,000)
Proceeds on sale of investments			3,453
Net cash (used in) / provided by investing activities		(1,399,156)	(676, 109)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from new issues of shares		1,280,516	236,000
Share issue expenses		(28,961)
Net cash provided by financing activities		1,251,555	236,000
Net (decrease) / increase in cash held		(533,981)	(425,743)
Cash at the beginning of the financial period		2,659,488	3,085,231
Cash at the end of the financial period	8	2,125,507	2,659,488

NOTE₁ STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance

The financial report is a general purpose financial report that has been prepared in accordance with Accounting Standards ("AASBs") adopted by the Australian Accounting Standard Board ("AASB") and the Corporations Act 2001.

International Financial Reporting Standards ("IFRSs") form the basis of Australian Accounting Standards adopted by the AASB, and for the purpose of this report are called Australian equivalents to IFRS ("AIFRS") to distinguish from previous Australian GAAP. The financial report of the company also complies with IFRS and interpretations adopted by the International Accounting Standards Board.

This is the company's first financial report prepared in accordance with Australian Accounting Standards, being AIFRS and IFRS, and AASB 1 First time adoption of Australian equivalents to International Financial Reporting Standards has been applied. An explanation of how the transition to AIFRSs has affected the reported financial position, financial performance and cash flows of the Company is provided in note 2.

Basis Of Preparation

The following standards and amendments were available for early adoption but have not been applied by the company in these financial statements:

AASB 119 Employee Benefits (December 2004);
AASB 2004-3 Amendments to Australian Accounting Standards (December 2004) amending AASB 1 First time Adoption of Australian Equivalents to International Financial Reporting Standards (July 2004), AASB 101 Presentation of Financial Statements and AASB 124 Related Party Disclosures;
AASB 2005-1 Amendments to Australian Accounting Standards (May 2005) amending AASB 139 Financial Instruments: Recognition and Measurement;
AASB 2005-3 Amendments to Australian Accounting Standards (June 2005) amending AASB 119 Employee Benefits (either July or December 2004);
AASB 2005-4 Amendments to Australian Accounting Standards (June 2005) amending AASB 139 Financial Instruments: Recognition and Measurement, AASB 132 Financial Instruments: Disclosure and Presentation, AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards (July 2004), AASB 1023 General Insurance Contracts and AASB 1038 Life Insurance Contracts;
AASB 2005-5 Amendments to Australian Accounting Standards (June 2005) amending AASB 1 First time Adoption of Australian Equivalents to International Financial Reporting Standards (July 2004), and AASB 139 Financial Instruments: Recognition and Measurement;
AASB 2005-6 Amendments to Australian Accounting Standards (June 2005) amending AASB 3 Business Combinations:
AASB 2006-1 Amendments to Australian Accounting Standards (January 2006) amending AASB 121 The Effects of Changes in Foreign Exchange Rates (July 2004);
UIG 4 Determining whether an Arrangement contains a Lease;
UIG 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds; and
UIG 8 Scope of AASB 2
AASB 7 Financial instruments: Disclosure (August 2005) replacing the presentation requirements of financial instruments in AASB 132. AASB 7 is applicable for annual reporting periods beginning on or after 1 January 2007;

NOTE₁ SUMMARY OF ACCOUNTING POLICIES (Continued)

AASB 2005-10 Amendments to Australian Accounting Standards (September 2005) makes consequential amendments to AASB 132 Financial Instruments: Disclosures and Presentation, AASB 101 Presentation of Financial Statements, AASB 114 Segment Reporting, AASB 117 Leases, AASB 133 Earnings per Share, AASB 139 Financial Instruments: Recognition and Measurement, AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards, AASB 4 Insurance Contracts, AASB 1023 General Insurance Contracts and AASB 1038 Life Insurance Contracts, arising from the release of AASB 7. AASB 2005-10 is applicable for annual reporting periods beginning on or after 1 January 2007.

The company has assessed the potential impact of the above listed standards, and therefore amendments, and has concluded that: (i) adoption of the standards will have no impact on the company; (ii) are not relevant to the company; or (iii) primarily provide changes to current disclosure requirements.

The preparation of a financial report in conformity with Australian Accounting Standards requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. These estimates and associated assumptions are based on historical experience and various factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. These accounting policies have been consistently applied by each entity.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The accounting policies set out below have been applied consistently to all periods presented in the financial report and in preparing an opening AIFRS balance sheet at 1 July 2004 for the purposes of the transition to Australian Accounting Standards - AIFRS. The company has elected to adopt the exemptions available under AASB 1 relating to AASB 132: Financial Instruments: Disclosure and Presentation, and AASB 139: Financial Instruments: Recognition and Measurement. Refer to Note 25 of the Notes to the Financial Statements for further details on changes in accounting policy.

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

(a) Revenue

Interest revenue is recognised on a proportional basis taking into account interest rates applicable to the financial asset.

(b) Employee Entitlements

Wages and Salaries and Annual Leave - Liabilities for wages and salaries and annual leave are recognised, and are measured as the amount unpaid at the reporting date at current pay rates in respect of employees' services up to that date. There is no liability to Long Service Leave entitlements.

NOTE₁ SUMMARY OF ACCOUNTING POLICIES (Continued)

(c) Exploration and Evaluation Expenditure

All exploration and evaluation expenditure is expensed to profit and loss as incurred. The affect of this write-off is to increase the loss incurred from ordinary activities as disclosed in the Income Statement by \$1,222,027 and to decrease the carrying values in the Balance Sheet to \$Nil.

(d) Acquisition of Assets

The cost method is used for all acquisitions of assets regardless of whether shares or other assets are acquired. Cost is determined as the fair value of assets given up at the date of acquisition plus costs incidental to the acquisition.

Costs relating to the acquisition of new areas of interest are classified as either exploration and evaluation expenditure or mine properties based on the stage of development reached at the date of acquisition.

(e) Goods and Services Tax (GST)

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

where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
receivables and payables are stated with the amount of GST included.

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

Cash flows are included in the Statement of Cash Flow on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

$(f)$ Income Tax

The change for current income tax expenses is based on the profit for the year adjusted for any nonassessable or disallowed items. It is calculated using tax rates that have been enacted or are substantively enacted by the balance sheet date.

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity.

Deferred income tax assets are recognized to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised.

NOTE₁ SUMMARY OF ACCOUNTING POLICIES (Continued)

The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.

$(g)$ Cash

For the purpose of the cash flow statement, cash includes:

(i) cash on hand and at call deposits with banks or financial institutions, net of bank overdrafts; and
(ii) investments in money market instruments with less than 30 days to maturity.

(h) Impairment of Assets

At each reporting date, the company reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset's fair value less costs to sell and value in use, is compared to the asset's carrying value. Any excess of the asset's carrying value over its recoverable amount is expensed to the income statement.

(i) Earnings Per Share

(i) Basic Earnings Per Share Basic earnings per share is determined by dividing the loss from ordinary activities after related income tax expense by the weighted average number of ordinary shares outstanding during the financial year.
(ii) Diluted Earnings Per Share Diluted EPS is calculated as net loss attributable to members, adjusted for:
$-$ costs of servicing equity (other than dividends);
the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and
other discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares.

(i) Non-current Assets

Items of plant and equipment are recorded at cost, being the fair value of consideration provided plus incidental costs. This cost is written off over its expected economic life, adjusted for any salvage value, if applicable. Estimates of remaining useful lives range between 4 and 5 years.

(k) Recoverable Amount

Non-current assets are not carried at an amount greater than their recoverable amount, and where carrying values exceed this recoverable amount, assets are written down. In determining recoverable amount the expected net cash flows have not been discounted.

(l) Financial Instruments

Financial Assets: Security deposits are recognised at their fair value. Other receivables are carried at nominal amount due less any provision for doubtful debts. An estimate of doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred. Sundry debtors and other receivables are non-interest bearing and have repayment terms between 30 and 90 days.

NOTE₁ SUMMARY OF ACCOUNTING POLICIES (Continued)

Financial Liabilities: Liabilities for trade creditors and other accruals are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the Company. Trade creditors are normally settled on 30 day terms.

Available-for-sale Financial Assets: Available-for-sale financial assets include any financial assets not included in the above categories and are initially measured at cost being the fair value of the consideration and including acquisition charges associated with the investment. Unrealised gains and losses arising from changes in the fair value of the investment are taken directly to equity.

(m) Contributed Equity

Ordinary share capital is recognised at the fair value of the consideration received by the Company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received.

(n) Share-based Payments

Share-based compensation benefits are provided to directors as approved in general meeting by members.

No expense is recognised in respect of share options granted prior to 1 January 2005. The shares will be recognised if and when the options are exercised and the proceeds are received and allocated to share capital.

In respect of share options granted after 1 January 2005, the fair value is recognised as an employee benefit expense with a corresponding increase in equity. The fair value of the options is calculated at the date of grant using Black-Scholes calculation principles taking into account the terms and conditions upon which the options were granted. The expected life used in the model has been adjusted, based on management's best estimates, for the effects of non-transferability, exercise restrictions and behavioural considerations. Upon the exercise of options, the balance of the share-based payments reserve relating to those options is transferred to share capital.

The Black-Scholes calculation principles have been adopted as they are widely recognised by relevant authorities and bodies as being appropriate even though in the experience of the directors the results produced by the application of those principles often fail to reflect market value to a significant degree.

(o) Joint Ventures

Interest in joint venture operations are brought to account by including in the respective classifications, the share of individual assets employed, liabilities and expenses incurred and revenue from the sale of joint venture output. Interest in joint venture operations are brought to account by including assets and liabilities in their respective classifications.

(p) Comparative Figures

When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial period.

NOTE 2 FIRST-TIME ADOPTION OF AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS

	Previous AGAAP At 1.7.2004	Transition Effect to A- IFRS	A-IFRS at 1.7.2004
	\$	\$	\$
Reconciliation of Equity at 1 July 2004
CURRENT ASSETS
Cash and cash equivalents	3,085,231		3,085,231
Trade and other receivables	482,347		482,347
Prepayments	15,461		15,461
Other financial assets	2,111		2,111
TOTAL CURRENT ASSETS	3,585,150		3,585,150
NON-CURRENT ASSETS
Plant and equipment	52,286		52,286
Aeromagnetic database	2,053,347	(2,053,347)
Mineral interests	1,109,324	(1,109,324)
Other financial assets	1		Ŧ
TOTAL NON-CURRENT ASSETS	3,214,958	(3,162,671)	52,287
TOTAL ASSETS	6,800,108	(3,162,671)	3,637,437
CURRENT LIABILITIES
Trade and other payables	202,587		202,587
TOTAL CURRENT LIABILITIES	202,587	u.	202,587
TOTAL LIABILITIES	202,587		202,587

NET ASSETS	6,597,521	(3,162,671)	3,434,850
EQUITY
Issued capital	9,675,943		9,675,943
Accumulated losses	(3,078,422)	(3,162,671)	(6,241,093)
TOTAL EQUITY	6,597,521	(3,162,671)	3,434,850

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the Year Ended 30 June 2006 Samuel Santa Carl

NOTE 2 FIRST-TIME ADOPTION OF AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (Continued)

	Previous AGAAP At 30.6.2005	Transition Effect to A- IFRS	AFRS at 30.6.2005
	$\mathbb{S}$	\$	\$
Reconciliation of Equity at 30 June 2005
CURRENT ASSETS
Cash and cash equivalents	2,659,488		2,659,488
Trade and other receivables	129,530		129,530
Prepayments	13,956		13,956
Other financial assets	5,000		5,000
TOTAL CURRENT ASSETS	2,807,974	ш.	2,807,974
NON-CURRENT ASSETS
Plant and equipment	64,179		64,179
Other financial assets	50,001		50,001
TOTAL NON-CURRENT ASSETS	114,180		114,180
TOTAL ASSETS	2,922,154	ш.	2,922,154
CURRENT LIABILITIES
Trade and other payables	102,312		102,312
TOTAL CURRENT LIABILITIES	102,312		102,312
TOTAL LIABILITIES	102,312	u.	102,312
NET ASSETS	2,819,842	w	2,819,842
EQUITY
Issued capital	9,911,943		9,911,943
Accumulated losses	(7,092,101)		(7,092,101)
TOTAL EQUITY	2,819,842	u.	2,819,842

NOTE 2 FIRST-TIME ADOPTION OF AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (Continued)

	Previous AGAAP	Transition Effect to A- IFRS	A-IFRS
	\$	\$	\$
Reconciliation of Profit or Loss for the year ended 30 June 2005
Revenue from ordinary activities	225,452		225,452
Revenue from non-ordinary activities	1,341		1,341
Depreciation and amortisation expense	(2,074,300)		(2,074,300)
Exploration and tenement expenses written off	(1,614,698)		(1,614,698)
Other expenses from ordinary activities	(551, 474)		(551, 474)
Loss from ordinary activities before income tax expense	(4,013,679)	ш.	(4,013,679)
Income tax expense relating to ordinary activities
Loss from ordinary activities after related income tax expense	(4,013,679)		(4,013,679)
Net Loss attributable to members of Image Resources NL	(4,013,679)		(4,013,679)
Notes to the reconciliations of equity and profit and loss at 1 July 2004, 30 June 2005 and 30 June 2006
	30.6.2006 \$	30.6.2005 \$	1.7.2004 \$
Retained earnings comprise: (a) Impairment loss on aeromagnetic database and			(3,162,671)

mineral interests

An impairment loss amounting to \$2,955,979 has been recognised under the Australian equivalents to IFRS relating to aeromagnetic database and mineral tenements written down to its recoverable amount. This has been recognised in the income statement for the year ended 30 June 2005

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the Year Ended 30 June 2006 statistica de la contrada de la con

OPERATING LOSS NOTE ₃	2006 (5)	2005 (3)
Operating loss before income tax includes:
Revenue from ordinary activities
Interest received	157,523	157,956
Dividends received	1,429
Other revenues	64,800	67,496
	223,752	225,452
Expenses
Depreciation and amortisation	21,741	2,074,300
Exploration costs written-off	1,222,027	1,614,698
Occupancy costs	57,518	55,049
Filing and ASX Fees	19,750	34,072
Corporate and management - Includes Share
based payments \$294,600 (2005: \$Nil)	406,599	152,504
Other expenses from ordinary activities	385,163	309,849
	869,030	551,474

INCOME TAX NOTE 4	2006 (5)	2005 (5)
The amount of income tax provided for in the accounts differs from the amount prima facie payable on the operating loss. The difference is reconciled as follows:
Loss from ordinary activities before income
tax	1,889,046	4,013,679
Prima facie tax benefit attributable to loss from ordinary activities before income tax at
30% (2005: 30%)	566,714	1,204,104
Less: Tax effect of Non-allowable items
- Amortisation of Database		622,290
- Share based payments	88,380
- Other	1,884	3,534
Tax losses not brought to account as future
income tax benefit	(476, 450)	(578, 280)
Income tax attributable to operating loss

Unbooked future income tax benefits

The Company has accumulated tax losses of \$5,779,276 (2005: \$4,199,996).

The potential future income tax benefit of these losses \$1,733,783 will only be realised if:

(i) the Company derives future assessable income of a nature and of an amount sufficient to enable the benefit from the losses and deductions to be released;
(ii) the Company continues to comply with the conditions for deductibility imposed by the law; and
(iii) no changes in tax legislation adversely affect the Company in realising the benefit from the deductions for the losses.

NOTE₅ DIRECTORS AND EXECUTIVES REMUNERATION AND RETIREMENT BENEFITS

The names of directors who have held office during the financial year are - $(a)$
Peter Thomas Roger Thomson George Sakalidis

$(b)$ Retirement and Superannuation Payments -

NOTE5 DIRECTORS AND EXECUTIVES REMUNERATION AND RETIREMENT BENEFITS (Continued..)

Non-executive directors - $(c)$

$(d)$ Directors fees -

The current base remuneration has been effective from 1 July 2005. The Chairman's remuneration is inclusive of fees paid whilst chairing the meetings of executives and officers while executive directors who chair a meeting receive no additional yearly fees.

$(e)$ Retirement allowances for directors -

The Company does not have a policy for the payment of retirement allowances for non-executive directors.

$(f)$ Executive pay -

The executive pay and reward framework has three components: Base pay; Incentive options; Other remuneration such as superannuation.

The combination of these comprise the executives' total remuneration.

Base Pay -

Structured as a total employment cost package which may be delivered as a mix of cash and prescribed non-financial benefits at the executive's discretion.

The executives have been offered a competitive base pay that comprises the fixed component of pay and rewards. Base pay for the senior executives are reviewed at the expiry of the term of employment to ensure the executives' pays are competitive with the market.

There are no guaranteed base pay increases fixed in the senior executives' contracts.

DIRECTORS AND EXECUTIVES REMUNERATION AND RETIREMENT BENEFITS NOTE 5 (Continued..)

The emoluments of each director and each executive officer for the financial period are as follows:

Executive and Position	Primary	Post Employment	Equity	Total
	Salary & fees	Super- annuation	Options (1)
Peter Thomas Non-Executive Chairman	\$40,000	100% of salary & salary equivalents by way of salary sacrifice	\$58,920	\$98,920
Roger Thomson Executive Managing Director	\$95,323	\$8,579	\$117,840	\$221,742
George Sakalidis Executive Director	\$143,772	\$12,939	\$117,840	\$274,551
Rudolf Tieleman - Company Secretary Resigned 16.6.2006	\$40,327			\$40,327
Mal Smartt - Company Secretary Appointed 16.6.2006
Total	\$319,422	\$21,518	\$294,600	\$635,540

Note $(1)$

Service agreements -

Remuneration and other terms of employment have been agreed with RM Thomson and G Sakalidis. Major provisions of the agreement relating to remuneration are set out as follows:

	Term of agreements	Base remuneration	Review periods	Increase
RM Thomson	3 years from 4 July 2005	\$109.69 per hour	Annually on 4 July	Discretionary by Board
G Sakalidis	3 years from 4 July 2005	\$100.92 per hour to 31.5.2006 \$109.69 per hour from 1.6.2006	Annually on 4 July

NOTE5 DIRECTORS AND EXECUTIVES REMUNERATION AND RETIREMENT BENEFITS (Continued..)

Option Holdings -

The number of options over ordinary shares in the Company held during the financial year by each director (or their personally related entities) are set out below:

Name	Balance at	Granted	Exercised	Other	Balance at	Vested
	the start of	during the	during the	changes	the end of	exercisable
	the year	vear	vear	during the	the year	at the end
				vear		of the year
Peter S Thomas	1,120,000	400,000	$\overline{\phantom{a}}$	(200,000)	1,320,000	1,320,000
Roger M Thomson	3,600,000	800,000	٠	(1.083.985)	3,316,015	3,316,051
George Sakalidis	1.619.385	800.000	٠	(169.385)	2.250.000	2.250.000

These are the only options granted, vested, exercised or sold in which any of the directors had an interest (directly or indirectly) during the year.

Shareholdings-

The number of shares in the Company held during the financial year by each director, (or respective personally-related entities), are set out below:

Name	Balance at the start	Shares movements	Balance at the end
	of the vear		of the year
Peter S Thomas	432.000	17.000	449.000
Roger M Thomson	150.000	110,000	260,000
George Sakalidis	5,887,770	192.450	6.080.220

Related Party Transactions -

Information on related party transactions are disclosed in Note 23

AUDITORS REMUNERATION NOTE 6	2006 (5)	2005 (5)
Amounts received or due and receivable by the auditors of the
Company for:
Auditing and reviewing the financial report	12.500	14,150
Other valuation services	650	1,350
	13,150	15,500

NOTE 7 EARNINGS PER SHARE	2006 (3)	2005 (5)
The following reflects the income and share data used in the calculation of basic and diluted earnings per share
Net (loss)	(1,889,046)	(4,013,679)
Adjustments: Nil
Earnings used in calculating basic and diluted earnings per share	(1,889,046)	(4,013,679)
Weighted average number of ordinary shares used in calculating basic earnings per share	59,597,684	55,885,381
Effect of dilutive securities:
Share options
Adjusted weighted average number of ordinary shares used in calculating diluted earnings per share	59,597,684	55,885,381

The Company had 20,149,393 (2005 - 19,234,858) options over fully paid ordinary shares on issue at balance date. Options are considered to be potential ordinary shares. However, they are not considered to be dilutive in nature as their exercise will not result in earnings per share being diluted. The options have not been included in the determination of diluted earnings per share.

Since the end of the financial year, the company has received funds in respect of the exercise of 13,210,893 options due to expire on 26 August 2006.

Since the end of the financial year no ordinary shares have been issued pursuant to the employee share incentive scheme.

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 financial report.

CASH ASSETS NOTE 8 Cash at bank	2006 (\$) 5,744	2005 (5) 74,871

Deposits at call	2,119,763	2,584,617
	2,125,507	2,659,488

NOTE ₉ CURRENT RECEIVABLES	2006	2005
	(\$)	(5)
Other receivables	187,421	129,530

OTHER CURRENT ASSETS NOTE 10	2006 $($ \$)	2005 (5)
Prepayments	10,570	13,956
NOTE 11 OTHER FINANCIAL ASSETS	2006 $($ 5)	2005 (5)
Non-Current
Securities in unlisted corporations	2,000
Securities in listed corporations	1,244,115	55,001
	1,246,115	55,001

Under AASB 139, available for sale financial assets are revalued to fair value at reporting date. All adjustments resulting from changes in fair value are taken directly to equity. If AASB 1039 had been applied retrospectively, financial assets reflected at cost in the comparative year would have been adjusted to fair value at 30 June 2005. This would have resulted in an increase carrying value attributable to financial assets at 30 June 2005 and a corresponding increase in reserves at that date.

NOTE ₁₂ PLANT AND EQUIPMENT	2006 $(\$)$	2005 (5)
Plant and equipment	149,869	146,324
Less: Accumulated depreciation	(103,886)	(82,145)
	45,983	64,179
Reconciliations of the carrying amounts of plant and equipment at the beginning and end of the current and previous financial years.
Plant and Equipment
Carrying amount at beginning of year	64.179	52,286
Additions	3,545	32,947
Disposals		(100)
Depreciation expense	(21,741)	(20, 954)
Total plant and equipment at end of year	45,983	64,179

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the Year Ended 30 June 2006 a sa salawan sa sa

NOTE 13 AEROMAGNETIC DATABASE	2006 (5)	2005 (5)
Aeromagnetic database - at cost	2,800,000	2,800,000
Less: Accumulated depreciation	(2,800,000)	(2,800,000)

NOTE ₁₄ MINERAL INTERESTS	2006 (5)	2005 (5)
Exploration Expenditure
Areas of interest in exploration and evaluation phases
Opening balance		1,109,324
Net Expenditure incurred during the year	1,222,027	505,374
Tenements disposed of during the year
Expenditure written off	(1,222,027)	(1,614,698)
Closing balance

NOTE 15 CURRENT PAYABLES	2006 $($ \$)	2005 (5)
Trade creditors and accruals	87,152	102,312

2006

$(5)$

2005

9,675,943

185,750

$(5)$

NOTE₁₆ ISSUED CAPITAL Contributed Equity - Ordinary Shares At the beginning of reporting period 56,543,590 (2005: 55,650,590) 9,911,943 Issue of 3,058,030 shares (2005: Nil) at \$0.33 1,009,150 Issue of 1,085,465 shares at \$0.25 (2005: 271,366

743.000) Issue of shares at \$0.335 (2005: 150,000) 50,250 Share issuance costs $(28,961)$ Closing balance: 60,687,085 (2005:-9,911,943 56,543,590) ordinary shares 11.163.498

As at 30 June 2006, the Company had on issue the following options over un-issued ordinary shares in the Company;

1,035,000 exercisable at \$0.25 per option on or before 4 [uly 2007. The options were issued pursuant to $(a)$ the Company's Employee Share Option Plan.
$(b)$ 13,264,393 exercisable at \$0.25 per option on or before 25 August 2006.
$(c)$ 1,850,000 exercisable at \$0.335 per option on or before 27 November 2008
$(d)$ 2,000,000 exercisable at \$0.39 per option on or before 26 November 2009
$(e)$ 2,000,000 exercisable at \$0.37 per option on or before 21 November 2010

During the year:

2,000,000 options were issued to the directors as approved at the Company's annual general meeting $(a)$ held on 21 November 2005.
$(b)$ 1,085,465 non-employee options were exercised at \$0.25 each.

Terms and condition of contributed equity

Ordinary shares have the right to receive dividends as declared and, in the event of winding up of 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.

On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote.

NOTE 17 CASH FLOW INFORMATION	2006 $(\mathbb{S})$	2005 (5)
Reconciliation of operating loss after income tax with funds used in operating activities
Operating loss after income tax	(1,889,046)	(4,013,679)
Depreciation and amortisation	21,741	2,074,300
Exploration expenditure written off	1,222,027	1,614,698
(Profit) / loss on sale of investments		(1,341)
Share based payments	294,600
Changes in operating assets and liabilities:
(Increase) / Decrease in receivables	(7,183)	410,425
(Increase) / Decrease in prepayments	3,386	1,506
Increase / (Decrease) in payables	(31,905)	(100, 275)
	(386,380)	14,366

NOTE₁₈ TENEMENT EXPENDITURES AND LEASING COMMITMENTS

The Company has entered into certain obligations to perform minimum exploration work on tenements held. These obligations vary from time to time in accordance with contracts signed. Tenement rentals and minimum expenditure obligations which may be varied or deferred on application, are expected to be met in the normal course of business. The minimum statutory expenditure requirements on the granted tenements for the next twelve months amounts to \$2,479,960. Of this, \$347,880 is expected to be met by JV participants as a result of various joint ventures entered into. As previously announced to the ASX, Image is planning to spin out selected tenements at Forrestania and in other areas into a new company to be called Magnetic Resources NL. If successful, this will have the effect of decreasing Image's expenditure commitments substantially.

The Company has leased office premises in West Perth. The lease expired 30 September 2005 and was renewed for a further two year term. The lease commitment for the year ended 30 June 2007 is \$30,600.

NOTE₁₉ SEGMENTS

The Company operates only in one business, being the exploration for and development of minerals. Geographically, the Company's activities are conducted mainly within Western Australia and South Australia. Exploration expenditure was incurred predominantly on Western Australia tenements as exploration activities had not yet significantly commenced on the South Australian tenements.

NOTE 20 JOINT VENTURES

The Company has interests in the following unincorporated exploration joint ventures:

Name of Project	₩	Carrying
	Interest	Amount
Mithrill JV	70		- Image is earning by sole funding
Metal Sands JV	70.		- Image is earning by sole funding

NOTE 21 SUPERANNUATION COMMITMENTS

Superannuation contributions are made to at least satisfy the statutory Superannuation Contribution Guarantee Act and in satisfaction of any salary sacrifice requests. All contributions were made to accumulation type funds selected by the employee and accordingly actuarial assessments were not required.

Mr Thomas' directors fees were contributed in their entirety, by way of salary sacrifice, to his superannuation fund.

NOTE 22 EVENTS SUBSEQUENT TO REPORTING DATE

Since the end of the financial year, the Company has received funds of \$3,302,723 in respect of the exercise of 13,210,893 options which were due to expire 26 August 2006.

No other material matters have occurred subsequent to the end of the financial year which require reporting on other than the matters referred to in the directors' report or as reported to ASX.

NOTE 23 RELATED PARTY TRANSACTIONS

Other transactions with directors and director related entities $(a)$

Peter S Thomas provided legal services to the Company during the financial period on terms and conditions which were more favourable to the Company than Thomas otherwise provides to clients generally. He was paid \$6,676 (Net of GST) for legal services not connected with the management of the Company.

Total amounts owing to directors or their associated entities at 30 June 2006 was \$5,654 (2005: \$17,897).

$(b)$ Meteoric Resources NL was an associated entity as at balance date.

Image subscribed for one share in Meteoric Resources NL on incorporation of that company. That one share was sub-divided into 4,200,000 ordinary shares and upon the successful listing of Meteoric on the ASX, was subject to escrowed holding restrictions until 16 July 2006.

Image entered into an Administration Services Agreement with Meteoric whereby Image agreed to provide various administrative services for a two year period at \$5,400 per month commencing 1 July 2004. This agreement has expired but continues to be honoured on a monthly basis at the same monthly payment until such time as a new agreement is entered into.

Image also entered into a Joint Venture Agreement (Agreement) with Meteoric whereby Image agreed to farm out various interests in various of its tenements. Meteoric exercised its option to acquire 100% of Image's interests in those tenements an is therefore obligated under the Agreement to pay Image a royalty of 1% on production from those tenements.

NOTE₂₄ CONTINGENT LIABILITIES

Native Title

The Company has been notified of a number of native title claims impacting its tenements.

The Company is not in a position to assess the likely effect of any native title claim impacting the Company.

The existence of native title and the policy of the West Australian state government in particular represent, as a general proposition, a serious threat to explorers and miners, not only in terms of delaying the grant of tenements and the progression of exploration development and mining operations, but also in terms of costs arising consequent upon dealing with aboriginal interest groups, claims for native title and the like.

The Company has lodged a guarantee for \$12,000 in respect of tenement rehabilitation commitments with the Department of Industry and Resources which is supported by a specific bank deposit.

NOTE 25 FINANCIAL INSTRUMENTS DISCLOSURE

(a) Interest Rate Risk

The Company's exposure to interest rate risk, which is the risk that a financial instruments value will fluctuate as a result of changes in market rates and the effective weighted average interest rates on classes of financial assets and liability, is as follows:

2006	Floating Interest Rate	Non Interest Bearing	Total
Financial Assets
Cash Assets	2,119,763	5,744	2,125,507
Other Receivables		187,421	187,421
Held for sale investments	1,246,115		1,246,115
Total Financial Assets	3,365,878	193,165	3,559,043
Weighted Average Interest Rate	5.81%
Financial Liabilities
Payables		87,151	87,151

2005	Floating Interest Rate	Non Interest Bearing	Total
Financial Assets
Cash Assets	2,658,928	560	2,659,488
Other Receivables		129,530	129,530
Held for sale investments	55,001		55,001
Total Financial Assets	2,713,929	130,090	2,844,019
Weighted Average Interest Rate	5.62%
Financial Liabilities

(b) Credit Risk

The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognised financial assets is the carrying amount, net of any provisions for doubtful debts, as disclosed in the Balance Sheet and notes to the financial statements.

The Company does not have any material credit risk exposure to any single debtor or group of debtors under financial instruments entered into by the Company.

(c) Net Fair Values

For assets and liabilities, the net fair value approximates their carrying value except for other financial assets as disclosed in Note 11.

No financial assets and financial liabilities are readily traded on organised markets in standardised form other than listed investments.

DIRECTORS' DECLARATION

The directors of the Company declare that:

the financial statements and notes as set out on pages 25 to 51 are in accordance with the Corporations 1. Act 2001 and:
(a) comply with Accounting Standards and the Corporations Act 2001; and
(b) give a true and fair view of the financial position as at 30 June 2006 and performance for the year ended on that date of the Company.
the Chief Executive Officer has declared that: $2.$
(a) the financial records of the Company for the financial year have been properly maintained in accordance with section 286 of the Corporations Act 2001;
(b) the financial statements and the notes for the financial year comply with Accounting Standards; and
(c) the financial statements and notes for the financial year give a true and fair view;
in the directors' opinion, there are reasonable grounds to believe that the Company will be able to pay 3. its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of the Board of Directors:

George Sakalidis DIRECTOR

PERTH Dated this 29th day of September 2006.

Scope

The financial report and directors' responsibility

The financial report comprises the income statement, balance sheet, statement of changes in equity, statement of cash flows, accompanying notes to the financial statements, and the directors' declaration for Image Resources NL ("the Company") for the year ended 30 June 2006 as set out on pages 25 to 52.

The directors of the Company are responsible for the preparation and true and fair presentation of the financial report in accordance with Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial report.

Audit approach

We conducted an independent audit of the financial report in order to express an opinion on it to the members of the Company. Our audit was conducted in accordance with Australian Auditing Standards in order to provide reasonable assurance as to whether the financial report is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgement, selective testing, the inherent limitations of internal control, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected.

We performed procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001, including compliance with Accounting Standards in Australia, and other mandatory financial reporting requirements in Australia, a view which is consistent with our understanding of the Company's financial position, and of its performance as represented by the results of its operations and cash flows.

We formed our audit opinion on the basis of these procedures, which included:

examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the financial report, and
assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant accounting estimates made by the directors.

While we considered the effectiveness of management's internal controls over financial reporting when determining the nature and extent of our procedures, our audit was not designed to provide assurance on internal controls.

We performed procedures to assess whether the substance of business transactions was accurately reflected in the financial report. These and our other procedures did not include consideration or judgment of the appropriateness or reasonableness of the business plans or strategies adopted by the directors and management of the Company.

Independence

We are independent of the Company, and have met the independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001.

Audit opinion

In our opinion, the financial report of Image Resources NL is in accordance with:

$(a)$ the Corporations Act 2001, including:
giving a true and fair view of the financial position of Image Resources NL at 30 June 2006 and of its $(i)$ performance for the year ended on that date; and
$(ii)$ complying with Accounting Standards in Australia and the Corporations Regulations 2001; and
$(b)$ other mandatory financial reporting requirements in Australia.

Somes & Cooke
	Chartered Accountants

K. C. Somes - Partner Perth, Date: 29 September 2006

Tenement	Nature of Interest	. Project	Equity $(\%)$
E15/0882	Granted	Boorabbin	100%
E15/0883	Granted	Woolgangie South	100%
E15/0884	Granted	Yilmia 1	100%
E15/0885	Granted	Victoria Rocks	100%
E15/0886	Granted	Burra Rock	100%
E15/0887	Granted	Banks Rock	100%
E15/0888	Granted	Cave Hill West	100%
E15/0889	Granted	Cave Hill	100%
E15/0890	Granted	Yilmia 2	100%
E16/0320	Granted	Mt Walton	100%
E27/0084	Granted	Emu Lake	30%
E27/0168	Granted	Emu Lake	30%
E28/1377	Granted	Bronco Plains	100%
E28/1400	Granted	Talc Lake	100%
E28/1496	Granted	Junction Lake East	100%
E28/1510	Granted	Besty Bore	100%
E28/1569	Application	Bronco Plains	100%
E28/1656	Application	Ponton	100%
E29/0547	Granted	Top Well	100%
E30/0287	Granted	Ward Springs	90%
E30/0310	Granted	Gnamma Hole	100%
E31/0680	Granted	Binti Bore	100%
E37/0745	Granted	Scorpion Well	100%
E37/0787	Granted	Lookout Well	100%
E38/1130	Granted	Adam Range	100%
E38/1585	Granted	Adam Range	100%
E38/1871	Application	Adam Range	100%
E39/1020	Granted	Mt Remarkable	100%
E39/1058	Granted	Windarra	100%
E39/1059	Granted	Mt Remarkable	100%
E45/2447	Granted	Warrawoona	100%
E45/2555	Granted	Glenherring	90%
E46/0409	Granted	Mt Hays	100%
E46/0504	Granted	Mt Hays	100%
E46/0677	Granted	Mt Hays	100%
E46/0709	Application	Mt Hays	100%
E63/0628	Granted	Lake Percy South	100%
E63/0940	Application	Sandalwood 1	100%
E63/0974	Granted	Lackman Rock	100%
E63/0976	Granted	Norseman Road	100% 100%
E63/0977 E63/0978	Granted Granted	Taylor Rock Sunday Soak	100%
E63/0979	Granted	Lale Tadpole	100%
E63/0981	Granted	Lake Tay 1	100%
E63/0984	Granted	Spear Rock	100%
E63/0985	Granted	Lake Tay 2	100%
E63/0991	Granted	Sandalwood 6	100%
E63/0992	Granted	26 Mile Rock	100%
E63/0993	Granted	Boydells	100%
E69/2033	Application	Serpentine Lakes	100%

Tenement	Nature of Interest	Project	Equity (%)
E69/2034	Application	Serpentine Lakes	100%
E69/2035	Application	Serpentine Lakes	100%
E69/2036	Application	Forrest Lakes	100%
E69/2037	Application	Forrest Lakes	100%
E69/2038	Application	Forrest Lakes	100%
E69/2039	Application	Forrest Lakes	100%
E70/2366	Granted	Eclipse Lake	100%
E70/2620	Granted	Flying Fox Extended 2	100%
E70/2636	Granted	Metals Sands JV	100%
E70/2700	Application	Fitzgerald 3	100%
E70/2701	Application	Fitzgerald 1	100%
E70/2702	Application	Fitzgerald 2	100%
E70/2703	Application	Hyden South 1	100%
E70/2710	Granted	Hyden South 2	100%
E70/2711	Granted	Hyden South 3	100%
E70/2712	Granted	Hyden South 4	100%
E70/2790	Granted	Koonadgin	100%
E70/2791	Granted	Scrivener Rocks	100%
E70/2792	Granted	Nungarin	100%
E70/2793	Granted	Gibb Rock	100%
E70/2794	Granted	Scrivener Rocks	100%
E70/2806	Granted	Waderin 1	100%
E70/2807	Granted	Waderin 2	100%
E70/2808	Granted	Waderin 3	100%
E70/2809	Granted	Hines Hill	100%
E70/2810	Granted	Lake Brown	100%
E70/2812	Application	Hines Hill	100%
E70/2825	Granted	Lake Spade	100%
E70/2827	Application	Lake Pingarnup	100%
E70/2828	Application	Rock Dam Hill	100%
E70/2829	Granted	Fitzgerald	100%
E70/2844	Application	Bidaminna North	100%
E70/2845	Application	Bidaminna North	100%
E70/2847	Granted	Durokoppin	100%
E70/2849	Application	Dumbleyung	100%
E70/2850	Application	Marne	100%
E70/2888	Application	Marne	100%
E70/2892	Application	Cadda Spring	100%
E70/2898	Application	Metal Sands JV	100%
E70/2926	Granted	Chitterberrin	100%
E70/3032	Application	Lake Muckenburra	100%
E70/3033	Application	McKinley	100%
E70/3046	Application	Miling	100%
E70/3050	Application	Kwangan Plains	100%
E70/3051	Application	Kwangan Plains	100%
E74/0316	Granted	Dordie	100%
E74/0331	Granted	Dourdi ₂	100%
E74/0344	Granted	Dourdi 3	100%
E74/0347	Granted	Three Star Lake 1	100%
E74/0348	Application	Peak Charles	100%

Tenement	Nature of Interest	Project	Equity (%)
E74/0349	Application	Lake Sharpe	100%
E74/0358	Application	Lake Mends	100%
E74/0359	Granted	Lake Pyramid	100%
E74/0360	Granted	Neds Corner	100%
E74/0361	Granted	Three Star Lake 2	100%
E74/0362	Granted	Yerritup	100%
E77/1144	Granted	Woongaring	100%
E77/1172	Granted	Woongaring	100%
E77/1179	Granted	Woongaring	100%
E77/1192	Granted	Bounty South	100%
E77/1193	Granted	Flying Fox Extended 1	100%
E77/1212	Application	Koolyanobbibg	100%
E77/1222	Granted	Woongaring	100%
E77/1239	Application	Hyden North 1	100%
E77/1240	Application	Hyden North 2	100%
E77/1241	Application	Hyden North 5	100%
E77/1242	Application	Hyden North 3	100%
E77/1243	Application	Hyden North 4	100%
E77/1260	Application	Woongaring	100%
E77/1261	Application	Woongaring	100%
E77/1266	Application	Woongaring	100%
E77/1284	Application	Moorine Rocks	100%
E77/1285	Application	Joes Joint	100%
E77/1286	Application	No.7 Tank	100%
E77/1287	Application	Dulagin Rock	100%
E77/1288	Application	Boodarding	100%
E77/1291	Application	Lake Eva	100%
E77/1292	Application	Lake Seabrook	100%
M27/0408	Application	Emu Lake	100%
M27/0409	Application	Emu Lake	100%
M27/0410	Application	Emu Lake	100%
M27/0457	Application	Emu Lake	100%
M27/0458	Application	Emu Lake	100%
M27/0459	Application	Emu Lake	100%
M27/0460	Application	Emu Lake	100%
M27/0461	Application	Emu Lake	100%
M27/0462	Application	Emu Lake	100%
M27/0463	Application	Emu Lake Emu Lake	100% 100%
M27/0464 M38/1138	Application		100%
M38/1139	Application Application	Adam Range Adam Range	100%
M46/0258	Application	Mt Elsie 2	100%
M46/0364	Application	Mt Hays	100%
P29/1799	Granted	Top Well	100%
P38/3166	Granted	Adam Range	100%
P39/4323	Granted	Perseverance Well	100%
P45/2504	Granted	Warrawoona	100%
P46/1376	Granted	Mt Hays	100%
P70/1490	Granted	Bidaminna	100%
P77/3498	Application	Flying Fox	100%

Market and State Tenement	Nature of Interest	Project	. Equity $(\%)$
P77/3589	Application	Jilbadgie	100%
P77/3590	Application	Jilbadgie	100%
P77/3591	Application	Jilbadgie	100%
P77/3592	Application	Jilbadgie	100%
SA 2004/265	Application	Mithrill JV	100%
SA 2004/921	Application	Oolden Range	100%

OTHER INFORMATION

The following information was applicable as at 27 September 2006.

Share and Option holding

Category (Size of Holding)	Fully Paid Ordinary Shares	Options 27 November 2008	Options 26 November 2009	Options 21 November 2010	Employee Options 4 July 2007
1 to 1,000	39
1,001 to 5,000	285
5,001 to 10,000	284
10,001 to 100,000	431
100,001 and over	95	3	3	3	3.
Total	1,134	3	3	3	3

The number of shareholdings held in less than marketable parcels is 7. There are no listed options.

The names of the substantial shareholders listed in the Company's register as at 27 September 2006:

	Number	$\%$
Shareholder Name
Frederick D L Ribton	7,113,112	9.63
Brispot Nominees Pty Ltd	5,299,332	7.18
Invia Custodian Pty Ltd	5,093,338	6.90
George Sakalidis	4.986.820	6.75
Barrington Dance	4.872,628	6.60

Twenty largest fully paid shareholders:

		Number of	% of Issued
	Shareholder Name	Shares	Share Capital
1.	Frederick D L Ribton	7,113,112	9.63
2.	Brispot Nominees Pty Ltd	5,299,332	7.18
3.	Invia Custodian Pty Ltd	5,093,338	6.90
4.	George Sakalidis	4,986,820	6.75
5.	Barrington Dance	4,872,628	6.60
6.	Cairnglen Investments Pty Ltd	1,883,992	2.55
7.	Auto Management Pty Ltd	1,311,924	1.78
8.	Gilpin Park Pty Ltd	1,233,338	1.67
9.	Bond St Custodians Ltd (MBOWDE I43750)	1,171,975	1.59
10.	Bond St Custodians Ltd (TO0080)	1,167,000	1.58
11.	Roger Michael Thomson	1,066,015	1.44
12.	ANZ Nominees Pty Ltd	993,000	1.34
13.	Bond St Custodians Ltd (MBOWDE V12072)	904,000	1.22
14.	Jove Management Pty Ltd	772,629	1.05
15.	Fobira Pty Ltd	659,968	0.89
16.	Westpac Custodian Nominees Pty Ltd	520,980	0.71
17.	Lowline Holdings Pty Ltd	500,000	0.68
18.	Ribton Super Fund	450,000	0.61
19.	HSBC Custody Nominees Pty Ltd	449,000	0.61
20.	VC and JE Wheatley (A/c Super Fund)	434,710	0.59
	Total	40,883,761	55.37

OTHER INFORMATION

Twenty largest option-holders - Unquoted Options:

	Optionholder Name	Number of Options Expiring 27.11.2008	Number of Options Expiring 26.11.2009	Number οf Options Expiring 21.11.2010	$\frac{0}{0}$ Held
I.	Roger M Thomson	800.000	800,000	800,000	41.03
2.	George Sakalidis	650.000	800,000	800,000	38.46
3.	PS Thomas and SA Goodwin (Trustee)		400.000	400,000	13.68
4.	Peter S Thomas	400,000			6.83
	Total	1,850,000	2,000,000	2,000,000	100.00

All Employee option-holders (being less than 20 holders)

Unquoted Employee Options expiring 4 July 2007:

	Optionholder Name	Number of Options	$%$ Held
1.	TPT Nominees Pty Ltd	600.000	57.97
2.	Barrington Dance	300.000	28.99
3.	Alex Romanoff	135,000	13.04
	Total	1.035.000	100.00

There is a total of 73,897,978 (2005: 59,701,620) fully paid ordinary shares on issue, all (2005: All) of which are listed on Australian Stock Exchange Limited (ASX).

Voting Rights

The voting rights attaching to ordinary shares are governed by the Constitution. On a show of hands every person present who is a Member or representative of a member shall have one vote and on a poll, every member present in person or by proxy or by attorney or duly authorised representative shall have one vote for each share held. None of the options have any voting rights.

AI assistant

IMAGE RESOURCES NL — Annual Report 2006

65117_rns_2006-10-01_4453ca02-eb9e-427d-9f5d-5b45c99dba22.pdf

IMAGE RESOURCES NL

ANNUAL REPORT

FINANCIAL YEAR 2005 - 2006

CONTENTS EXECUTIVE

CORPORATE DIRECTORY

DIRECTORS

REGISTERED OFFICE

FOR SHAREHOLDER INFORMATION CONTACT

FOR INFORMATION ON THE COMPANY CONTACT

PRINCIPAL & REGISTERED OFFICE

PROJECTS SUMMARY

Cooljarloo (Image earning 70%)

Bidaminna (Image 100%)

Barton (Image earning up to 70% of HM)

Eucla Basin (Image 100%)

Emu Lake (Image 30%)

Bronco Plains (Image 100% diluting)

Binti Bore (Image 100%)

Trojan JV (Image 100%, diluting)

Lake Percy (Image $100\%$ )

Uranium Prospects (Image 100%)

Magnetic JV (Image 100%, diluting)

DIRECTORS' REPORT

DIRECTORS

PRINCIPAL ACTIVITIES

RESULTS FROM OPERATIONS

DIVIDENDS

REVIEW OF OPERATIONS

EARNINGS PER SHARE

SIGNIFICANT CHANGES IN STATE OF AFFAIRS

MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL PERIOD

LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS

ENVIRONMENTAL ISSUES

INFORMATION ON DIRECTORS AND COMPANY SECRETARIES

Peter Thomas

Chairman

Roger Thomson

Managing Director

George Sakalidis

Malcolm K Smartt

Rudolf Tieleman

AUDIT COMMITTEE

NON AUDIT SERVICES

MEETINGS OF DIRECTORS

DIRECTORS AND EXECUTIVES REMUNERATION REPORT

$(a)$ The names of directors who have held office during the financial year are -

$(b)$ Retirement and Superannuation Payments

$(c)$ Non-executive director

$(d)$ Director's fee

Retirement allowances for director $(e)$

$(f)$ Executive pay

Base Pay

Service agreements -

DIRECTORS' REPORT

EMPLOYEES

CORPORATE STRUCTURE

INDEMNIFICATION & INSURANCE OF DIRECTORS AND OFFICERS

OPTIONS

Unlisted:

During the year:

Signed in accordance with a resolution of the directors

DIRECTORS' REPORT

Auditor's Independence Declaration to the Directors of Image Resources NL

GOOD GOVERNANCE AND PRACTICE RULES

CORPORATE GOVERNANCE STATEMENT

General:

Board Composition:

The Board and Board Nominations:

Securities Trading Policy:

Directors' Remuneration and Policies:

External auditors:

Audit committee:

Managing risks:

Commitment to stakeholders & ethical standards:

Monitoring of the Board's Performance and Communication to Shareholders:

INCOME STATEMENT For the Year Ended 30 June 2006

BALANCE SHEET As at 30 June 2006

IMAGE RESOURCES NL Annual Report 2006

NOTE₁ STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

NOTE₁ SUMMARY OF ACCOUNTING POLICIES (Continued)

NOTE₁ SUMMARY OF ACCOUNTING POLICIES (Continued)

NOTE₁ SUMMARY OF ACCOUNTING POLICIES (Continued)

NOTE₁ SUMMARY OF ACCOUNTING POLICIES (Continued)

NOTE₅ DIRECTORS AND EXECUTIVES REMUNERATION AND RETIREMENT BENEFITS

NOTE₁₆ ISSUED CAPITAL Contributed Equity - Ordinary Shares At the beginning of reporting period 56,543,590 (2005: 55,650,590) 9,911,943 Issue of 3,058,030 shares (2005: Nil) at \$0.33 1,009,150 Issue of 1,085,465 shares at \$0.25 (2005: 271,366

NOTE₁₈ TENEMENT EXPENDITURES AND LEASING COMMITMENTS

NOTE₁₉ SEGMENTS

NOTE₂₄ CONTINGENT LIABILITIES