Immuron Ltd — Annual Report 2010

Aug 30, 2010

Contents	Page
Company Particulars	2
Directors' and Remuneration Reports	3
Auditor's Independence Declaration	14
Corporate Governance Statement	15
Finance report
Statement of Comprehensive Income	19
Balance Sheet	20
Statement of Changes in Equity	21
Statement of Cash flows	22
Notes to the Financial Statements	23
Directors' Declaration	52
Independent Audit Report to the Members	53
Additional ASX Information	55

This financial report covers Immuron Limited as an individual entity.

The financial report is presented in Australian currency.

Immuron Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is:

Immuron Limited, Level 1, 39 Leveson Street North Melbourne Victoria 3051

A description of the nature of the entity's operations and its principal activities is set out in the Directors' Report on page 3.

The financial report was authorised for issue by the Directors on 30 August 2010.

The Company has the power to amend and reissue the financial report.

Immuron Limited Company Particulars

Directors Chairman	Professor Colin Chapman
Non Executive Directors	Professor Roy Robins – Browne
	Mr Simon Sallka
	Dr Elane Zelcer
Secretary	Mr Graeme Stevens
Principal registered office in	Level 1, 39 Leveson Street
Australia	North Melbourne VIC 3051
	Telephone: (61) 3 9018 4880 Facsimile: (61) 3 9018 4881 www.immuron.com.
Country of incorporation	Australia
Share register	Computershare Registry Services Pty Ltd 452 Johnston Street Abbotsford VIC 3067 Telephone: 1300 850 505
Auditor	PricewaterhouseCoopers Freshwater Place 2 Southbank Boulevard Southbank VIC 3006
Solicitors	Lander & Rogers Lawyers Level 12, 600 Bourke Street Melbourne VIC 3000
	Middletons Level 25 South Tower 525 Collins Street Melbourne VIC 3000
Bankers	Australia and New Zealand Banking Group Limited 222 Exhibition Street Melbourne VIC 3000
Investor Relations	Talk Biotech Pty Ltd 43 South Street Robertson NSW 2577
Stock Exchange Listings	Immuron Limited shares are listed on the Australian Stock Exchange ASX Code: IMC

Your directors present their report on Immuron Limited for the year ended 30 June 2010.

Directors

The names and details of the Directors of the Company in office during the financial year and until the date of this report are:

Professor Colin Chapman
Arie Nudel	Resigned 23 March 2010.
Professor Roy Robins-Browne
Simon Sallka
Dr Elane Zelcer	Appointed 19 November 2009.
Dr Zeil Rosenberg	Resigned 17 July 2009.

Principal activities

Immuron Limited is a research and product development driven biopharmaceutical Company focused on the research and development of polyclonal antibodies for the treatment and prevention of major diseases.

Operating results and dividends

The operating loss attributable to members of Immuron Limited for the year ended 30 June 2010 was \$1,902,425 (2009: \$2,317,814).

No dividends were paid or declared during the period.

Review of operations and results

Following the adoption of a new strategic outlook early in the 2010 financial year, there has been a significant transformation of the Company's direction and the level and nature of its research and development activities. Central to this change was the development of the relationship with Hadasit Medical Research Services & Development Limited (Hadasit) and access to the research facilities at the Hadassah Medical Center (Hadassah).

This relationship provides the opportunity for the Company's research to be conducted in an FDA compliant facility and gave access to previous research work that had been conducted on the science associated with metabolic syndrome and other diseases.

This relationship was further strengthened through the acquisition of intellectual property associated with Hadasit and Hadasit taking an initial 19.9% interest in Immuron Limited, and the appointment of Professor Yaron Ilan as the medical director of the Company. Professor Ilan is one of the senior medical directors at Hadassah.

As part of the change in strategic direction, the management of the Company was transferred from the USA back to Australia with the appointment of Dr Grant Rawlin as the Chief Executive Officer. That change had the effect of reducing the cost of personnel and the associated costs by approximately \$915,000 and focusing the Company on its strategic direction.

A significant portion of the savings was transferred into R&D expenditures on new projects, with the net of grant monies expenditure increasing by \$467,000 to \$1,343,000. Of this amount, the R&D work conducted in Israel at Hadassah amounted to \$551,000. The major portion of that work represented preclinical studies associated with influenza, diabetes, hepatic cancer and NASH (fatty liver).

Coinciding with the increases in R&D activity, the Company has significantly enhanced its portfolio of patents, with the costs associated with lodging new patent applications and maintaining its existing portfolio totalling \$287,000 for the year, an increase of \$89,000 over the preceding year.

The Company also obtained the benefit of a taxation rebate of \$263,732 in respect of its 2009 R&D expenditure. As part of the new strategy to focus on its R&D capability, the Company entered into an agreement with Nycomed Australia for the distribution of the Travelan product in Australia and New Zealand. Nycomed commenced distribution in February 2010 and there is a clear indication that Nycomed will gain a significant penetration into the market which would not have been achieved by the Company.

Revenues and other income from continuing operations, decreased by \$310, 412, when compared with the 2009 year. This reduction was essentially a decrease in grant income of \$257,559, due to the finalisation of the agreements with the Commonwealth Department of Innovation, Industry, Science and Research, and the Victoria-Israel Science and Technology Research and Development Fund.

The revenues for hyperimmune products were lower this year due to sales to Alaven Consumer Healthcare being lower than the previous year. This position arose due to Alaven needing to develop its regulatory procedures for the US market and sales are expected to recommence with Alaven in the 2011 year.

Significant changes in the state of affairs

The significant change in the state of affairs of the Company during the year was the net increase in contributed equity amounting to \$5,505,193, together with the acquisition of intellectual property from Hadasit which was satisfied by the issue of fully paid shares. A summary of that increase is as follows:

		\$
•	Shares issued for cash	3,992,441
•	Shares issued to Hadasit for acquisition of intellectual property	1,460,587
•	Other shares issued to employees, Directors in lieu of fees, and sundry issues	52,165

Details of the changes in contributed equity are disclosed in note 20 to the financial statements.

Matters subsequent to the end of the financial year

Since 30 June 2010 the Company has successfully completed capital raisings through the issue of 3,366,218 fully paid ordinary shares with the proceeds net of issue expenses amounting to \$207,864.

Likely developments and expected results of operations

The Company's priority in the coming year is to actively pursue the projects that have indicated positive results from the initial clinical trials, either through:

• Undertaking further clinical trials.
• Seeking the involvement of pharmaceutical companies in these trials, or
• Seeking licensing arrangements for the commercialisation of the product.

Environmental regulation

Immuron Limited is not subject to any significant environmental regulations with its present operations.

Information on Directors

Professor Colin Chapman B Pharm B VSc (Hons) PhD FPS. Age 62

Appointed an Independent Director - 18 June 2009.

Appointed Chairman - 17 December 2008.

Experience and expertise

Professor Chapman is a former Dean of the Faculty of Pharmacy and Pharmaceutical Sciences at Monash University (1991-2006) and is now Professorial Fellow at the Australian Health Workforce Institute, University of Melbourne. Professor Chapman's current research interests centre on drug development, immunology, dermatology and veterinary pharmacology. His PhD was obtained following research centred on immunology at the Walter and Eliza Institute in Melbourne and he has maintained a keen professional interest and involvement in all aspects of immunology ever since. During his period as Dean of the Faculty of Pharmacy he played key roles in the commercialisation of a drug to prevent/treat influenza, Relenza®, and in the establishment of Acrux, a company formed to commercialise transdermal drug delivery techniques developed in the Faculty of Pharmacy.

Other current directorships None

Former directorships in last 3 years None

Special responsibilities Member of the Hadasit Steering Committee

Interests in shares and options

1,148,823 ordinary shares in Immuron Limited – direct interest.

Professor Roy Robins-Browne MB, BCh, PhD, FRCPA, FRCPath, FASM. Age 63

Independent non-executive director

Experience and expertise

Non-executive director for 12 years.

Professor Robins-Browne is Professor of Microbiology & Immunology at University of Melbourne. He is also Head of Microbiological Research, Murdoch Children's Research Institute.

Other current directorships None

Former directorships in last 3 years None

Interests in shares and options

75,000 ordinary shares in Immuron Limited – direct interest 63,395 ordinary shares in the name of Anadis ESP Pty Ltd, as trustee for Professor Robins-Browne 262,640 Ordinary shares in Immuron Limited – indirect interest

Simon Sallka B.Bus (Econ.) Dip.SIA Dip. BA ISFA Age 48

Independent non-executive Director.

Experience and expertise

Mr Sallka brings to the Board over 25 years experience in investment management and investment analysis. Mr Sallka has worked for extended periods in the international investment markets of Japan, USA and Asia including leading hedge funds. Mr Sallka is currently the Chief Investment Officer of Falcon Capital Pty Ltd.

Other current directorships None

Former directorships in last 3 years None

Interests in shares and options

443,069 ordinary shares in Immuron Limited – direct interest 1,001,142 ordinary shares in Immuron Limited – indirect interest

Dr. Elane Zelcer BSc (Hons), PhD, Grad Dip Mktg, FAICD Age 60

Independent non- executive Director Appointed 19 November 2009

Experience and expertise

Dr Zelcer has considerable experience in the Biotechnology sector, including CEO positions with biotech companies and the commercialisation company at Monash University, and as an independent director with the Dairy CRC. Dr Zelcer is currently the Executive Director of BioConsult Pty Ltd which focuses on assisting early stage companies to develop their intellectual property through strategic partnering, capital raising and collaboration. Dr Zelcer is also the CEO for Hadassah Australia. Dr Zelcer also Chaired the Victorian State Government's Bioeconomy Working Group; part of the State Government's Biotechnology Strategy.

Other current directorships None

Former directorships in last 3 years None

Interests in shares and options 66,591 ordinary shares in Immuron Limited – direct interest

Arie Nudel, B.Comm, B.Sc. Age 34

Non-executive Director Resigned 23 March 2010.

Experience and expertise

Non-executive director for 4 years.

Mr Nudel conducts a private consulting business. His career includes roles as a Network Engineer, Systems Analyst and Dealer for a Funds Management organisation. Mr Nudel consults for Immuron Limited as well as a number of other private companies.

Former directorships in last 3 years

None

Interests in shares and options as at date of resignation

445,004 ordinary shares in Immuron Limited - direct interest 6,077,808 ordinary shares in Immuron Limited - indirect interest 63,395 ordinary shares in the name of Anadis ESP Pty Ltd, as trustee for Mr Nudel.

Graeme Stevens

Company Secretary

Mr. Stevens is a qualified Chartered Accountant and was appointed in November 2007 and acts as Chief Financial Officer as well as Company Secretary. Before joining Immuron Limited he held a similar position in another listed public company for 4 years.

Meetings of directors

The number of Directors meetings held during the year and the number of meetings attended by each Director were as follows:

			Directors Meetings
Non executive Directors		a	b
Professor Colin Chapman		13	12
Arie Nudel	( resigned 23 March 2010)	12	11
Professor Roy Robins-Browne		13	12
Simon Sallka		13	13
Dr Elane Zelcer	(appointed 19 November 2009)	5	4

a = Number of meetings held during the time the director held office during the year.

b = Number of meetings attended.

Remuneration report

The remuneration report is set out under the following main headings:

• A Principles used to determine the nature and amount of remuneration
• B Details of remuneration
• C Service agreements
• D Share-based compensation
• E Additional information

The information provided in this remuneration report has been audited as required by section 308(3C) of the Corporations Act 2001.

A. Principles used to determine the nature and amount of remuneration

Immuron is a research and development company specialising in products derived from bovine colostrum. As such, its funding mainly comes from capital raisings, sale of products commercialised from its research activities, and the receipt of government research and development grants.

Immuron is listed on the Australian Stock Exchange. It currently incurs losses as its research expenditure exceeds the cash inflow obtained from revenues.

The Board of Directors is responsible for determining and reviewing compensation arrangements for the Directors, the Chief Executive Officer and the executive team. The Board assess the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from retention of a high quality Board and executive team.

The framework provides a mix of fixed and variable pay and long-term incentives.

Non-executive Directors

Fees and payments to non-executive Directors reflect the demands which are made on, and the responsibilities of, the Directors. Non-executive Directors' fees and payments are reviewed annually by the Board. The Chairman's fee is determined independently to the fees of non-executive Directors and is based on comparative roles in the external market. Following approval by the members at the 2008 Annual General Meeting the Directors have the option to take up to 50% of their fees in shares in the Company. Directors are also eligible to receive share options when approved by shareholders.

Directors' fees

The current base remuneration was last reviewed with effect from 1 July 2005. The Chairman's remuneration is inclusive of committee fees while additional fees are also paid to non-executive Directors for their membership of Board committees. Bonuses are not paid.

Non-executive Directors fees are determined within an aggregate Directors' fee pool limit, which is periodically recommended for approval by shareholders. The pool, which was last varied by shareholders on 8 November 2005, stands at \$350,000 for cash remuneration.

The following fees have been applied following approval by the Board for the financial year ended 30 June 2010:

	\$
Base fee
Chairman	60,000
Other non-executive Directors	37,500
Additional fees
Committees - Member	5,000

Retirement allowances for Directors

Non-executive Directors' retirement payments are limited to compulsory employer superannuation.

Executive pay

The executive pay and reward framework has three components:

• Base pay and benefits, and
• Long term incentives are currently limited to participation in the Immuron Limited Executive Officer Share Plan (Refer Section D (i) (b)), and
• Other remuneration such as incentive bonuses and superannuation.

The combination of these comprises the executive's total remuneration. The Chief Executive Officer is the only executive with short term incentive (STI) arrangements as part of his total remuneration. Bonuses to other executives are payable at the discretion of the Board acting on the advice of the Chief Executive Officer.

Base pay

Executives are given the opportunity to receive the base emolument in a variety of forms including cash and benefits. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the Company.

The base pay is set to reflect the market for a comparable role and is reviewed annually to ensure the executive's pay is competitive with the market.

There is no guaranteed base pay increases included in any senior executives' contracts.

Benefits

Executives receive benefits including motor vehicle allowances and expense payment plans.

Retirement benefits

Retirement benefits are delivered by payments to an executive's approved superannuation fund.

Executive Officer Share Plan

Information on this Plan is set out on note 28 of the financial report.

Incentive Bonus.

The Chief Executive Officer (CEO) is eligible to receive a short term incentive (STI) bonus up to a maximum of 30% of his base pay if he achieves certain performance indicators as set annually by the Board. The STI can be paid, at the option of the CEO, either by cash or a combination of cash and the issue of equity in the Company.

B. Details of remuneration

Amounts of remuneration

Details of the remuneration of the Directors and the key management personnel (as defined in AASB 124 Related Party Disclosures) of the Company are set out in the following table.

The key management personnel of the Company includes the Directors as per pages 4 to 6 above, and the following executive officers who have authority and responsibility for planning, directing and controlling the activities of the Company, and are also the highest paid executives of the Company.

Dr. Grant Rawlin – Chief Executive Officer

Graeme Stevens – Company Secretary and Chief Financial Officer

			Post
		Short term employee benefits	employment benefits	Long term benefits	Share based payments
2010	Cash salary and fees \$	Non monetary benefits \$	Superannuation \$	Long service leave \$	Shares \$	Total \$
Non –executive Directors
Prof. Colin Chapman Prof. Roy Robins -Browne	43,500 37,500	- -	12,900 3,375	- -	9,000 -	65,400 40,875
Simon Sallka Dr Elane Zelcer (1) Arie Nudel (2)	37,500 17,187 28,125	- - -	3,375 1,969 2,531	- - -	- 4,688 -	40,875 23,844 30,656
Total Non –executive Directors	163,812	-	16,650	-	13,688	201,650
Other key management Personnel
Dr Grant Rawlin Graeme Stevens (3)	250,986 146,040	- -	21,389 -	6,328 -	17,784 17,784	296,487 163,824
Total key management personnel compensation	397,026	-	21,389	6,328	35,568	460,311

• 1. Dr Elane Zelcer appointed a Director on 19 November 2009.
• 1. Mr Aril Nudel resigned as a Director on 23 March 2010.
• 1. The services of Graeme Stevens are provided through a direct contract and a services contract with Flexpertise Pty Ltd, an executive contracting company not related to Mr Stevens.

				Post
			Short term employee benefits	employment benefits	Long term benefits	Share based payments
2009		Cash salary and fees \$	Non monetary benefits \$	Superannuation \$	Long service leave \$	Shares and options \$	Total \$
Non –executive Directors
Dr. Peter Jenkins (1) Prof. Roy Robins -		3,655	-	27,300	-	4,470	35,425
Browne		40,000	-	3,600	-		43,600
Arie Nudel		35,325	-	3,600	-	4,675	43,600
Prof. Colin Chapman		32,036	-	17,327	-	6,817	56,180
Simon Sallka		36,099	-	3,919	-	3,900	43,918
Total Non –executive Directors		147,115	-	55,746	-	19,862	222,723
Executive Director
Dr Zeil Rosenberg (2)		340,758	-	-	-	85,038	425,796
Other key management personnel
Dr Oren Fuerst	(3)	260,839	-	-	-	85,038	345,877
Dr Grant Rawlin		206,422	-	18,578	9,216	-	234,216
Graeme Stevens	(4)	153,230	-	-	-	-	153,230
Total key management
personnel compensation		961,249	-	18,578	9,216	170,076	1,159,119

1. Dr Peter Jenkins resigned as a Director on 9 February 2009.

2. Dr Zeil Rosenberg ceased employment as Chief Executive Officer on 31 May 2009.

3. Dr Oren Fuerst ceased employment on 31 May 2009.

4. The services of Graeme Stevens are provided through Flexpertise Pty Ltd, an executive contracting company not related to Mr Stevens.

Share based payments

Shares may be issued or granted to key management personnel under the various share based compensation plans as set out in section D of this report.

Details of shares and options provided as part of the total remuneration paid to key management personnel are set out below. When exercisable, each option is convertible into one ordinary share of Immuron Limited.

Non executive Directors

The Directors elected to take a portion of their fees in shares in accordance with the approval given by members at the 2008 Annual General Meeting. Accordingly, for the 2010 financial year 183,290 shares were issued for a total value of \$13,688.

Key management personnel and other executives of the Company

2010	Shares issued in lieu of salary payment \$	Shares issued under Executive Officer Share Plan \$	Shares issued in lieu of bonus payment \$	Stock option expense \$	Total \$
Dr GT Rawlin	-	17,784	-	-	17,784
G N Stevens	-	17,784	-	-	17,784
Former Director and Chief Executive Officer Dr Z Rosenberg (Note)	-	-	-	(31,661)	(31,661)
Former other key management personnel Dr O Fuerst (Note)	-	-	-	(31,661)	(31,661)
Total	-	35,568	-	(63,322)	(27,754)

Note. The above negative stock option expense represents the net of:

• the write back of the value of contingent options that had been expensed in prior years, \$92,694,and
• the expense arising from the final options that vested on 1 October 2009, \$29,372.

Additional information in respect of options.

No options have been granted to Directors or Other Key Management Personnel during the year to 30 June 2010, and no options were exercised or lapsed during the year.

The relative proportions of remuneration that are linked to performance and those that are fixed are as follows:

Name	Fixed remuneration		At risk – STI		At risk - LTI
	2010	2009	2010	2009	2010	2009
Executive Director
Dr Z Rosenberg	-	80%	-	-	-	20%
Other key management personnel
Dr O Fuerst	-	76%	-	-	-	24%
Dr G Rawlin	80%	88%	20%	-	-	12%
G N Stevens	100%	-	-	-	-	-

C. Service agreements

Remuneration and other terms of employment for the Chief Executive Officer, and key management personnel are formalised in service agreements. The agreement with the Chief Executive Officer provides for the provision of a total package which can be taken in any form agreed by the Company and participation, when eligible, in the Immuron Limited Executive Officer Share Plan.

Dr. G Rawlin B Sc (Vet) (Hons) B VSc

Chief Executive Officer.

• Term of agreement Current employment agreement expires on 31 October 2010.
• Total remuneration, incorporating base salary, allowances and superannuation amounts to \$282,000. Other than normal statutory entitlements there is a termination benefit of one month's salary.
• The employment agreement allows for a STI of up to 30% of base salary if certain key performance targets are achieved. The STI payment may be taken either in cash or shares or a combination of both.

Graeme Stevens

Company Secretary and Chief Financial Officer.

The services of Mr Stevens are provided through contracts with Graeme Stevens and Flexpertise Pty Ltd, an executive contracting company not related to Mr Stevens.

D. Share-based compensation

(i) Shares.

(a) Employee Share Plan

A Plan under which shares may be issued by the Company to employees for no cash consideration was approved by the Board on 12 December, 2006. All permanent employees (excluding executive directors) who have been continuously employed by the Company for a period of at least one year are eligible to participate in the Plan. Employees may elect not to participate in the Plan.

Under the Plan, eligible employees may be granted up to \$1,000 worth of fully paid ordinary shares in Immuron Limited annually for no cash consideration. The market value of the shares issued under the scheme, measured as the weighted average price at which the Company's shares are traded on the Australian Stock Exchange during the week leading up to and including the date of grant, is recognised as part of employee benefit costs in the period the shares are granted.

Offers under the Plan are at the discretion of the Company. Shares issued under the scheme may not be sold until the earlier of three years after issue or cessation of employment with the Company. In all other respects the shares rank equally with other fully-paid ordinary shares on issue.

The number of shares issued to participants in the Plan is the offer amount divided by the weighted average price at which the Company's shares are traded on the Australian Stock Exchange during the week up to and including the date of grant.

No shares were issued under this plan in the 2010 and 2009 financial years.

(b) Executive Officer Share Plan

At the 2007 annual general meeting the members agreed to the establishment of the Immuron Limited Executive Officer Share Plan (Plan). The Plan may involve the Company providing financial assistance for the purchase of its own shares in that no eligible employees are required to pay application monies for the shares issued. Shares issued under this Plan are held in the name of a trustee on behalf of the eligible employees. A wholly owned subsidiary company was incorporated on 2 January 2008 for the sole purpose to act as the trustee under the Plan.

A brief summary of the Plan is as follows:

• 1. The Plan is available to all senior employees and Directors, both executive and non-executive, of Immuron Limited.
• 1. Eligible employees will be offered ordinary shares in the Company to be subscribed for, or acquired by the trustee on behalf of the employee. Shares held by the trustee for employees will be restricted shares in that the shares will not be transferred into the name of the employee until the earlier of, 10 years from date of issue, or the employee terminates their employment with the Company.
• 1. The shares issued under the Plan will rank equally with all other ordinary shares in the Company and are entitled to receive dividends and vote at general meetings of members.
• 1. No application monies are payable for shares issued under the Plan, unless the Board determine otherwise.

Shares issued under the Plan in the 2010 financial year are set out in note 28 of the financial report

(ii) Options

The only options outstanding are the options issued under the former employment agreements with Dr Zeil Rosenberg and Dr Oren Fuerst that were issued in the 2008 financial year. The terms and conditions of each grant of options affecting remuneration in this and past reporting periods is as follows:

	Date vested and			Value per option at
Grant date	exercisable	Expiry date	Exercise price	grant date
1 October 2007	1 October 2007	1 October 2010	\$0.33	\$0.0266
1 October 2007	1 October 2007	1 October 2010	\$0.43	\$0.0209
1 October 2007	1 April 2008	1 October 2010	\$0.33	\$0.0266
1 October 2007	1 April 2008	1 October 2010	\$0.43	\$0.0209
1 October 2007	1 October 2008	1 October 2010	\$0.33	\$0.0266
1 October 2007	1 October 2008	1 October 2010	\$0.43	\$0.0209
1 October 2007	1 April 2009	1 October 2010	\$0.33	\$0.0266
1 October 2007	1 April 2009	1 October 2010	\$0.43	\$0.0209
1 October 2007	1 October 2009	1 October 2010	\$0.33	\$0.0266
1 October 2007	1 October 2009	1 October 2010	\$0.43	\$0.0209

The assessed fair value of options granted to personnel at their grant date is allocated equally over the period from grant date to vesting date, and the amount for the 2010 financial year is included in the remuneration table as set out in section B above. Fair values at grant date are determined using the Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. The expected price volatility is based on the historic volatility (based on the remaining life of the options), adjusted for any expected changes to future volatility due to publically available information.

All options when granted are granted for no consideration.

E Additional information

Principles used to determine the nature and amount of remuneration: relationship between remuneration and Company performance

The full Board will exercise these responsibilities and set the policies for remuneration of key management personnel so as to comply with the Corporation Act, Accounting Standards and the ASX Listing Rules. Remuneration for key management personnel is determined by reference to market rates to attract qualified individuals essential for the delivery of Immuron's strategy.

Due to the nature of the business the incentive programs are largely based on the achievement of value creating outcomes that could be reasonably expected to enhance shareholder value.

From time to time employees are offered Shares and Options under plans previously agreed by shareholders. In a company at this stage of its development, the only meaningful performance target is the share price and the exercise price for such options are set well in advance of where the shares are trading at the time of issue and, for executives, usually have a two year vesting period.

Loans to directors and executives.

No loans have been made to any Director, or any of their related entities, or any executive during the 2010 financial year. (2009 -Nil).

Shares under options

As at the date of this report, there were 10,064,240 unissued shares under option as follows:

Date options	Number under	Issue Price of Shares	Expiry date
granted	option
1 October 2007	4,913,370	\$0.33	1 October 2010
1 October 2007	4,913,370	\$0.43	1 October 2010
19 January 2010	237,500	\$0.08892	19 July 2011
	10,064,240

The two series of options granted on 1 October 2007 were issued in accordance with the terms of employment agreements with former employees Dr Zeil Rosenberg, Chief Executive Officer and Executive Director, and Oren Fuerst, Vice President Business Development. These options vested at various dates, details of which are set out in section D above.

Shares under options (continued)

The options granted on 19 January 2010 were issued to Fortrend Small Cap Investors Limited as part of the capital drawdown under the standby subscription agreement with Fortrend Securities Pty Ltd.

No option holder has any right under the options to participate in any other share issue of the Company.

Insurance of officers

During the financial year, the Company insured the Directors and officers of the Company under a Directors and Officers Liability policy. The premium paid is commercially sensitive and is not disclosed.

The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of the Company and any other payments arising from liabilities incurred by the officers in connection with such proceedings, other than where such liabilities arise out of conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the Company. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities.

Non-audit services

There were no non-audit services provided during the financial year.

Auditors' Independence Declaration

A copy of the Auditors' independence declaration, as required under section 307C of the Corporations Act 2001, is set out on page 14.

Signed in Melbourne on 30 August 2010 in accordance with a resolution of the Directors

C B Chapman S Sallka Director Director

PricewaterhouseCoopers ABN 52 780 433 757

Freshwater Place 2 Southbank Boulevard SOUTHBANK VIC 3006 GPO Box 1331L MELBOURNE VIC 3001 DX 77 Website:www.pwc.com/au Telephone 61 3 8603 1000 Facsimile 61 3 8603 1999

Auditor's Independence Declaration

As lead auditor for the audit of Immuron Limited for the year ended 30 June 2010, I declare that to the best of my knowledge and belief, there have been:

• a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit and
• b) no contraventions of any applicable code of professional conduct in relation to the audit.

This declaration is in respect of Immuron Limited during the period.

Lisa Harker Melbourne Partner 30 August 2010 PricewaterhouseCoopers

Corporate Governance

The Board of Immuron Limited is accountable to the shareholders and other stakeholders for the performance of the Company. To this end, the Board is committed to maintaining the highest ethical standards and best practice in the area of corporate governance to ensure that the Company's business is conducted in the best interests of all concerned.

The Company has prepared and implemented practices that address all the Principles set out by the 2nd edition of the ASX Corporate Governance Principles and Recommendations guidelines. These practices will be reviewed regularly to ensure their relevance and application to the Company's responsibilities and activities.

By adopting these Principles, the Board seeks to create value and provide accountability commensurate with the risks involved.

Principle 1: Lay solid foundations for management and oversight.

Role of the Board.

The primary role of the Board is to provide effective governance over the Company's affairs to ensure the interests of the shareholders are protected and the confidence of the investing market is maintained whilst having regard for the interests of all the stakeholders.

This role is exercised by the Board, as whole, and each Director exercising diligent attention to the affairs of the Company. In particular the Board is responsible for:

• 1. Setting the Company's values and standards of conduct and ensuring that these are adhered to.
• 1. Providing strategic direction and approving corporate strategic initiatives.
• 1. Oversight of the Company, including its control and accountability systems.
• 1. Appointing and removing the Chief Executive Officer.
• 1. Reviewing and ratifying systems of risk management and internal compliance and controls, codes of conduct and legal compliance.
• 1. Monitoring senior management performance and ensuring appropriate resources are available.
• 1. Approving and monitoring the progress of major capital expenditure, capital management and acquisitions and divestitures.
• 1. Approving and monitoring financial and other reporting to shareholders and regulatory authorities.

To ensure that all new Board members understand what is expected of them, in addition to their obligations under the Corporation Law, the Company provides them with a document setting out the key terms and conditions relating to their appointment.

Role of Management.

Through the Chief Executive Officer, management is responsible to the Board for the:

• 1. Development and implementation of agreed corporate strategy and performance objectives.
• 1. Undertaking the day to day activities of the Company.
• 1. Identifying all matters to be included in a risk profile of the Company and ensuring that effective risk management systems are implemented and adhered to.
• 1. Observing the code of conduct.
• 1. Ensuring that the Board is fully informed of all matters which may have a material impact on the ability of the Company to meet its obligations.

Principle 2: Structure the Board to add value.

Board Composition.

The Board determines its size and composition, subject to the limits imposed by the Company's Constitution, which requires a minimum of three and a maximum of ten. Currently there are four (4) directors.

All of the current Directors are independent Directors who act independent of management and free of any business or other relationship that could materially interfere with the exercise of their unfettered and independent judgment.

Notwithstanding this, the Board recognises that in a small, specialised industry such as biotechnology, it is very desirable that board members have some industry background and therefore may not be completely independent.

With the non renewal of the previous Chief Executive Officer's contract on 31 May 2009, the Chairman of the Board, Professor Colin Chapman acted as the Executive Chairman until Dr Grant Rawlin was appointed as the Chief Executive Officer in November 2009.

With the exception of the Chairman for the above period of five months, all other non-executive directors are considered to be independent.

The skills, experience and expertise of each Director is set out in the attached Directors' Report.

The Board collectively and each Director individually may take, at the expense of the Company, such independent professional advice as is considered necessary to fulfil their relevant duties and responsibilities.

Board Committees

The Board operates one committee to assist in the execution of its duties and to allow detailed consideration of complex issues.

That committee is a Steering committee to plan, monitor, and review the research and development activities undertaken by the Hadassah Medical Centre under the Services agreement entered into with Hadasit. The Steering committee comprises two (2) representatives from Immuron; being Professor Colin Chapman and Dr Grant Rawlin, and two (2) representatives from Hadasit; Dr Einat Zisman, Chief Executive Officer of Hadasit, and Professor Yaron Ilan, Director Department of Medicine Hadassah Medical Centre. Professor Yaron Ilan is also the medical director of the Company.

The Steering committee reports directly to the Immuron Board.

The Company does not have separate committees covering nomination, remuneration committee or audit and risks matters as the tasks normally performed by these committees are carried out by the full Board. The Board believes that due to the size of the Company and its present stage of development, these functions are best handled by the full Board. The Board will establish other committees, either permanent or ad hoc, as required by the Company's future development. In addition, and for the reasons mentioned, the Board does not currently have a formal policy on selecting new Directors.

Principle 3: Promote ethical and responsible decision making.

The Company has adopted the Australian National Health and Medical Research Council guidelines on ethical research practices.

Code of Conduct

Immuron is guided in all its activities by respect for all its stakeholders including employees, shareholders, contractors, customers and suppliers.

The Board has articulated the Company's requirements for standards of conduct, from Directors and senior management, based on the following principles;

• 1. Directors are subject to re-election every three years.
• 1. The Chairman must be independent.
• 1. Conflict of interest must be avoided wherever possible. If, for any reason, a potential conflict arises, the Director/employee must declare the conflict and absent themselves from all discussions and decisions on the relevant matter.
• 1. Employees and Directors must respect the confidentiality of the Company's assets, including intellectual property, both during and after employment.
• 1. The Company will comply with all relevant legislation and regulation.
• 1. The Company will deal fairly with all its stakeholders.
• 1. The Company will promote a culture of ethical behaviour, encouraging openness amongst employees, Directors and contractors.

The Company did not currently comply with point 2 above for part of the year as the Chairman acted as an Executive Chairman for the period prior to the appointment of Dr Grant Rawlin as Chief Executive Officer in November 2009.

Trading in Company Securities.

The Company has a stated policy is that there be no dealings in the Company's securities, whether in permitted periods or at any other time:

• 1. When a designated officer is in possession of inside information, or
• 1. Where the dealing is for short-term or speculative gain, or
• 1. Within a period that is 72 hours prior to and 48 hours after any announcement.

Apart from these restrictions a designated officer can, unless there are special circumstances, only deal in the Company's securities in the following periods:

• Within the period commencing 48 hours after the announcement of the half year and full year financial results respectively and ending 1 month after each of those announcements.
• Within the period commencing 48 hours after the dispatch of the annual report made to shareholders through to one month after the annual general meeting.

Each Director has entered into an agreement with the Company to provide information to allow the Company to notify the ASX of any share transaction within five business days.

Principle 4: Safeguard integrity in financial reporting.

The Board regularly reviews the monthly financial reports and requires the Chief Executive Offer and the Chief Financial Officer or other appropriate persons responsible for the management of the Company and financial matters to provide written assurances in respect to the accuracy and compliance of the annual and half yearly published financial statements.

As indicated in Principle 2 above the Board does not have an audit committee. The functions normally performed by that committee are now conducted by the full Board.

The auditor provides a certificate to the Company confirming their independence. Rotation of the auditor has proceeded as required by Law or Regulation. The Company currently has no intention of replacing the existing auditors; however should this arise it will make a selection following a competitive process. Non audit work is arranged based on cost and the needs of the Company.

Principle 5: Making timely and balanced disclosure.

As a company whose shares are traded on the Australian Stock Exchange (ASX). Immuron is very conscious that it has an obligation to ensure that the market is both fully and accurately informed about material matters by timely and balanced disclosure.

The information disclosed will be factual and presented in a clear and balanced way. The Company has prepared and issued to all senior staff a written policy document on this matter and requires strict adherence to this policy. Continuous disclosure is a standard agenda item at all Board meetings.

Principle 6: Respect the rights of shareholders.

The Company is committed to respecting the rights of shareholders and facilitating the effective exercise of those rights.

This is achieved by;

• 1. Effective and regular communications.
• 1. Providing access to timely, balanced and understandable information about the Company and its current and future direction, and
• 1. Facilitating easy participation at general meetings.

The Company's external auditor attends each general meeting and is available to answer any questions with regard to the conduct of the audit and their report.

Principle 7: Recognise and managing risk.

In addition to the usual business risks, the particular risks associated with the Company's activities are:

• 1. Long lead times and high costs associated with biotech research and development.
• 1. The low success rate of biotech research in Australia.
• 1. Stringent health regulations which are subject to regular change.
• 1. The high level of funding required over a long period of time.
• 1. Securing and protecting the Company's intellectual property.

The Chief Executive Officer and the Chief Financial Officer have provided a statement to the Board that, in addition to the requirements of section 295A of the Corporations Act, the financial and other statements are founded on a sound system of risk management, internal compliance and controls and in so far that it relates to financial risk the procedures are operating effectively in all material aspects.

Due to the size of the Company there is no internal audit function.

Principle 8: Remunerate fairly and responsibly.

The Board notes the Corporate Governance Council recognises that, for small companies, the efficiencies expected to flow from a formal committee structure may not be apparent. The Board agrees with this view.

The full Board will exercise these responsibilities and set the policies for remuneration of Directors and senior managers so as to comply with the Corporation Act, accounting standards and the ASX Listing Rules. Remuneration for executive Directors and staff is determined by reference to market rates. From time to time employees are offered shares and options under plans previously agreed by shareholders. In a company at this stage of its development, the only meaningful performance target is the share price and the exercise price for such options which are set well in advance of the price at which the shares are trading at the time of issue and, for executives, usually have a two year vesting period.

As the number of options on issue at any one time is low and the price and exercise periods differ, the Board considers that the exercise of such options will have little or no effect on the Company's share price or Earnings per Share.

In setting remuneration for non-executive Directors, the Board will use the following principles;

• 1. Non-executive Directors shall be paid fees and superannuation plus supplements for committee work within the aggregate amount set by shareholders in general meeting (last set in 2005 at \$350,000 for cash remuneration).
• 1. Non-executive Directors may participate in options arrangements subject to shareholder approval. The Board does not accept that options should not be given to non-executive Directors as it believes (and shareholders have previously agreed) that in an R&D company their particular expertise is vital to the team effort and therefore options are a valid incentive.
• 1. Non-executive Directors retirement payments are limited to compulsory employer superannuation.
• 1. Bonuses will not be paid to non-executive Directors.

Details of remuneration paid to directors and senior staff is set out in the Directors Report in the annual report.

Immuron Limited Statement of Comprehensive Income For the year ended 30 June 2010

	Notes	2010	2009
		\$	\$
Revenue from continuing operations	5	498,075	550,928
Other income	6	62,137	319,696
Raw materials & consumables used		(275,430)	(172,936)
Employee benefits expense		(258,480)	(1,358,406)
Depreciation and loss on disposal of plant & equipment		(39,591)	(157,314)
Research and development – external		(1,097,933)	(697,841)
Directors' fees		(201,650)	(222,723)
Travel expenses		(53,812)	(111,558)
Product marketing & export development - external		(16,864)	(75,807)
Consultants costs		(280,085)	(153,795)
Shareholder relations		(97,993)	(115,949)
Corporate and administrative expenses		(404,531)	(429,254)
Loss before income tax	7	(2,166,157)	(2,624,959)
Income tax benefit	8	263,732	-
Loss from continuing operations		(1,902,425)	(2,624,959)
Profit from discontinued operations	9	-	307,145
Loss for year attributable to members of Immuron Limited		(1,902,425)	(2,317,814)
Total Comprehensive loss for year		(1,902,425)	(2,317,814)
		Cents	Cents
Loss per share from continuing operations
attributable to the ordinary equity holders of the
company
Basic earnings (loss) per share	27	(0.73)	(1.92)
Diluted earnings (loss) per share	27	(0.73)	(1.92)
Loss per share attributable to the ordinary equity
holders of the company
Basic earnings (loss) per share	27	(0.73)	(1.70)
Diluted earnings (loss) per share	27	(0.73)	(1.70)

The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes

Immuron Limited Balance Sheet As at 30 June 2010

	Notes	2010	2009
		\$	\$
ASSETS
Current Assets
Cash & cash equivalents	10	1,882,224	149,670
Trade & other receivables	11	153,129	27,662
Inventories	12	22,567	96,376
Other assets	13	248,564	148,407
Total Current assets		2,306,484	422,115
Non-Current Assets
Property, plant and equipment	14	31,292	70,883
Intangible assets	15	1,460,587	-
Investments	16	31	31
Total Non-Current Assets		1,491,910	70,914
TOTAL ASSETS		3,798,394	493,029
LIABILITIES
Current Liabilities
Trade & other payables	17	393,503	595,547
Provisions	18	39,500	33,172
Other	19	-	46,978
Total Current Liabilities		433,003	675,697
Non-Current Liabilities
Provisions	18	2,100	2,203
Total Non-Current Liabilities		2,100	2,203
TOTAL LIABILITIES		435,103	677,900
NET ASSETS/(LIABILITIES)		3,363,291	(184,871)
EQUITY Contributed equity	20	26,964,091	21,458,898
Reserves	21	388,366	442,972
Accumulated losses	21	(23,989,166)	(22,086,741)
TOTAL EQUITY (DEFICIENCY OF EQUITY)		3,363,291	(184,871)

The above Balance Sheet should be read in conjunction with the accompanying notes

Immuron Limited Statement of Changes in Equity For the year ended 30 June 2010

	Notes	Contributed equity \$	Reserves \$	Accumulated losses \$	Total \$
Balance at 1 July 2008		20,583,347	272,896	(19,768,927)	1,087,316
Total comprehensive loss for the year	21			(2,317,814)	(2,317,814)
Transactions with owners in their capacity as owners
Contributions of equity, net of transaction costs Employee share options - value of	20	875,551			871,551
employee services	21		170,076		170,076
Balance at 30 June 2009		21,458,898	442,972	(22,086,741)	(184,871)
Total comprehensive loss for the year	21			(1,902,425)	(1,902,425)
Transactions with owners in their capacity as owners Contributions of equity, net of
transaction costs	20	5,505,193	8,716		5,513,909
Employee share options – value of employee services Employee options costs written back	21		29,372		29,372
to comprehensive loss for year	21		(92,694)		(92,694)
Balance at 30 June 2010		26,964,091	388,366	(23,989,166)	3,363,291

The above Statement of Changes in Equity should be read in conjunction with the accompanying notes

Immuron Limited Statement of Cash Flows For the year ended 30 June 2010

	Note	2010 Inflow / (Outflow) \$	2009 Inflow / (Outflow) \$
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers (inclusive of goods and services tax) Payments to suppliers and employees (inclusive of goods		382,599	869,338
and services tax)		(2,939,021)	(3,239,322)
		(2,556,422)	(2,369,984)
Interest received		36,185	26,826
Grants received		-	271,998
R&D tax rebate		263,732	-
Interest paid		(3,382)	(988)
Net Cash (outflow) from Operating Activities	26	(2,259,887)	(2,072,148)
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for plant and equipment	14	-	(4,890)
Proceeds from sale of functional foods division		-	320,445
Net Cash inflow from Investing Activities		-	315,555
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares & other equities		4,120,932	836,159
Share issue transaction costs		(128,491)	(20,720)
Net Cash inflow from Financing Activities		3,992,441	815,439
Net increase/(decrease) in cash and cash equivalents		1,732,554	(941,154)
Cash and cash equivalents at beginning of financial year		149,670	1,090,824
Cash and cash equivalents at end of financial year	10	1,882,224	149,670

The above Statement of Cash Flows should be read in conjunction with the accompanying notes

Note 1. Summary of significant accounting policies

The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

(a) Basis of preparation

This general purpose financial report has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations and the Corporations Act 2001.

Compliance with IFRSs

Australian Accounting Standards include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the financial statements and notes of the Company comply with International Financial Reporting Standards (IFRS).

Historical cost convention

These financial statements have been prepared under the historical cost convention.

Critical accounting estimates

The preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3.

Presentation of financial statements

The Company has applied revised AASB101 Presentation of Financial Statements to this financial report. As a result, the Company presents all non-owner changes in equity in the statement of comprehensive income, whereas all owner changes in equity are presented in the statement of changes in equity, previously presented as a note to the financial statements. Comparative information has been re-presented so that it is also in conformity with the revised standard. Since the change in accounting policy only impacts presentation aspects of the financial report, there is no impact on the financial results of the Company.

Going concern

At 30 June 2010, the Company's cash and investments were approximately \$1,882,000 and for the year ended 30 June 2010, the Company experienced an operating loss of \$1,902,425 and a net cash outflow of \$2,259,887 from operating activities. For the 2011 financial year the Company has budgeted for operating cash outflows to exceed operating cash inflows as it expands on the number of R & D projects programmed to be conducted in conjunction with Hadasit. The ultimate ability of the Company to fund its ongoing operations will be dependent upon obtaining income from the commercialisation of its research and development projects, licensing agreements, further direct investment by investors which may be supplemented by the receipt of funds from various Government and non Government grants. Given the difficulty in predicting the timing and quantum of income from the commercialisation of its products and technology, and the inherent uncertainties involved in raising funds from investors, there is significant uncertainty whether the Company will be able to continue as a going concern and realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report.

The Directors are confident that the Company's planned initiatives will be successfully achieved during the next twelve months and these will continue to provide adequate access to financial resources. The company has had a successful history of obtaining research grants and new equity investment and the Directors are confident that this will continue in the future. Accordingly, the Directors have prepared the financial statements on a going concern basis. As such, the financial statements do not include any adjustments as to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be necessary should the entity not continue as a going concern.

Note 1. Summary of significant accounting policies (continued)

(b) Segment reporting

As of 1 July 2009, the Company determines and presents operating segments based on the information that is internally provided to the Company's chief operating decision maker which has been identified as the Management Executive Team (MET). The MET consists of the Chief Executive Officer and other Senior Executives of the Company. The MET provides the strategic direction and management oversight of the day to day activities of the entity in terms of monitoring results, providing approval for research and development expenditure decisions and challenging and approving strategic planning for the business.

The change in accounting policy is due to the application of AASB 8 Operating Segments which requires a "management approach", under which segment information is presented on the same basis as that used for internal reporting purposes. Comparative segment information has been re-presented in conformity with the transition requirements of AASB 8. The change only impacts presentation and disclosure aspects of the financial report, there is no impact on the financial results of the Company.

(c) Foreign currency translation

(i) Functional and presentation currency

Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The financial statements are presented in Australian dollars, which is the Company's functional and presentation currency.

(ii) Transactions and balances

Transactions in foreign currencies are translated into the functional currency using the rates of exchange ruling at the date of each transaction. At balance date, amounts outstanding in foreign currencies are translated into the functional currency using the rate of exchange ruling at the end of the financial year. All gains and losses are brought to account in determining the profit or loss for the year.

(d) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances, rebates and amounts collected on behalf of third parties.

The Company recognises revenue when the amount of the revenue can be reliably measured, it is probable that the future economic benefits will flow to the entity and specific criteria have been met for each of the activities as described below. The amount of the revenue is not considered to be reliably measured until all contingencies relating to the sale have been resolved.

The following specific revenue criteria must be met before revenue is recognised:

• (i) Sale of Goods and services Significant risks and rewards of ownership of goods has passed to the buyer.
• (ii) Interest Interest revenue is recognised using the effective interest rate method.

(e) Government grants

Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Company will comply with all attached conditions.

Government grants relating to costs are deferred or accrued such that they are recognised in the income statement over the period necessary to match them with the costs that they are intended to compensate.

(f) Income tax

The income tax expense or revenue for the period is the tax payable or tax rebate receivable on the current period's taxable income adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax base of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses.

Note 1. Summary of significant accounting policies (continued)

Deferred income tax is provided in full, using the liability method on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax is realized or the deferred income tax liability is settled.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity.

(g) Impairment of assets

Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units).

(h) Cash and cash equivalents

For cash flow statement presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts.

(i) Trade receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less provision for impairment. Trade receivables are due for settlement no more than 30 days from the date of recognition.

Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for impairment of trade receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payment (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short term receivables are not discounted if the effect of discounting is immaterial. The amount of the provision is recognised in the income statement.

(j) Inventories

Raw materials, work in progress and finished goods are stated at the lower of cost and net realisable value. Where appropriate, cost comprises direct materials, direct labour and an appropriate proportion of variable and fixed overheads expenditure, the latter being allocated on the basis of normal operating capacity. Costs are assigned to individual items of inventory on basis of weighted average costs. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

Note 1. Summary of significant accounting policies (continued)

(k) Property, plant and equipment

Plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Depreciation on other assets is calculated using the straight line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives, as follows:

- Plant & Equipment	3-15 years
- Computers	2-4 years
- Furniture and fittings	5-15 years

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, annually.

An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount (Note 1(g)).

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement. When revalued assets are sold, it is the Company's policy to transfer the amounts included in other reserves in respect of those assets to retained earnings.

(l) Intangible assets

(i) Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Company's share of the net identifiable assets of the acquired business at the date of acquisition. Goodwill is not amortised. Instead, goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses.

Goodwill is allocated to cash-generating units for the purpose of impairment testing.

(ii) Research and development

Expenditure on research activities, undertaken with the prospect of obtaining new scientific or technical knowledge and understanding, is recognised in the income statement as an expense when it is incurred.

Expenditure on development activities, being the application of research findings or other knowledge to a plan or design for the production of new or substantially improved products or services before the start of commercial production or use, is capitalised if it is probable that the product or service is technically and commercially feasible, will generate probable economic benefits and adequate resources are available to complete development. Other development expenditure is recognised in the income statement as an expense as incurred.

(iii) Intellectual property

During the 2010 financial year the Company acquired certain provisional patent intellectual property from Hadasit Medical Research Services & Development Limited (Hadasit) at a cost of \$1,460,587 which has been capitalised and appears in the balance sheet as an intangible asset. The acquisition cost of \$1,460,587 represents the value attributed to the 56,484,023 fully paid ordinary shares issued to Hadasit in full satisfaction for the provisional patents.

The realisation of the value attributed to this intangible asset will depend on the successful commercialisation of Immuron's potential products. The Directors note that there is always significant risk involved in the commercialisation of such products. The intellectual property is considered to have an indefinite useful life.

Note 1. Summary of significant accounting policies (continued)

(m) Trade and other payables

These amounts represent liabilities for goods and services provided to the entity prior to the end of the financial year and which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition.

(n) Employee benefits

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

Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees' services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable.

(ii) Long service leave

The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity that match, as closely as possible, the estimate future cash flows.

(iii) Retirement benefit obligations

All employees of the Company are entitled to benefits on retirement from their own individual private superannuation plans.

(iv) Share-based payments

Share-based compensation benefits may be provided through the issue of fully paid ordinary shares under the Immuron Executive Officer Share Plan. Options are also granted to employees in accordance with the terms of their employment agreements.

The fair value of options granted under employment agreements, are recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options.

The fair value at grant date is determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option.

The fair value of the options granted excludes the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the entity revises its estimate of the number of options that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate. The impact of the revision to original estimates, if any, is recognised in the income statement with a corresponding adjustment to equity.

Upon the exercise of options, the balance of the share-based payments reserve relating to those options is transferred to share capital.

(v) Termination benefits

Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Company recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after balance sheet date are discounted to present value.

Note 1. Summary of significant accounting policies (continued)

(o) Investments and other financial assets

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Company's management has the positive intention and ability to hold to maturity.

(p) Contributed equity

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

(q) Earnings per share

(i) Basic earnings per share

Basic earnings per share is calculated by dividing the profit or loss attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the full year, adjusted for bonus elements in ordinary shares issued during the full year.

(ii) Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

(r) Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST recoverable or payable. The net amount of GST recoverable from, or payable to, the taxation authorities is included with other receivable or payables in the balance sheet.

Cash flows are presented on a gross basis. The GST components of cash flow arising from investing or financing activities which are recoverable for, or payable to, the taxation authorities are presented as operating cash flow.

(s) Leases

Leases in which a significant portion of the risk and reward of ownership are not transferred to the Company as lessee are classified as operating leases (note 24). Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

(t) New accounting standards and interpretations.

Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2010 reporting periods. The Company's assessment of the impact of these new standards and interpretations is set out below.

AASB 2009-8 Amendments to Australian Accounting Standards – Group Cash-Settled Share-based Payment Transactions [AASB 2] (effective from 1 January 2010)

The amendments made by the AASB to AASB 2 confirm that an entity receiving goods or services in a group share-based payment arrangement must recognise an expense for those goods or services regardless of which entity in the group settles the transaction or whether the transaction is settled in shares or cash. They also clarify how the group share-based payment arrangement should be measured, that is, whether it is measured as equity or a cash-settled transaction. The group will apply these amendments retrospectively for the financial reporting period commencing on 1 July 2010. There will be no impact on the Company's financial statements.

Note 1. Summary of significant accounting policies (continued)

AASB 2009-10 Amendments to Australian Accounting Standards – Classification of Rights Issues [AASB 132]

(effective from 1 February 2010) In October 2009 the AASB issued an amendment to AASB 132 Financial Instruments: Presentation which addresses the accounting for rights issues that are denominated in a currency other than the functional currency of the issuer. Provided certain conditions are met, such rights issues are now classified as equity regardless of the currency in which the exercise price is denominated. Previously, these issues had to be accounted for as derivative liabilities. The amendment must be applied retrospectively in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. The group will apply the amended standard from 1 July 2010 but as the Company has not made any such rights issue this amendment will not have any effect on the Company's financial statements.

AASB 9 Financial Instruments and AASB 2009-11 Amendments to Australian Accounting

Standards arising from AASB 9 (effective from 1 January 2013)

AASB 9 Financial Instruments addresses the classification and measurement of financial assets and is not likely to affect the Company's accounting for its financial assets. The standard is not applicable until 1January 2013 but is available for early adoption. The Company is yet to assess its full impact and has not yet decided when to adopt AASB 9.

Revised AASB 124 Related Party Disclosures and AASB 2009-12 Amendments to Australian

Accounting Standards (effective from 1 January 2011)

In December 2009 the AASB issued a revised AASB 124 Related Party Disclosures. It is effective for accounting periods beginning on or after 1 January 2011 and must be applied retrospectively. The amendment removes the requirement for government-related entities to disclose details of all transactions with the government and other government-related entities and clarifies and simplifies the definition of a related party. The Company will apply the amended standard from 1 July 2011 however it is not expected that the disclosure required due to the amendments will impact on the present related party disclosures.

AASB Interpretation 19 Extinguishing financial liabilities with equity instruments and AASB 2009-13 Amendments to Australian Accounting Standards arising from Interpretation 19 (effective from 1 July 2010)

AASB Interpretation 19 clarifies the accounting when an entity renegotiates the terms of its debt with the result that the liability is extinguished by the debtor issuing its own equity instruments to the creditor (debt for equity swap). It requires a gain or loss to be recognised in profit or loss which is measured as the difference between the carrying amount of the financial liability and the fair value of the equity instruments issued. The Company will apply the interpretation from 1 July 2010. It is not expected to have any impact on the Company's financial statements.

AASB 2009-14 Amendments to Australian Interpretation – Prepayments of a Minimum Funding Requirement (effective from 1 January 2011)

In December 2009, the AASB made an amendment to Interpretation 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. The amendment removes an unintended consequence of the interpretation related to voluntary prepayments when there is a minimum funding requirement in regard to the entity's defined benefit scheme. It permits entities to recognise an asset for a prepayment of contributions made to cover minimum funding requirements. The Company does not make any such prepayments. The amendment will be adopted with effect from 1 July 2011; however, it is not expected to have any impact on the Company's financial statements.

Note 2. Financial risk management

The Company's activities expose it to a variety of financial risks; market risk (including currency risk and fair value interest rate risk), credit risk and liquidity risk. The Company's overall risk management program focuses on the financial markets and seeks to minimise potential adverse effects on the Company's financial performance.

Risk management is carried out by management under policies approved by the Board of Directors. Management identifies and evaluates financial risk. The Board provides guidelines for overall risk management.

Note 2. Financial risk management (continued)

(a) Market risk

(i) Foreign exchange risk

Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are determined in a currency that is not the Company's functional currency.

The Company operates internationally and is exposed to foreign exchange risk, primarily the US dollar, arising from currency exposure. The level of exposure to foreign currency is not significant in the present operations of the Company; however, management will monitor the level of foreign exchange risk and employ hedging strategies if considered appropriate.

(ii) Price risk

The Company does not have a significant exposure to commodity price risks in respect of its colostrum requirements. Management has already taken steps to negotiate contracts for future supplies that will remove any inherent risks associated with significant price movements in colostrum prices.

(iii) Cash flow and fair value interest rate risk

The Company does not have any borrowings and therefore is not exposed to cash flow interest rate risk. Its main interest rate risk arises from the rate receivable from its cash equivalents. The risk associated with the amount of interest receivable is considered to be immaterial in the overall operations of the Company.

(b) Credit risk

.

The Company's major ongoing customers are the large pharmaceutical companies for the distribution of Travelan and other Hyperimmune products and Government bodies for the receipt of R & D grants. The Company has a policy that limits the credit exposure to customers and regularly monitors its credit exposure.

An analysis of the carrying amount of financial assets that is impaired, together with those that are past due but not impaired, are set out in note 11 to the accounts.

(c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities. The Company regularly manage liquidity risk by monitoring forecast and actual cash flows. The Company does not have access to any borrowing facilities.

(1) Maturity of financial liabilities

The table below analyses the Company's financial liabilities into the relevant maturity groups based on the remaining period at the reporting date to contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

2010 Non – interest bearing - trade payables - other payables	less than 6 months \$ 269,902 96,034	6-12 months \$ 5,757 21,810	Between 1 and 2 years \$ - -	Total \$ 275,659 117,844
- other	- 365,936	- 27,567	- -	- 393,503
2009 Non – interest bearing - trade payables - other payables -other	194,831 377,916 46,978	- 22,800 -	- - -	194,831 400,716 46,978
	619,725	22,800	-	642,525

Note 2. Financial risk management (continued)

(d) Fair value estimation

The fair value of financial assets and financial liabilities are estimated for recognition and measurement or for disclosure purposes.

The carrying value, less impairment provision of trade receivables and payables, are assumed to approximate their fair values due to their short term nature.

Note 3. Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the Company and that are believed to be reasonable under the circumstances.

(a) Critical accounting estimates and assumptions

The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(i) Inventories

Raw materials and stores inventories, as set out in note 12, include a provision for impairment amounting to \$295,423 (2009 \$378,664). This reduction of \$83,241 arose from the realisation of certain inventories during the year and is included in the raw materials and consumables used amount of \$275,430 in the statement of comprehensive income. The carrying value of inventory held for the Travelan products was reviewed at 30 June, 2010 and no adjustment was required.

(ii) Share based payments

The value attributed to the options granted to former employees, Dr Rosenberg and Dr Fuerst, under the terms of their respective employments agreements amounted to \$337,837. That amount included an allowance of \$104,452 in respect of additional options that may be granted if they achieved particular financial targets as set out in their employment agreements. As those additional options were not issued, and there is no ongoing entitlement to those options by the former employees, the portion of that cost that had been expensed to 30 June 2009, \$92,694 has been transferred from the options reserve to the statement of comprehensive income during the 2010 year.

The values attributable to the options were determined in accordance with Accounting Policy note 1(n).

(iii) Intangibles

The Company has acquired certain intellectual property at a cost of \$1,460,587. The realisation of the value attributed to this intangible asset will depend on the successful commercialisation of Immuron's potential products. The Directors note that there is always significant risk involved in the commercialisation of such products. The guidance in AASB 136 Impairment of Assets has been followed to determine whether the intellectual property is impaired. This determination requires significant judgement. In making this judgement, the Company evaluates, amongst other factors, the initial success of clinical trials conducted during the period and the likelihood that patents to support the acquired intellectual property will ultimately be issued.

Note 4. Segment Information

(a) Description of segments

The Company has applied AASB 8 Operating Segments from 1 July 2009. Management has determined that the business segments of research and development and hyperimmune products are the main business segments used for internal reporting purposes to the Management Executive Team. Other items of income and expense not directly attributable to those two segments are disclosed as a corporate cost segment.

Note 4. Segment Information (continued)

(b) Segment information provided to the management executive team

2010		Hyper Immune		Total Continuing	Discontinued
Segment revenue	R & D	Products	Corporate	Operations	Operations	Total
Revenue from external	-
customers		416,035	45,855	461,890	-	461,890
Interest revenue	-	-	36,185	36,185	-	36,185
Grant income	62,137	-	-	62,137	-	62,137
Total segment revenue	62,137	416,035	82,040	560,212	-	560,212
Adjusted EBITDA	(1,446,687)	123,741	(899,745)	(2,222,691)	-	(2,222,691)
Depreciation expense	-	1,550	37,798	39,348	-	39,348
Loss on disposal of plant
& office equipment	-		243	243	-	243
Income tax benefit	263,732	-	-	263,732	-	263,732
Total segment assets	1,616,494	193,222	1,988,678	3,798,394	-	3,798,394
Total assets includes:
Investment in associates	-	-	30	30	-	30
Additions to non- current
assets	1,460,587	-	-	1,460,587	-	1,460,587
Total segment liabilities 2009	190,452	73,705	170,946	435,103	-	435,103
Segment revenue
Revenue from external
customers	-	524,102		524,102	-	524,102
Interest revenue	-	-	26,826	26,826	-	26,826
Grant income	319,696	-	-	319,696	-	319,696
Total segment revenue	319,696	524,102	26,826	870,624	-	870,624
Adjusted EBITDA	(880,014)	352,162	(1,795,555)	(2,323,407)	307,145	(2,016,262)
Depreciation expense	-	995	72,140	73,135	-	73,135
Loss on disposal of plant
& office equipment	-	-	84,179	84,179	-	84,179
Segment assets	-	126,383	329,963	456,346	36,683	493,029
Total assets includes:
Investment in associates	-	-	30	30	-	30
Additions to non- current
assets		3,100	1,790	4,890	-	4,890
Segment liabilities	248,803	25,468	403,629	677,900	-	677,900

Note 4. Segment Information (continued)

(c) Other segment information

The Company is domiciled in Australia. The revenues from external customers were derived as follows:

	2010	2009
	\$	\$
Within Australia	401,310	255,952
Outside Australia	60,580	268,150
	461,890	524,102

The significant increase of \$1,616,494 in total assets in the R & D segment in the 2010 year reflects the cost of the intellectual property acquired from Hadasit amounting to \$1,460,587, together with the balance of the prepaid future services of \$108,567 to be supplied by Hadasit subsequent to 30 June 2010.

(d) Adjusted EBITDA

A reconciliation of earnings before interest, tax, depreciation and amortisation (EBITDA) to net loss for the financial year from continuing operations is as follows:

(2,624,959)
524,102
	170,076 -

Note 6. Other income

	62,137	319,696
Government research and development grants	62,137	319,696

498,075 550,928

Interest 36,185 26,826

Government grants

The following government grants were recognised as other income by the Company during the financial year:

47,340 94,676
	62,137 319,696

Note 6. Other income (continued)

Other than the contingent liability of \$142,016 there are no unfulfilled conditions attaching to these grants. Refer to note 24(d) for details of the contingent liability in respect of grant monies received.

			2010	2009
			\$	\$
	Note 7.	Expenses
		The loss before income tax includes the following specific expenses:
	Cost of sales of goods		275,430	172,936
	Depreciation		39,348	73,135
		Loss on disposal of plant & office equipment	243	84,179
		Research and development expenditure	1,405,233	1,195,817
		Write back provision for impairment of receivables	-	(20,332)
		Rental expense relating to operating leases – minimum payment	103,408	61,678
		Finance costs – interest paid Defined contribution superannuation expense	3,382 41,022	988 57,794
	Note 8.	Income tax expense
(a)		The major components of income tax expense are:
		Current Income tax charge (benefit)	(263,732)	-
			(263,732)	-
		Income tax charge (benefit) reported in the income statement
(b)		Numerical reconciliation of income tax expense to prima facie tax
	payable
		(Loss) from continuing operations before income tax	(2,166,157)	(2,624,959)
		Profit from discontinued operations before income tax	-	307,145
			(2,166,157)	(2,317,814)
		Tax at the Australian tax rate of 30% (2009 - 30%)	(649,847)	(695,344)
	taxable income:	Tax effect of amounts which are not deductible (taxable) in calculating
		Research & development cash rebate	(263,732)	-
		Expenditure not allowable as a tax deduction	(18,107)	51,268
		Temporary differences not recognised	3,870	4,818
		Tax losses not recognised	635,610	639,258
		Income tax expense/(benefit) reported in the income statement	(263,732)	-
(c )	Tax losses
	recognised	Gross unused tax losses for which no deferred tax asset has been	18,088,854	16,705,817
		Potential tax benefit @30%	5,426,656	5,011,745
(d)		Unrecognised temporary differences
		Temporary differences relating to various expenses not tax deductible in
	the current year		1,277,853	1,278,460
	differences @ 30%	Unrecognised deferred tax asset relating to the above temporary	383,356	383,538

Note 8. Income tax expense (continued)

Potential future income tax benefits attributable to tax losses carried forward have not been brought to account at 30 June, 2010 because the Directors do not believe that it is appropriate to regard realising of the deferred tax assets as probable.

Similarly, future income tax benefits attributable to net temporary differences have not been brought to account, as the Directors do not regard the realisation of such benefits as probable.

The benefit for tax losses and net temporary differences will only be obtained if:

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

Note 9 Discontinued operations

(b) Description

In the 2008 financial year the company sold its functional foods division. The financial results of this division are recorded in the income statement as discontinued operations.

(b) Financial performance

The financial performance information presented, in respect of the year ended 30 June 2009 represents the final share of profits earned in accordance with the sale of business agreement.

	2010	2009
	\$	\$
Revenue	-	-
Expenses	-	-
Profit / ( loss) before income tax	-	-
Income tax expense	-	-
Profit /(loss) after income tax of discontinued operations	-	-
Gain on sale of division before income tax	-	307,145
Income tax expense	-	-
Gain on sale of division after income tax	-	307,145
Profit from discontinued operations	-	307,145
Net cash inflow from operating activities	-	-
Net cash inflow ( outflow) from investing activities	-	320,445
Net cash from financing activities	-	-
Net increase in cash generated by the division	-	320,445
(c) Details of sale of the division Consideration received or receivable:
Cash	-	270,445
Additional amount receivable	-	36,700
Total disposal consideration	-	307,145
Carrying amount of net assets sold	- -	- 307,145
Profit on sale before income tax
Income tax expense	-	-
Profit on sale after income tax	-	307,145

		2010	2009
Note 10	Cash & cash equivalents	\$	\$
Cash at bank and on hand		882,224	149,670
Cash held on deposit		1,000,000
		1,882,224	149,670

Cash at bank interest rate at 30 June 2010 was 3.25% (2009 2.5%). Interest rate for funds on deposit is 5.7%

The Company's exposure to interest rate risk is discussed in note 2.

Note 11 Current assets – Trade & other receivables

153,129	27,662
(3,500)	(12,000)
156,629	39,662

All trade receivables are non-interest bearing.

(a) Impaired trade receivables

As at 30 June 2010 current trade receivables with a nominal value of \$3,500 (2009 \$11,768) were impaired. The amount of the provision was \$3,500 (2009 \$12,000). The ageing of the impaired receivables is as follows:

3 to 6 months	-	216
Over 6 months	3,500	11,552
	3,500	11,768
Movements in the provision for impairment of receivables are as follows:
Balance 1 July 2009	12,000	48,979
Provision for impairment recognised during the year	244	-
Receivables written off during the year as uncollectible	(8,744)	(16,647)
Write back of surplus provision to income statement	-	(20,332)
Balance 30 June 2010	3,500	12,000

The creation of the provision for impaired receivables has been included as an expense in determining the loss arising from continuing operations.

(b) Past due but not impaired

At 30 June 2010, trade receivables amounting to \$42,994 (2009- \$1,653) were past due but not impaired. This amount relates to a number of customers who have had no recent history of default.

Up to 3 months	9,166	1,653
3 to 6 months	13,750	-
Over 6 months	20,078	-
	42,994	1,653

(c) Fair value and credit risk

Due to the short term nature of the receivables, their carrying amount is assumed to approximate their fair value. Refer to note 2 for more information on the risk management policy of the company.

Note 12.	Current assets – Inventories	2010 \$	2009 \$
	Raw materials and stores – at net realisable value	19,017	79,795
Work in progress – at cost		2,638	4,350
Finished Goods – at net realisable value		912	12,231
		22,567	96,376

Write down of inventories to net realisable value recognised as an expense during the year ended 30 June 2010 amounted to \$Nil- (2009 \$Nil).

Refer to note 3(a) (i) for further details on the provision for impairment in determining the values applicable to raw materials and stores.

Inventory expense

Inventories recognised as expense in determining the loss for the year from ongoing operations for the year ended 30 June 2010 amounted to \$275,430 (2009 - \$172,936).

Note 13. Current assets – Other assets

Prepayments	194,807	105,308
Security bond	6,417	6,417
Grant monies due	47,340	-
Other debtors	-	36,682
	248,564	148,407

Prepayments of \$194,807 includes a prepayment to Hadasit of \$108,567. This represents the balance of \$598,683 (\$US500, 000) paid to Hadasit in August 2009 as prepaid research and development costs in accordance with the service agreement with Hadasit. The balance of the prepaid expense, \$108,567, will be utilised in 2011 to meet ongoing preclinical and clinical trial costs in accordance with the service agreement and will be reflected in the statement of comprehensive income as the expenditure is incurred

(a) Risk exposure

Information about the Company's exposure to credit risk is provided in notes 2 and 11.

Note 14. Non current assets – Property plant and equipment

	Plant and equipment \$	Computer equipment \$	Furniture & Fittings \$	Total \$
Year ended 30 June, 2010
Opening net book amount Additions	47,600	5,069	18,214	70,883
Disposals	-	-	(243)	(243)
Depreciation charge	(32,490)	(3,724)	(3,134)	(39,348)
Closing net book amount	15,110	1,345	14,837	31,292
At 30 June, 2010
- Cost	339,785	46,401	49,454	435,640
- Accumulated depreciation	(324,675)	(45,056)	(34,617)	(404,348)
	15,110	1,345	14,837	31,292
Year ended 30 June 2009
Opening net book amount	178,349	8,530	36,428	223,307
Additions	3,100	1,790	-	4,890
Disposals	(68,959)	(1,025)	(14,195)	(84,179)
Depreciation charge	(64,890)	(4,226)	(4,019)	(73,135)
Closing net book amount	47,600	5,069	18,214	70,883
At 30 June 2009
- Cost	339,785	53,331	49,832	442,948
- Accumulated depreciation	(292,185)	(48,262)	(31,618)	(372,065)
Net book amount	47,600	5,069	18,214	70,883

(a) Non-current assets pledged as security

The Company has not pledged any of its non-current assets as security.

Note15 Intangible assets

	2010 \$	2009 \$
Intellectual property, at cost	1,460,587	-

The intellectual property was acquired from Hadasit Medical Research Services & Development Limited. The consideration for the acquisition was the issue of 56,484,023 fully paid shares, the details of which is set out in note 20 to the financial statements.

Given the intangible asset was acquired less than twelve months ago, the recoverable amount is considered to equate to the cost of acquisition.

Note 16. Non-current assets – Investments accounted for using the equity method

	2010 \$	2009 \$
Shares in subsidiary company – at cost	1	1
Shares in associate – at cost	30	30
	31	31

(a) Shares in subsidiary company – Anadis ESP Pty Ltd

This company is a wholly owned subsidiary of Immuron Limited and was formed for the sole purpose to act as trustee for the Immuron Limited Executive Officer Share Plan Trust. All costs associated with the operations of this company are borne by Immuron Limited. Consolidated accounts have not been prepared as the net assets of Anadis ESP Pty Ltd are not material.

(b) Shares in Associate Company

This investment represents a 50% holding in Immuron Ltd, a company incorporated in Israel. The other 50% shareholder is Hadasit Medical Research Services & Development Ltd. The company was formed as a special purpose vehicle to apply for specific research grants. No grants have been obtained up to 30 June 2010.

Note 17 Current liabilities – Trade & other payables

	393,503	595,547
Other payables	117,844	400,716
Trade payables	275,659	194,831

(a) Amounts not expected to be settled within the next 12 months

Other payables include an accrual for annual leave. The entire obligation is presented as current, since the Company does not have an unconditional right to defer settlement. However, based on past experience, the Company does not expect all employees to take full account of accrued leave within the next 12 months. The following amounts reflect leave that is not expected to be taken within the next 12 months.

Annual leave obligation expected to be settled after 12 Months 7,810 12,800

(b) Risk exposure

Information on the Company's risk exposure is contained in note 2.

Note 18. Current liabilities - Provisions

Current liabilities	2010 \$	2009 \$
Employee benefits – long service leave	39,500	33,172

Amounts not expected to be settled within 12 months

The current provision for long service leave includes all unconditional entitlements where employees have completed the required period of service and also those where employees are entitled to pro-rata payments in certain circumstances. The entire amount is presented as current since the Company does not have an unconditional right to defer settlement. However, based on past experience, the Company does not expect all employees to take full account of accrued long service leave or require payment within the next 12 months.

The following amounts reflect leave that is not expected to be taken or paid within the next 12 months.

Non-current liabilities

Employee benefits – long service leave	2,100	2,203

Note 19. Current liabilities – Other

Grant income received in advance	-	46,978
	Nil	46,978

Note 20. Contributed equity

( a ) Issued and Paid Up Capital

311,051,948 (2009: 144,569,108) ordinary shares fully paid	\$26,964,091	\$21,458,898

(b) Movements in ordinary share capital

Date of Issue		Number of Shares	Issue Price	\$
	Shares on Issue 1 July 2008	126,732,766		20,583,347
20/11/2008	Issued for cash and in lieu of placement fees	7,705,950	\$0.05	385,297
20/11/2008	Issued to Director in lieu of salary	805,000	\$0.05	40,250
16/12/2008	Issued for cash to Alaven Consumer Healthcare Inc.	7,516,674	\$0.05	375,834
9/01/2009	Issued to Directors in lieu of Directors fees	308,163	\$0.064	19,862
30/03/2009	Issued for cash to Alaven Consumer Healthcare Inc.	1,500,555	\$0.05	75,028
	Less costs associated with issuing shares			(20,720)
	Shares on Issue at 30 June 2009	144,569,108		21,458,898
21/08/2009	Shares issued for cash under shareholder share
	purchase plan	43,370,625	\$0.03	1,301,119
27/08/2009	Shares issued to Hadasit Medical Research Services & Development Limited in accordance with the
	Acquisition and Licence Agreement	46,966,139	\$0.0259	1,214,470
1/09/2009	Shares issued for cash	3,600,000	\$0.0494	177,811
8/09/2009	Shares issued for cash	34,200,000	\$0.025	855,000
	Shares Issued to Directors in lieu of Directors fees	337,500	\$0.03	10,125
	Shares issued to Hadasit Medical Research Services
	& Development Limited in accordance with the Deed
	of Variation	8,745,625	\$0.0259	226,148
14/01/2010	Shares issued for cash	4,545,455	\$0.055	250,000
	Shares issued to Hadasit Medical Research Services
	& Development Limited in accordance with the Deed
	of Variation Shares issued to Director in lieu of Directors fees	772,259 60,729	\$0.0259 \$0.0741	19,969 4,500
28/01/2010	Shares issued for cash	275,000	\$0.055	15,125
	Shares and options issued for cash	950,000	\$0.08892	84,474
	Value of options issued transferred to options reserve			(8,716)
	Shares issued under Immuron Executive Share Plan	400,000	\$0.08892	35,568
11/05/2010	Shares issued to Directors in lieu of Directors fees	79,291	\$0.0804	6,375
22/06/2010	Shares issued for cash under shareholder share
	purchase plan	10,636,702	\$0.065	691,387
30/06/2010	Shares issued for cash	11,477,168	\$0.065	746,016
	Shares issued to consultant in lieu of consultants fees	23,077	\$0.065	1,500

Note 20. Contributed equity (continued)

Date of Issue		Number of Shares	Issue Price	\$
30/06/2010	Shares issued to Director in lieu of Directors fees	43,270	\$0.065	2,813
	Less costs associated with issuing shares			(128,491)
	Shares on Issue at 30 June 2010	311,051,948		26,964,091

(c) Ordinary Shares

Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the company in proportion to the number of and amount paid on the 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.

(d) Options

As part of the drawdown under the standby subscription agreement with Fortrend Small Cap Investors Limited, 237,500 options were issued on 28 January 2010 at an exercise price of \$0.08892 to convert into fully paid ordinary shares. These options expire on 19 July 2011.

Information relating to the employees options issued, exercised and lapsed during the financial year, together with options outstanding at the end of the financial year, is set out in Note 28.

(e) Cancelled Shares

No shares were cancelled in the current or previous year.

(f) Share buy-back

There is no current on-market buy-back.

(g) Employee share plan

Information relating to the employee share plans, including details of shares issued under the plans is set out in note 28.

Note 21. Reserves and accumulated losses

		2010 \$	2009 \$
(a)	Reserves
	Share-based payments reserve	388,366	442,972
	Movements:
	Balance 1 July 2009	442,972	272,896
	Value attributable to options attaching to shares	8,716
	Option expense
	options issued to former employees	29,372	170,076
	write back of employee option costs that had
	been expensed in prior years.	(92,694)	-
	Balance 30 June 2010	388,366	442,972

Note 21. Reserves and accumulated losses (continued)

		2010	2009
(b)	Accumulated losses	\$	\$
	Movements in accumulated losses were as follows:
	Balance 1 July 2009	(22,086,741)	(19,768,927)
	Net loss for the year	(1,902,425)	(2,317,814)
	Balance 30 June 2010	(23,989,166)	(22,086,741)

Nature and purpose of reserves

Share-based payments reserve

The share-based payments reserve is used to recognise the fair value of options issued to employees, contractors and investors, but not exercised.

Note 22. Key management personnel disclosures

(a) Directors

The following persons were Directors of Immuron Limited during the financial year:

Non executive Chairman –Professor C Chapman Non-executive directors Professor R Robins-Browne A Nudel (Resigned 23 March 2010) S Sallka Dr E Zelcer (Appointed 19 November 2009)

Dr Z Rosenberg (Resigned 17 July 2009)

(b) Other key management personnel

The following persons were the executives with the greatest authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly, during the financial year:

Name	Position
Dr Grant Rawlin	Chief Executive Officer
Graeme Stevens	Company Secretary and Chief Financial Officer

(c) Key management personnel compensation

	2010 \$	2009 \$
Short-term employee benefits	397,026	961,249
Post-employment benefits	21,389	18,578
Share based payments	35,568	170,076
Long-term benefits	6,328	9,216
	460,311	1,159,119

The comparative amounts for the 2009 financial year included compensation for Dr Zeil Rosenberg, former Chief Executive Officer, and Dr Oren Fuerst, former Vice President Business Development amounting to \$771,673 Both of those employees ceased employment on 31 May 2009.

Note 22. Key management personnel disclosures (continued)

Detailed remuneration disclosures are provided in sections A-C of the remuneration report on pages 7 to 11.

(d) Equity instrument disclosures relating to key management personnel

(i) Options provided as remuneration and shares issued on exercise of such options

Details of options provided as remuneration and shares issued on the exercise of such options, together with terms and conditions of the options, can be found in section D of the Remuneration Report on pages 11 to 12.

Option holdings

No options over ordinary shares in the Company were issued to Directors or key management personnel, including their personally related parties, during the 2010 financial year.

The number of options over ordinary shares in the Company held during the year by a former Director of the Company and former other key management personnel of the Company, including their personally related parties, are set out below.

2010 Name	Balance at the start of the year	Granted during the year as remuneration	Exercised during the year	Other changes during the year (lapsed)	Balance at the end of the year	Vested and exercisable at the end of the year	Not vested at end of the year
Former director
Dr Z
Rosenberg	4,913,370	-	-	-	4,913,370	4,913,370	-
		Former other key management personnel
Dr O Fuerst	4,913,370	-	-	-	4,913,370	4,913,370	-
2009
Directors
Dr Z
Rosenberg	4,913,370	-	-	-	4,913,370	3,930,696	982,674
Other key management personnel
Dr O Fuerst	4,913,370	-	-	-	4,913,370	3,930,696	982,674

Shareholdings

The number of shares in the Company held (either directly, indirectly* or beneficially) during the year by each director of the Company, and other key management personnel, including their personally related parties*, are set out below.

( * includes: spouses, relatives of the individual, spouses of the relatives and any entity under the joint or several control or significant influence of the individual, relatives of the individual or spouses of the relatives).

2010		Received during the year on the
Name	Balance at the start of the year	exercise of options	Other changes during the year	Balance at the end of the year
Directors
Z Rosenberg (1)	805,000	-	(805,000)	Nil
A Nudel (2)	6,873,427	-	(6,873,427)	Nil
R Robins-Browne	178,395	-	222,640	401,035
C Chapman	730,638	-	418,185	1,148,823
S Sallka	1,109,071	-	335,140	1,444,211
E Zelcer (3)	-	-	66,591	66,591
Other key management personnel
Dr Grant Rawlin	711,440	-	572,203	1,283,643
Graeme Stevens	484,170	-	1,772,972	2,257,142

Note 22. Key management personnel disclosures (continued)

1. Resigned as a Director on 17 July 2009.

2. Resigned as a Director on 23 March 2010.

3. Appointed a Director on 19 November 2009.

2009		Received during the year on the
Name	Balance at the start of the year	exercise of options	Other changes during the year	Balance at the end of the year
Directors
Z Rosenberg (1)	-	-	805,000	805,000
P Jenkins (2)	4,420,895	-	(4,420,895)	Nil
A Nudel	13,211,348	-	(6,337,921)	6,873,427
R Robins-Browne	178,395	-	-	178,395
C Chapman	617,154	-	113,484	730,638
S Sallka	1,053,942	-	55,129	1,109,071

Other key management personnel

Dr Grant Rawlin	711,440	-	-	711,440
Graeme Stevens	230,770	-	253,400	484,170
Dr Oren Fuerst (3)	380,000	-	(380,0000)	Nil

1. Ceased employment on 31 May 2009 as Chief Executive Officer and resigned as a Director on 17 July 2009.

2. Resigned as Director on 9 February 2009.

3. Ceased employment on 31 May 2009.

(e) Loans to key management personnel.

There are no loans to any director or other key management personnel, including their personally related parties (2009 - Nil).

(f) Superannuation commitments

All employees are entitled to various levels of benefits on retirement, disability or death. The superannuation plans are accumulation plans. The Company contributes a percentage of the directors' fees and salaries of employees to the superannuation plans.

Note 22. Key management personnel disclosures (continued)

(g) Other transactions with key management personnel

There are no other transactions with Directors or other key management personnel except the following;

• A company controlled by Mr. Arie Nudel was paid a consultancy fee of \$10,519 up to the date of his resignation as a Director (2009- \$50,752) for providing investor relations and other services to the Company.
• Shares in the Company totalling 75,000 were issued to Mr Nudel in lieu of Directors fees. Mr Nudel, together with other related parties acquired 295,280 shares under the Company's 2009 Shareholder Share Purchase Plan offer. Parties related to Mr Nudel disposed of 657,500 shares in the Company prior to his resignation as a Director on 23 March 2010.
• Shares were also issued to the following Directors in lieu of Directors fees during the year:
• o Professor Colin Chapman 116,699 shares
• o Professor Roy Robins-Browne 75,000 shares
• o Simon Sallka 187,500 shares
• o Dr Elane Zelcer 66,591 shares
• Shares were issued to the following Directors under the Company's 2009 and 2010 Shareholder Share Purchase Plan offers:
• o Professor Colin Chapman 301,486 shares
• o Professor Roy Robins- Browne 147,640 shares
• o Simon Sallka 147,640 shares
• A company, for which Mr Arie Nudel acts as a consultant, purchased a quantity of hyperimmune colostrum valued at \$43,495. That sale was made at a normal commercial price.
• Other key management personnel acquired the following shares in the Company during the year:
• o Dr Grant Rawlin 372,203 shares under the 2009 and 2010 Shareholder Share Purchase Plan offers; - 200,000 shares issued as a bonus.
• º Graeme Stevens and related parties 402,972 share under the 2009 and 2010 Shareholder Share Purchase Plan offers; 200,000 shares issued as a bonus, and 1,170,000 shares acquired for cash.

Note 23. Remuneration of auditors

	2010	2009
	\$	\$
During the year the following fees were paid or payable for
services provided by the auditor of the Company:
Audit services
Fees paid to PricewaterhouseCoopers Australian firm:
Audit and review of financial reports and other audit work
under the Corporations Act 2001	69,000	73,200
Total remuneration for audit services	69,000	73,200

The Company's policy on the engagement of auditors is set out in the Corporate Governance Statement (Principle 4) in this Report.

Note 24 Commitments and Contingencies

(a) Research commitments

The Company has entered into agreements with certain research organisations for ongoing research. Under these agreements the Company is committed to providing funds over future periods as
follows:
- 88,622 Within one year
Later than one year but not more than five years - -
Later than five years - -
Research commitments not recognised in the financial statements - 88,622

Note 24 Commitments and Contingencies (continued) ²⁰¹⁰

(continued)	2010 \$	2009 \$
Within one year	5,834	35,004
Later than one year but not more than five years	-	5,834
Later than five years	-	-
Lease commitments not recognised in the financial statements	5,834	40,838

The key points of the lease are:

• (i) Term Two years commencing August 2008. Subsequent to year end the lease has been extended for a further year to August 2011.
• (ii) Transferable Immuron can assign the lease with the consent of the landlord, which consent will not be unreasonably withheld.

(c) Other commitments

The Company has a commitment to pay consulting fees to Professor Yaron Ilan (the Company's Medical Director) in accordance with a consultancy agreement. The agreement commenced in September 2009 and is for a maximum period of three years at a monthly fee of \$US5000 per month. The maximum future commitment under this agreement is \$A153, 000 (\$US130, 000). The agreement can be terminated by providing one month's notice.

(d) Contingent liability \$ 142,016

The Company has received, or is due to receive, grant funds totalling \$142,016 from the State Government of Victoria under the terms of the Vistech Grant. Of this amount \$47,340 has been included as other income in the Statement of Comprehensive Income for the current year. The balance of \$94,676 had been received in the prior year. Under the terms of the grant agreement, the Company has the obligation to repay the grant monies received upon the receipt of any funds from the commercial exploitation of the technology developed under the grant project. Therefore, a contingent liability exists in respect of the amount up to \$142,016 if the Company receives any future proceeds from the commercialisation of the grant technology of the same amount.

Note 25 Events occurring after balance sheet date

Subsequent to 30 June 2010 the following significant events have occurred:

• The Company has issued 3,366,218 fully paid ordinary shares for cash for working capital purposes. The funds raised net of issue costs amounted to \$207,864

Note 26. Reconciliation of net cash outflow from operating activities to loss after income tax

	2010	2009
	\$	\$
Loss for the year	(1,902,425)	(2,317,814)
Depreciation and amortisation	39,591	157,314
Profit on sale of contract manufacturing business	-	(307,145)
Increase /(decrease) in share based payment reserve	(63,322)	170,076
Increase in share based payment equity	60,882	19,862
Change in operating assets & liabilities:
Decrease/(Increase) in inventories	73,809	64,887
Decrease/(Increase) in debtors and prepayments	(225,624)	235,158
(Decrease)/Increase in trade and other payables	(319,888)	(144,764)
Increase/(Decrease) in other liabilities	70,865	27,302
(Decrease)/Increase in employee benefits provisions	6,225	22,976
Net cash (outflow) from operating activities	(2,259,887)	(2,072,148)

Note 27 Earnings Per Share

	2010	2009
	Cents	Cents
(a) Basic earnings per share
Loss from continuing operations attributable to the ordinary equity holders of the company	(0.73)	(1.92)
Profit from discontinued operations	-	0.22
Loss attributable to the ordinary equity holders of the company	(0.73)	(1.70)
(b) Diluted earnings per share
Loss from continuing operations attributable to the ordinary equity holders of the
company	(0.73)	(1.92)
Profit from discontinued operations	-	0.22
Loss attributable to the ordinary equity holders of the company	(0.73)	(1.70)

(c) Reconciliation of earnings used in calculating earnings per share

Basic earnings per share

Loss from continuing operations	(1,902,425)	(2,624,959)
Profit from discontinued operations	-	307,145
	(1,902,425)	(2,317,814)

There are no reconciling items to the above two loss amounts in calculating the earnings per share.

(d) Weighted average number of shares used as the denominator

	2010	2009
Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share	263,066,911	136,531,628
Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share	263,066,911	136,531,628

Note 27 Earnings per Share (continued)

(e) Information concerning the classification of securities

Options

Options that have been granted are considered to be potential ordinary shares, however their conversion to ordinary shares does not increase the loss per share, as such the options are not dilutive and have not been included in the determination of diluted earnings per share. The options have not been included in the determination of basic earnings per share.

Note 28 Share based payments

(a) Directors and employee option plans

As at 30 June 2010 there are no current option plans for the issue of options to Directors and/or employees.

Other than options that had been granted to former senior employees under the terms of their employment agreements, there are no other outstanding options that had been previously granted to Directors or employees.

A summary of the current options issued to former senior employees under the terms of their employment agreements, for both the 2009 and 2010 financial years are set out below.

Date granted	Expiry date	Exercise price	Balance at start of the year	Granted during the year	Exercised during the year	Forfeited during the year	Balance at the end of the year	Vested & Exercisable at end of the year
		\$	Number	Number	Number	Number	Number	Number
1/10/07	01/10/10	0.33	4,913,370	-	-	-	4,913,370	4,913,370
1/10/07	01/10/10	0.43	4,913,370	-	-	-	4,913,370	4,913,370
Total			9,826,740		-	-	9,826,740	9,826,740
	Weighted average exercise price:		\$0.38				\$0.38	\$0.38

The weighted average remaining contractual life of options outstanding at 30 June 2010 was 0.25 years (2009 – 1.25 years)

No staff options were issued during the 2010 and 2009 financial years.

Fair value of options granted

The assessed fair value at grant date when options are issued is determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option.

(b) Employees share plan.

A Plan under which shares may be issued by the Company to employees for no cash consideration was approved by the Board on 12 December, 2006. All permanent employees (excluding executive directors) who have been continuously employed by the Company for a period of at least one year are eligible to participate in the Plan. Employees may elect not to participate in the Plan.

Under the Plan, eligible employees may be granted up to \$1,000 worth of fully paid ordinary shares in Immuron Limited annually for no cash consideration. The market value of the shares issued under the scheme, measured as the weighted average price, at which the Company's shares are traded on the Australian Stock Exchange during the week leading up to and including the date of grant, is recognised as part of employee benefit costs in the period the shares are granted. Offers under the Plan are at the discretion of the Company. Shares issued under the scheme may not be sold

Note 28 Share based payments (continued)

until the earlier of three years after issue or cessation of employment with the Company. In all other respects the shares rank equally with other fully-paid ordinary shares on issue.

The number of shares issued to participants in the Plan is the offer amount divided by the weighted average price at which the Company's shares are traded on the Australian Stock Exchange during the week up to and including the date of grant.

	2010	2009
Shares issued under the Plan	Nil	Nil

(c) Executive officer share plan.

At the 2007 Annual General Meeting the members agreed to the establishment of the Immuron Limited Executive Officer Share Plan (Plan). The Plan may involve the Company providing financial assistance for the purchase of its own shares in that no eligible employees are required to pay application monies for the shares issued. Shares issued under this Plan are held in the name of a trustee on behalf of the eligible employees. A wholly owned subsidiary company, Anadis ESP Pty Ltd, was incorporated on 2 January 2008 for the sole purpose to act as the trustee under the Plan.

A brief summary of the Plan is as follows:

• (j) The Plan is available to all senior employees and Directors, both executive and non-executive, of Immuron Limited.
• (ii) Eligible employees will be offered ordinary shares in the Company to be subscribed for, or acquired by, the trustee on behalf of the employee. Shares held by the trustee for employees will be restricted shares in that the shares will not be transferred into the name of the employee until the earlier of, 10 years from date of issue, or the employee terminates their employment with the Company.
• (iii) The shares issued under the Plan will rank equally with all other ordinary shares in the Company and are entitled to receive dividends and vote at general meetings of members.
• (iv) No application monies are payable for shares issued under the Plan, unless the Board determine otherwise.

During the 2010 financial year 400,000 shares were issued to senior employees in accordance with the terms of the plan, (2009 NIL). No shares were issued to Directors under the terms of this plan in the 2010 and 2009 financial years.

Shares issued during the year ended 30 June 2010 in the name of the trustee, to be held on behalf of various employees, are as follows:

	Date of issue	Issue price per share \$	Number	Total value \$
Shares issued under the Plan to staff	28 January 2010	0.08892	400,000	35,568

The issue price per share was based on the volume weighted average price for the week ended 19 January 2010.

(d) Other shares issued during the 2010 financial year in lieu of payments to consultants were as follows.

	Date of issue	Issue price per share \$	Number	Total value \$
Shares issued to consultant as part payment of R & D consulting fees	30 June 2010	0.065	23,077	1,500

The shares issued in lieu of cash payments to a consultant were issued at the price paid by investors for the placement to new shareholders on 30 June 2010.

Note 28 Share based payments (continued)

(e) Expenses arising from share-based payment transactions.

Total expenses arising from share-based payment transactions recognised during the year as part of the following expenses are as follows:

	2010	2009
	\$	\$
Employee benefits expense	(45,538)	170,076
Directors fees	13,688	19,862
Research and development – external	1,500	-
Consultants	17,784	-
	(12,566)	189,938

The negative employee benefits expense of \$45,538 is due to the write back of amortised option costs amounting to \$92,694 from the options reserve. Refer notes 3(a) (ii) and 21(a) for details of the write back.

In addition to the above expense of \$13,688 relating to Directors fees for the 2010 financial year, shares to the value of \$10,125 had been issued to Directors in September 2009 in respect of fees due to Directors for the 2009 financial year. The related expense for that share issue had been recorded as Directors fees in the 2009 statement of comprehensive income.

Note 29. Related party transactions

Key management personnel

Disclosures relating to key management personnel are set out in Note 22.

There are no other related party transactions loans or outstanding balances.

Immuron Limited Directors' Declaration

Directors' Declaration for the year ended 30 June 2010.

In the directors' opinion:

• (a) the financial statements and notes set out on pages 19 to 51 are in accordance with the Corporations Act 2001 including:
• (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and
• (ii) giving a true and fair view of the Company's financial position as at 30 June 2010 and of its performance for the financial year ended on that date; and
• (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

Note 1(a) confirms that the financial statements also comply with the International Financial Reporting Standards as issued by the International Accounting Standards Board.

The directors have been given the declarations by the Chief Executive Officer and the Chief Financial Officer as required by section 295A of the Corporations Act 2001.

This declaration is made in accordance with a resolution of the directors.

C B Chapman S Sallka Director Director

Melbourne 30 August 2010.

PricewaterhouseCoopers ABN 52 780 433 757

2 Freshwater Place Southbank Boulevard SOUTHBANK VIC 3006 GPO Box 1331L MELBOURNE VIC 3001 DX 77 Telephone +61 3 8603 1000 Facsimile +61 3 8603 1999

Independent auditor's report to the members of www.pwc.com/au Immuron Limited

Report on the financial report

We have audited the accompanying financial report of Immuron Limited (the company), which comprises the balance sheet as at 30 June 2010, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors' declaration.

Directors' responsibility for the financial report

The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards.

Auditor's responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

Our procedures include reading the other information in the Annual Report to determine whether it contains any material inconsistencies with the financial report.

Our audit did not involve an analysis of the prudence of business decisions made by directors or management.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independent auditor's report to the members of Immuron Limited (continued)

Independence

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.

Auditor's opinion

In our opinion:

• (a) the financial report of Immuron Limited is in accordance with the Corporations Act 2001, including:
• (i) giving a true and fair view of the company's financial position as at 30 June 2010 and of its performance for the year ended on that date; and
• (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001;and
• (b) the company's financial report also complies with International Financial Reporting Standards as disclosed in Note 1.

Significant Uncertainty Regarding Continuation as a Going Concern

Without qualifying our opinion, we draw attention to Note 1 in the financial report which indicates that the company incurred a net loss of \$1,902,425 and net cash outflows from operating activities of \$2,259,887 during the year ended 30 June 2010. These conditions, along with other matters as set forth in Note 1, indicate the existence of a significant uncertainty as to whether the company will continue as a going concern, and therefore, whether it will realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report.

Report on the Remuneration Report

We have audited the remuneration report included in pages 6 to 13 of the directors' report for the year ended 30 June 2010. The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards.

Auditor's opinion

In our opinion, the remuneration report of Immuron Limited for the year ended 30 June 2010, complies with section 300A of the Corporations Act 2001.

PricewaterhouseCoopers

Lisa Harker Melbourne Partner 30 August 2010

Immuron Limited Additional ASX Information

Additional information required by the Australian Stock Exchange not shown elsewhere in this report is as follows. The information was applicable at 27 August, 2010.

a) Distribution of equity securities

Analysis of numbers of equity security holders by size of holding

		Class of equity security
	Shares	Options
1 – 1,000	86
1,001 – 5,000	373
5,001 – 10,000	281
10,001 – 100,000	684
100,001 and over	455	3
	1,879	3

There were 489 holders of less than a marketable parcel of ordinary shares.

b) Equity security holders

Twenty largest quoted equity security holders

The names of the twenty largest holders of quoted equity securities at 27 August are listed below:

Ordinary Shares

	Number held	Percentage of Issued Shares
Hadasit Medical Research Services & Development Limited	56,484,023	17.96
Capital Concerns Pty Ltd ( Logue Family Super Fund A/C)	14,627,723	4.65
Alaven Consumer Healthcare Inc	9,017,229	2.87
Drill Investments Pty Ltd	9,000,000	2.86
Hallam Drainage Pty Ltd	6,150,000	1.96
Rakio Pty Ltd (Piekarski Footscray A/C)	5,750,168	1.83
Mark Henry Coombe-Tennant	5,370,000	1.71
David Hamilton	4,795,043	1.53
Blau Holdings Pty Ltd ( Blau Holdings Property A/C)	4,740,000	1.51
Samuel Cyril Driver & Joanne Leonie Driver (SC Driver Super Fund A/C)	3,116,640	0.99
Suburban Holdings Pty Ltd (The Suburban Super Fund A/C)	2,520,455	0.80
Jenkvest Pty Ltd (Peter & Gail Jenkins S/F A/C)	2,454,361	0.78
Tzar Superannuation Nominees Pty Ltd	2,153,846	0.69
Mrs Kimberley Mustow (The MFT No 1 Family A/C)	2,148,844	0.68
Dr Kuen Seng Chan	2,113,093	0.67
Mr Ali Salko	2,050,718	0.65
Salmon Investments Pty Limited (Salmon Investments A/C)	2,028,255	0.65
Mr James Barry Drill & Mrs Elizabeth Curtis Drill	2,000,000	0.64
Tatura Milk Industries Limited	2,000,000	0.64
Vestcourt Pty Ltd (Court Family S/F A/C)	1,750,000	0.56

140,270,398 44.61%

) Voting rights

All ordinary shares carry one vote per share without restriction.

d) Unquoted equity securities	Number on issue	Number of holders
Options issued to take up ordinary shares	10,064,240	3
Number of unissued ordinary shares under the options.
Holders of 20% or more of unquoted equity securities in the Company are set out below:
Options issued to take up ordinary shares	Number held	Percentage
Dr Zeil Rosenberg Dr Oren Fuerst	4,913,370 4,913,370	48.8% 48.8%
e) Substantial holders
Substantial holders in the Company are set out below:	Number held	Percentage
Ordinary Shares
Hadasit Medical Research Services & Development Limited	56,484,023	17.96%
f) Restriction on shares

The shares held by Hadasit Medical Research Services & Development Limited have a voluntary restriction in that they cannot deal in the shares until 27 August 2011.