LIMITED

ASX Release 31 August 2004

$\overline{a}$

PRELIMINARY FINAL REPORT FINANCIAL RESULTS FOR THE YEAR ENDED 30 JUNE 2004

ABN: 99 009 179 551 Level 1, 14 - 20 Delhi Road, North Ryde NSW 2113
PO Box 307, North Ryde NSW 1870
Tel: +61 2 9870 7330 Fax: +61 2 9888 9338 website: www.imugene.com

Imugene Limited

Appendix 4E - 30 June 2004 Preliminary Final Report

The current reporting period is the year ended 30 June 2004 and the previous corresponding period is for the year ended 30 June 2003. $1.$
$2.$ Results for announcement to the market.

	30 June 2004	30 June 2003	% Change
	\$	\$
2.1 Revenue from ordinary activities.	123,598	538,544	77% decrease
2.2 Profit (loss) from ordinary activities after tax attributable to
members.	(2, 115, 675)	(1,345,058)	57% decrease
2.3 Net profit (loss) for the period attributable to
members.	(2, 115, 675)	(1,345,058)	57% decrease
2.4 Amount per security and franked amount per security of interim dividend.	the period	No interim dividends have been paid or provided for during
2.5 Record date for determining entitlements to the dividends and payment date.	Not applicable
2.6 Brief explanation of any of the figures in 2.1 to 2.4 necessary to enable the figures to be understood.	During the year ended 30 June 2004, the Company announced it had successfully completed animal trials which successfully demonstrated improved efficacy in its platform Adenoviral Delivery Vector technology. The product range increased with the new vaccine developed by the Company which is effective in preventing the disease known as Porcine Reproductive & Respiratory Syndrome (PRRS) in pigs.
	The Company also announced the signing of a license for the 'Receptor Mimic Technology', a new platform technology for the prevention, treatment and diagnosis of gastrointestinal diseases in pigs.

$3.$ Statement of Financial Performance

See 2004 Financial Report.

4. Statement of Financial Position

See 2004 Financial Report.

$5.$ Statement of cash flows

See 2004 Financial Report.

$6.$ Dividend Payments

No dividends have been paid or provided for.

$\overline{7}$ . Dividend Reinvestment Plans

There are no dividend or distribution reinvestment plans in operation.

8. Statement of retained earnings

See Note 16 of the 2004 Financial Report.

$9.$ Net Tangible Assets Per Security

	30 June 2003 30 June 2004
	cents	cents

Net tangible assets per security

$10.$ Gain or loss of control over entities

See Note 8 of the 2004 Financial Report.

$11.$ Joint Venture

Not applicable.

$12.$ Other significant information

Not applicable.

$13.$ Foreign Entities

Not applicable.

$14.$ Commentary on results for the year

See Directors' Report in the 2004 Financial Report.

15. Progress of Audit / Review

This Appendix 4E is based on an audited Financial Report.

16. Audit dispute or Qualification

None.

LIMITED

IMUGENE LIMITED

FINANCIAL REPORT

30 JUNE 2004

ABN 99 009 179 551

CONTENTS	PAGE NO
CORPORATE DIRECTORY	1
DIRECTORS' REPORT	$\overline{2}$
CORPORATE GOVERNANCE STATEMENT	8
COMPLIANCE WITH ASX CORPORATE GOVERNANCE RECCOMMENDATIONS	13
STATEMENT OF FINANCIAL PERFORMANCE	17
STATEMENT OF FINANCIAL POSITION	18
STATEMENT OF CASH FLOWS	19
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS	20
DIRECTORS' DECLARATION	47
INDEPENDENT AUDIT REPORT	48

IMUGENE ...................................... LIMITED

CORPORATE DIRECTORY

Directors

Mr Graham Dowland - Executive Chairman Dr Warwick Lamb - Managing Director Mr Roger Steinepreis - Non-Executive Director

Key Executives and Consultants

Dr Michael Sheppard - Chief Scientific Officer Dr Kevin Fahey - Chairman (Scientific and Commercialisation Advisory Board)

Company Secretary Mr Mark Pearce

Registered and Principal Office

Level 1 14 - 20 Delhi Road North Ryde NSW 2113 Australia Telephone: (61 2) 9870 7330 Facsimile: (61 2) 9888 9338

Share Register

Computershare Investor Services Pty Ltd Level 2, Reserve Bank Building 45 St Georges Terrace Perth WA 6000 Australia Telephone: 1300 557 010 International: (61 8) 9323 2000 Facsimile: (61 8) 9323 2033

Solicitors Steinepreis Paganin

Auditor Deloitte Touche Tohmatsu

Bankers Australia and New Zealand Banking Group Limited

Stock Exchange Listing

Imugene Limited shares are listed on the Australian Stock Exchange (Symbol: IMU).

Website and Email www.imugene.com [email protected]

DIRECTORS' REPORT 30 JUNE 2004

The Directors of Imugene Limited present their report on the Consolidated Entity consisting of Imugene Limited ("the Company" or "Imugene") and the entities it controlled at the end of, or during, the year ended 30 June 2004 ("Consolidated Entity").

Directors

The names of directors in office at any time during the financial year or since the end of the financial year are:

Mr Graham Dowland Dr Warwick Lamb Mr Roger Steinepreis

Each director held their office from 1 July 2003 until the date of this report.

Current Directors

Mr Graham Dowland - Executive Chairman

Qualifications - B.Com. CA

Mr Dowland has for the past 15 years, been involved as either a significant shareholder, director or senior consultant / advisor with a number of public companies listed on Stock Exchanges in Australia, Canada and the United Kingdom with operations internationally. These companies have been and continue to be involved in various industries including pharmaceutical research and development - specifically human and animal biotechnology, gold mining and exploration, oil and gas exploration and production, manufacturing, and industrial technology development and marketing.

Mr Dowland has been involved in the development phase of numerous businesses that have achieved listings and capital raisings from the various major international Stock Exchanges. Since returning to Australia in July 2000 after residing in London, Mr Dowland has been involved in evaluating business opportunities within the veterinary and animal services industries.

Dr Warwick Lamb - Managing Director

Qualifications - BVSc. M Vet Clin Stud. FACVSc

Dr Lamb is a specialist veterinarian with experience within the profession at all levels. He has the rare combination of having worked in private general practice, private specialist practice and University practice both in Australia and the USA. He is a registered specialist in canine and feline medicine and a Fellow of the Australian College of Veterinary Scientists. Dr Lamb was awarded the Small Animal Practitioner of the Year 2001 by the Australian Small Animal Veterinary Association.

Dr Lamb developed Australia's first stand-alone, referral only internal medicine specialist hospital in Australia. This practice remains the leading private referral practice in the country, employing some 12 veterinarians and providing 24-hour emergency and critical care facilities.

Mr Roger Steinepreis - Non-Executive Director

Qualifications - B. Juris LLB

Roger Steinepreis graduated from the University of Western Australia where he completed his law degree. He was admitted as a barrister and solicitor of the Supreme Court of Western Australia in 1987 and has been practising as a lawyer for approximately 16 years.

He is the legal adviser to a number of public companies on a wide range of corporate related matters. His areas of practice focus on company restructures, initial public offerings and takeovers.

Principal Activities

The principal activity of the Consolidated Entity during the financial year was animal health biopharmaceutical development and commercialisation. No significant change in the nature of this activity occurred during the financial year.

Employees

	2004	2003
The number of full time equivalent people employed by the Consolidated Entity at balance date

Dividends

No dividends have been declared, provided for or paid in respect of the financial year ended 30 June 2004.

Corporate Structure

Imugene Limited is a company limited by shares that is incorporated and domiciled in Australia. The Company has prepared a consolidated financial report incorporating the entities that it controlled during the financial year (this excludes Paragen Pty Ltd), which are outlined in the following illustration of the Group's corporate structure:

Note

Paragen Pty Ltd is not a controlled entity and therefore has not been included in the Consolidated Entity

Consolidated Results

	2004	2003 \$
Loss of the Consolidated Entity from ordinary activities before income tax expense Outside equity interest Income tax benefit Net loss	(2,785,629) $\overline{\phantom{0}}$ 669.954 (2, 115, 675)	(2,044,118) 699.060 (1.345.058)

Operating Results

The Consolidated Entity recorded a net loss of \$2,115,675 (2003: net loss of \$1,345,058) for the year ended 30 June 2004.

Post Balance Date Events

As at the date of this report there are no matters or circumstances, which have arisen since 30 June 2004 that have significantly affected or may significantly affect:

the operations, in financial vears subsequent to 30 June 2004, of the Consolidated Entity $(a)$ constituted by Imugene Limited and the entities it controls from time to time;
$(b)$ the results of those operations; or
the state of affairs, in financial vears subsequent to 30 June 2004, of the Consolidated Entity. $(c)$

Significant Changes in the State of Affairs

The following significant changes in the state of affairs of the Consolidated Entity occurred during the financial year and to the date of this report:

On 29 April 2004, the Company announced it had successfully completed animal trials which 客 demonstrated that a new vaccine developed by the Company prevented the disease known as Porcine Reproductive & Respiratory Syndrome (PRRS) in all vaccinated pigs;
On 20 May 2004, the Company announced the signing of a licence for the 'Receptor Mimic Technology', a $\searrow$ new platform technology for the prevention, treatment and diagnosis of gastrointestinal diseases in pigs: and
¥ On 24 June 2004, the Converting Preference Shares (CPS) issued as part consideration for the acquisition of VectoGen Pty Ltd automatically converted into 8,872 ordinary shares upon the market capitalisation milestone not being met by 23 June 2004. The CPS were originally convertible into a maximum of 14,745,265 ordinary shares.

Environmental Regulation

The Consolidated Entity's environmental obligations are regulated under both State and Federal laws. The Company has a policy of exceeding or at least complying with its environmental performance obligations.

During the financial year, the Consolidated Entity did not materially breach any particular or significant Commonwealth, State or Territory regulation in respect to environmental management.

Likely Developments

Due to the nature of the Consolidated Entity's business activities, the Directors are not able to state:

$(a)$ likely developments in the entities' operations; or
$(b)$ the expected results of these operations,

as to do so would result in unreasonable prejudice to the Consolidated Entity.

Information on Directors' Interests in Securities of Imugene

		Interest in Securities at the date of this Report		Interest in Securities issued/granted during the vear
	Ordinarv Shares ^t	Options ⁽²⁾	Executive Performance Options ⁽³⁾	Ordinary Shares ^t	Options ⁽²⁾	Executive Performance Options ⁽³⁾
Graham Dowland Warwick Lamb	6.766.668 6,353,334	23.334 46.667	2,500,000 2,500,000			2,500,000 2,500,000
Roger Steinepreis	\ 202.937	1.060.741

$(1)$ "Shares" means fully paid ordinary shares in the capital of the Company.

$(2)$ "Options" means an option to subscribe for one Share exercisable at 11.25 cents each on or before 31 December 2004.

"Executive Performance Options" means an option to subscribe for one Share exercisable on the terms and conditions $(3)$ outlined in Note 14(g) of the financial statements.

LIMITED

Meetings of Directors

The following table sets out the number of meetings of the Company's directors held during the year ended 30 June 2004, and the number of meetings attended by each director. No committees of the directors existed during the year ended 30 June 2004.

	Board Meetings
	No. eligible to attend	No. attended
Graham Dowland Warwick Lamb Roger Steinepreis

Share Options

At the date of this report the following options have been issued over unissued capital:

2,461,485 unlisted Options at an exercise price of \$0.1125 each (see Note 14(d) of the financial statements for further details of the terms and conditions of the Options).
4.633.333 unlisted Performance Options at an exercise price of \$0.225 each (see Note 14(e) of the financial statements for further details of the terms and conditions of the Performance Options).
6,000,000 unlisted Executive Performance Options (see Note 14(g) of the financial statements for further details of the terms and conditions of the Executive Performance Options). 3,000,000 of these Executive Performance Options vested on 31 December 2003 with an exercise price of \$0.30.

Dr Adrian Hodgson, a former employee of VectoGen Pty Ltd, currently holds 100,000 options to subscribe for ordinary shares in the issued capital of VectoGen Pty Ltd at an exercise price of \$0.56 each. Up to the date of this report, no shares have been issued as a result of the exercise of these options.

During the year, 936,792 fully paid ordinary shares were issued following the exercise of 936,792 options at \$0.1125 each. Since 30 June 2004, no fully paid ordinary shares have been issued as a result of the exercise of the Company's options.

Options issued to executives

Following shareholder approval, during the year 2,500,000 Executive Performance Options were issued to Graham Dowland as part of his remuneration package (1,250,000 vested on 31 December 2003 with an exercise price of \$0.30), 2,500,000 Executive Performance Options were issued to Dr Warwick Lamb as part of his remuneration package (1,250,000 vested on 31 December 2003 with an exercise price of \$0.30) and 1,000,000 Executive Performance Options were issued to Michael Sheppard as part of his remuneration package (500,000 vested on 31 December 2003 with an exercise price of \$0.30).

On 1 July 2004, 1,500,000 Executive Performance Options vested with an exercise price of \$0.25 each.

Up to the date of this report, no shares have been issued as a result of the exercise of these options. Terms and conditions of the Executive Performance Options are outlined in Note 14(g) of the notes to and forming part of the financial statements.

Converting Preference Shares

Converting Preference Shares (CPS) were issued in the previous year as part consideration for the acquisition of the balance of the outstanding equity on issue in Imugene's production animal subsidiary, VectoGen Pty Ltd.

Upon the satisfaction of various milestones the CPS were originally convertible into a maximum of 14,745,265 ordinary shares. The initial milestone was for an Australian Stock Exchange market capitalisation of Imugene to be in excess of \$33 million for a period of 20 consecutive days by 23 June 2004. This market capitalisation condition was not met and automatic conversion of the CPS into 8,872 ordinary shares occurred on 24 June 2004.

Directors' and Executives' Remuneration

The Board is responsible for determining the nature and amount of emoluments packages applicable to the Board members and senior executives of the Consolidated Entity. The Board's remuneration policy is to ensure the remuneration package properly reflects the executive officer's duties and responsibilities. Remuneration is aimed at being competitive in attracting, motivating and retaining executive officer's of the highest quality. A bonus scheme was established in August 2003 for executive directors, which provides for a cash bonus payable half yearly dependent upon the average share price over that period (refer Note 19(a)(2) of the financial statements for further details).

The emoluments (paid or payable) of each Director and the executive officers for the year ended 30 June 2004 are as follows:

	Base remuneration (salary & fees)	Bonuses	Super contributions	Options issued	Total

Current Directors
Graham Dowland	139.000	100,000	36,000	266,019	541.019
Warwick Lamb	160.550	100.000	15,998	266,019	542,567
Roger Steinepreis	25,000	$\overline{ }$			25,000
Executive Officers
Colin Hort	100,917		8.293		109.210
Mike Sheppard	131.243		11.812	106.407	249.462

Notes.

The elements of emoluments have been determined on the basis of the cost to the Consolidated Entity.

Executives are those directly accountable and responsible for the operational management and strategic direction of the Consolidated Entity.
The Consolidated Entity uses the fair value measurement provisions of AASB 1046 "Director and Executive Disclosures for Disclosing Entities" and the pending AASB 2 "Share-based Payment" prospectively for all options granted to directors and relevant executives, which have not vested as at 1 July 2003. The fair value of such grants is being amortised and disclosed as part of director and executive emoluments on a straight-line basis over the vesting period. No adjustments have been made or will be made to reverse amounts previously disclosed in relation to options that never vest (ie. forfeitures).

From 1 July 2003, options granted as part of director and executive emoluments have been independently valued using the Black-Scholes Option Valuation model, which takes account of factors including the option exercise price. the current level and volatility of the underlying share price, the risk-free interest rate, expected dividends on the underlying share, current market price of the underlying share and the expected life of the option. See below for further details.

Fair Value of Options

The fair value of each option is estimated on the date of grant using the Black-Scholes Option Valuation Model with the following assumptions used for grants made during the financial years ended 30 June 2003 and 30 June 2004;

	2004	2003
Dividend yield
Expected volatility	72%	100%
Historical volatility	72%	100%
Risk-free interest rate	5.56%	5.5%
Expected life of option	3.1 vears	4.6 vears

The dividend yield reflects the assumption that the current dividend payout will remain unchanged. The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

The resulting weighted average fair values per option for those options vesting after 1 July 2003 are:

Number of options	Grant date	Vesting date	Weighted average fair value
3.000.000	27 November 2003	31 December 2003	12.2 cents
1,500,000	27 November 2003	1 July 2004	13.4 cents
1,500,000	27 November 2003	1 July 2005	13.0 cents

Currently, these fair values are not recognised as expenses in the financial statements. However, should these grants be expensed, they would be amortised over the vesting periods resulting in an increase in expenses of \$638,445 for the 2004 financial year (2003: \$30,513). Note that no adjustments to these amounts have been made to reflect estimated or actual forfeitures (ie. options that do not vest).

Insurance of Officers and Auditors

During the year, no insurance premiums were paid by Imugene Limited to insure Directors, officers or auditors of the Company.

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

GRAHAM DOWLAND Executive Chairman Perth, Western Australia

30 August 2004

CORPORATE GOVERNANCE STATEMENT

The Board of Directors of Imugene Limited is responsible for its corporate governance, that is, the system by which the Company and its subsidiaries ("the Group") are managed.

$\overline{1}$ . Board of Directors

Role of the Board and Management $1.1$

The Board represents shareholders' interests in continuing a successful business, which seeks to optimise medium to long-term financial gains for shareholders. By not focusing on short-term gains for shareholders, the Board believes that this will ultimately result in the interests of all stakeholders being appropriately addressed when making business decisions.

The Board is responsible for ensuring that the Group is managed in such a way to best achieve this desired result. Given the current size and operations of the business, the Board currently undertakes an active, not passive role.

The Board is responsible for evaluating and setting the strategic directions for the Group, establishing goals for management and monitoring the achievement of these goals. The Managing Director is responsible to the Board for the day-to-day management of the Group.

The Board has sole responsibility for the following:

Appointing and removing the Managing Director and any other executives and approving their $\bullet$ remuneration:
$\ddot{\phantom{a}}$ Appointing and removing the Company Secretary / Chief Financial Officer and approving their remuneration:
Determining the strategic direction of the Group and measuring performance of management against Ä approved strategies:
Review of the adequacy of resources for management to properly carry out approved strategies and $\bullet$ business plans:
Adopting operating and capital expenditure budgets at the commencement of each financial year and $\ddot{\phantom{0}}$ monitoring the progress by both financial and non-financial key performance indicators:
Monitoring the Group's medium term capital and cash flow requirements;
Approving and monitoring financial and other reporting to regulatory bodies, shareholders and other organisations:
Determining that satisfactory arrangements are in place for auditing the Group's financial affairs;
Review and ratify systems of risk management and internal compliance and control, codes of conduct and $\bullet$ compliance with legislative requirements; and
$\bullet$ Ensuring that policies and compliance systems consistent with the Group's objectives and best practice are in place and that the Company and its officers act legally, ethically and responsibly on all matters.

The Board's role and the Group's corporate governance practices are being continually reviewed and improved as required.

Composition of the Board and New Appointments $1.2$ The Company currently has the following Board members:

Mr Graham Dowland	Executive Chairman
Dr Warwick Lamb	Managing Director
Mr Roger Steinepreis	Non-Executive Director

The Company's Constitution provides that the number of directors shall not be less than three and not more than ten. There is no requirement for any share holding qualification.

The Board considers that the Company is not currently of a size, nor are its affairs of such complexity to justify the appointment and further expense of an independent Non-Executive Chairman and additional independent Non-Executive Directors. The Board believes that the individuals on the Board can make, and do make, quality and independent judgments in the best interests of the Company on all relevant issues.

If the Company's activities increase in size, nature and scope the size of the Board will be reviewed periodically to determine the optimum number of directors required for the Board to properly perform its responsibilities and functions.

The membership of the Board, its activities and composition is subject to periodic review. The criteria for determining the identification and appointment of a suitable candidate for the Board shall include quality of the

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E-የአለምሮ ምሳሌ

individual, background of experience and achievement, compatibility with other Board members, credibility within the Company's scope of activities, intellectual ability to contribute to Board duties and physical ability to undertake Board duties and responsibilities.

Directors are initially appointed by the full Board subject to election by shareholders at the next annual general meeting. Under the Company's Constitution the tenure of directors (other than managing director, and only one managing director where the position is jointly held) is subject to reappointment by shareholders not later than the third anniversary following his last appointment. Subject to the requirements of the Corporations Act 2001, the Board does not subscribe to the principle of retirement age and there is no maximum period of service as a director. A managing director may be appointed for any period and on any terms the directors think fit and, subject to the terms of any agreement entered into, the Board may revoke any appointment.

$1.3$ Committees of the Board

The Board considers that the Company is not currently of a size, nor are its affairs of such complexity to justify the formation of separate or special committees at this time. The Board as a whole is able to address the governance aspects of the full scope of the Company's activities and to ensure that it adheres to appropriate ethical standards.

The Board has also established a framework for the management of the Group including a system of internal controls, a business risk management process and the establishment of appropriate ethical standards.

The full Board currently holds meetings at such times as may be necessary to address any general or specific matters as required.

If the Group's activities increase in size, scope and nature, the appointment of separate or special committees will be reviewed by the Board and implemented if appropriate.

Conflicts of Interest $1.4$

In accordance with the Corporations Act 2001 and the Company's Constitution, Directors must keep the Board advised, on an ongoing basis, of any interest that could potentially conflict with those of the Company. Where the Board believes that a significant conflict exists the Director concerned does not receive the relevant board papers and is not present at the meeting whilst the item is considered.

Independent Professional Advice $1.5$

The Board has determined that individual Directors have the right in connection with their duties and responsibilities as Directors, to seek independent professional advice at the Company's expense. The engagement of an outside adviser is subject to prior approval of the Chairman and this will not be withheld unreasonably. If appropriate, any advice so received will be made available to all Board members.

$2.$ Ethical Standards

The Board acknowledges the need for continued maintenance of the highest standard of corporate governance practice and ethical conduct by all Directors and employees of the Group.

Code of Conduct for Directors

The Board has adopted a Code of Conduct for Directors to promote ethical and responsible decision-making by the Directors. The code is based on a code of conduct for Directors prepared by the Australian Institute of Company Directors.

The principles of the code are:

A director must act honestly, in good faith and in the best interests of the Company as a whole.
A director has a duty to use due care and diligence in fulfilling the functions of office and exercising the $\bullet$ powers attached to that office.
A director must use the powers of office for a proper purpose, in the best interests of the Company as a $\bullet$ whole.
A director must recognise that the orimary responsibility is to the Company's shareholders as a whole but $\bullet$ should, where appropriate, have regard for the interest of all stakeholders of the Company.
A director must not make improper use of information acquired as a director.
A director must not take improper advantage of the position of director.
A director must not allow personal interests, or the interests of any associated person, to conflict with the $\blacksquare$ interests of the Company.
A director has an obligation to be independent in judgment and actions and to take all reasonable steps to $\blacksquare$ be satisfied as to the soundness of all decisions taken as a Board.
Confidential information received by a director in the course of the exercise of directorial duties remains $\blacksquare$ the property of the Company and it is improper to disclose it, or allow it to be disclosed, unless that

IMIIRFNF

@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@

disclosure has been authorised by the Company, or the person from whom the information is provided, or is required by law.

A director should not engage in conduct likely to bring discredit upon the Company.
A director has an obligation at all times, to comply with the spirit, as well as the letter of the law and with the principles of the Code.

The principles are supported by quidelines as set out by the Australian Institute of Company Directors for their interpretation. Directors are also obliged to comply with the Company's Code of Ethics and Conduct, as outlined below.

Code of Ethics and Conduct $2.2$

$\blacksquare$

The Company has implemented a Code of Ethics and Conduct, which provides quidelines aimed at maintaining high ethical standards, corporate behaviour and accountability within the Company.

All employees and directors are expected to:

respect the law and act in accordance with it:
respect confidentiality and not misuse Company information, assets or facilities;
. value and maintain professionalism:
avoid real or perceived conflicts of interest: $\bullet$
act in the best interests of shareholders:
by their actions contribute to the Company's reputation as a good corporate citizen which seeks the respect of the community and environment in which it operates:
perform their duties in ways that minimise environmental impacts and maximise workplace safety; Ä
exercise fairness, courtesy, respect, consideration and sensitivity in all dealings within their workplace and with customers, suppliers and the public generally; and
act with honesty, integrity, decency and responsibility at all times. $\ddot{\phantom{a}}$

An employee that breaches the Code of Ethics and Conduct may face disciplinary action. If an employee suspects that a breach of the Code of Ethics and Conduct has occurred or will occur, he or she must that breach to management. No employee will be disadvantaged or prejudiced if he or she reports in good faith a suspected breach. All reports will be acted upon and kept confidential.

Dealings in Company Securities

The Company's share trading policy imposes basic trading restrictions on all employees of the Company with 'inside information', and additional trading restrictions on the directors of the Company.

'Inside information' is information that:

is not generally available: and
if it were generally available, it would, or would be likely to influence investors in deciding whether to buy or sell the Company's securities.

If an employee possesses inside information, the person must not:

trade in the Company's securities:
advise others or procure others to trade in the Company's securities; or $\bullet$
pass on the inside information to others including colleagues, family or friends knowing (or where the $\bullet$ employee or Director should have reasonably known) that the other persons will use that information to trade in, or procure someone else to trade in, the Company's securities.

This prohibition applies regardless of how the employee or Director learns the information (eg. even if the employee or Director overhears it or is told in a social setting).

In addition to the above. Directors must notify the Company Secretary as soon as practicable, but not later than 5 business days, after they have bought or sold the Company's securities or exercised options. In accordance with the provisions of the Corporations Act and the Listing rules of the ASX, the Company on behalf of the Directors must advise the ASX of any transactions conducted by them in the securities of the Company.

Breaches of this policy will be subject to disciplinary action, which may include termination of employment.

www.communication.com

2.4 Interests of Other Stakeholders

The Company's objective is the development and commercialisation of animal health products for production animals and companion animals. Animal research is indispensable to this. The Company is dedicated to the ethical treatment of all animals used in the development of the products.

To assist in meeting its objective, the Company conducts its business within the Code of Ethics and Conduct, as outlined in 2.2 above.

$3.$ Disclosure of Information

Continuous Disclosure to ASX $3.1$

The continuous disclosure policy requires all executives and Directors to inform the Managing Director or in their absence the Company Secretary of any potentially material information as soon as practicable after they become aware of that information.

Information is material if it is likely that the information would influence investors who commonly acquire securities on ASX in deciding whether to buy, sell or hold the Company's securities.

Information is not material and need not be disclosed if:

a) A reasonable person would not expect the information to be disclosed, or is material but due to a specific valid commercial reason is not to be disclosed; and
$b)$ The information is confidential; or
One of the following applies: $\mathbf{c}$
It would breach a law or regulation to disclose the information; i.
ii. The information concerns an incomplete proposal or negotiation:
iii. The information comprises matters of supposition or is insufficiently definite to warrant disclosure:
The information is generated for internal management purposes; iv.
The information is a trade secret: v.
vi It would breach a material term of an agreement, to which the Company is a party, to disclose the information:
vii. It would harm the Company's actual or potential patent application; or
viii The information is scientific data that release of which may benefit the Company's potential competitors.

The Managing Director is responsible for interpreting and monitoring the Company's disclosure policy and where necessary informing the Board. The Company Secretary is responsible for all communications with ASX.

$3.2$ Communication with Shareholders

The Company places considerable importance on effective communications with shareholders.

The Group's communication strategy requires communication with shareholders and other stakeholders in an open, regular and timely manner so that the market has sufficient information to make informed investment decisions on the operations and results of the Group. The strategy provides for the use of systems that ensure a regular and timely release of information about the Group is provided to shareholders. Mechanisms employed include:

Announcements lodged with ASX; $\bullet$
ASX Quarterly Cash Flow Reports; $\bullet$
Half Yearly Report; $\bullet$
Presentations at the Annual General Meeting/General Meetings; and $\bullet$
Annual Report.

The Board encourages full participation of shareholders at the Annual General Meeting to ensure a high level of accountability and understanding of the Group's strategy and goals.

The Company also posts all reports, ASX and media releases and copies of significant business presentations on the Company's website (www.imugene.com).

$\overline{4}$ . Risk Management

$4.1$ Identification of Risk

The Board is responsible for the oversight of the Group's risk management and control framework. Responsibility for control and risk management is delegated to the appropriate level of management within the Group with the Managing Director and Chief Financial Officer having ultimate responsibility to the Board for the risk management and control framework.

Areas of significant business risk to the Group are highlighted in the Business Plan presented to the Board by the Managing Director each year.

Arrangements put in place by the Board to monitor risk management include monthly reporting to the Board in respect of operations and the financial position of the Group.

$4.2$ Integrity of Financial Reporting

Commencing 30 June 2004, the Company's Managing Director and Chief Financial Officer (or equivalent) report in writing to the Board that:

the consolidated financial statements of the Company and its controlled entities for each half and full year $\blacksquare$ present a true and fair view, in all material aspects, of the Company's financial condition and operational results and are in accordance with accounting standards:
the above statement is founded on a sound system of risk management and internal compliance and $\bullet$ control which implements the policies adopted by the Board; and
the Company's risk management and internal compliance and control framework is operating efficiently $\bullet$ and effectively in all material respects.

$4.3$ Role of Auditor

The Company's practice is to invite the auditor to attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor's report.

$5.$ Performance Review

The Board has adopted a self-evaluation process to measure its own performance and the performance of its committees during each financial year. Also, an annual review is undertaken in relation to the composition and skills mix of the directors of the Company.

Arrangements put in place by the Board to monitor the performance of the Group's executives include:

a review by the Board of the Group's financial performance: and
annual performance appraisal meetings incorporating analysis of key performance indicators with each individual to ensure that the level of reward is aligned with respective responsibilities and individual contributions made to the success of the Company.

6. Remuneration Arrangements

The broad remuneration policy is to ensure that remuneration properly reflects the relevant person's duties and responsibilities, and that the remuneration is competitive in attracting, retaining and motivating people of the highest quality. The Board believes that the best way to achieve this objective is to provide Executive Directors and executives with a remuneration package consisting of fixed components and incentives that reflect the person's responsibilities, duties and personal performance.

A bonus scheme is currently in place for executive directors, which provides for a cash bonus payable half yearly dependent upon the average share price over that period (see Note 19(a) of financial statements for further details).

The remuneration of Non-Executive Directors is determined by the Board as a whole having regard to the level of fees paid to non-executive directors by other companies of similar size in the industry.

The aggregate amount payable to the Company's Non-Executive Directors must not exceed the maximum annual amount approved by the Company's shareholders.

IMIIRFNF

LIMITED

COMPLIANCE WITH ASX CORPORATE GOVERNANCE RECOMMENDATIONS

Role of the Board and Management $\mathbf{1}$

Council Principle 1: Lay solid foundations for management and oversight

Council Recommendation 1.1: Formalise and disclose the functions reserved to the board and those delegated to management.

The Company complies with this recommendation. Refer Section 1.1 of Corporate Governance Statement.

Composition of the Board $2.$

Council Principle 2: Structure the board to add value

Council Recommendation 2.1: A majority of the board should be independent directors.

The Board considers that a majority of the Board is not independent in accordance with Recommendation 2.1, however the Board believes that the individuals on the Board can make, and do make, quality and independent judgments in the best interests of the Company on all relevant issues. Directors having a conflict of interest in relation to a particular item of business must and do absent themselves from the Board Meeting before commencement of discussion on the topic.

The Board considers that the Company is not currently of a size, nor are its affairs of such complexity to justify the expense of the appointment of independent Non-Executive Directors.

Refer Section 1.2 of Corporate Governance Statement.

Council Recommendation 2.2: The chairperson should be an independent director.

The Company's Chairman, Mr Graham Dowland, is considered by the Board not to be independent in terms of the ASX Corporate Governance Council's definition of independent director. However the Board believes that the Chairman is able and does bring quality and independent judgment to all relevant issues falling within the scope of the role of a Chairman.

The Board considers that the Company is not currently of a size, nor are its affairs of such complexity to justify the expense of the appointment of an independent Non-Executive Chairman.

Refer Section 1.2 of Corporate Governance Statement.

Council Recommendation 2.3: The roles of the chairperson and chief executive officer should not be exercised by the same individual.

The Company complies with this recommendation. Refer Section 1.2 of Corporate Governance Statement.

Council Recommendation 2.4: The board should establish a nomination committee.

The Board considers that the Company is not currently of a size to justify the formation of a nomination committee. The Board as a whole undertakes process of reviewing the skill base and experience of existing Directors to enable identification or attributes required in new Directors. Where appropriate independent consultants are engaged to identify possible new candidates for the Board.

The Board acknowledges this does not comply with recommendation 2.4 of the ASX Corporate Governance Guidelines. If the Company's activities increase in size, scope and nature, the appointment of a nomination committee will be reviewed by the Board and implemented if appropriate.

Refer Section 1.3 of Corporate Governance Statement.

Ethical and Responsible Decision-making 3.

Council Principle 3: Promote ethical and responsible decision-making.

Council Recommendation 3.1: Establish a code of conduct to quide the directors, the chief executive officer (or equivalent), the chief financial officer (or equivalent) and any other key executives as to:

$3.1.1$ the practices necessary to maintain confidence in the Company's integrity;
$3.1.2$ the responsibility and accountability of individuals for reporting and investigating reports of unethical practice.

The Company complies with this recommendation. Refer Sections 2.1 and 2.2 of Corporate Governance Statement

Council Recommendation 3.2: Disclose the policy concerning trading in Company securities by directors, officers and employees.

The Company complies with this recommendation. Refer Section 2.3 of Corporate Governance Statement.

4. Integrity of Financial Reporting

Council Principle 4: Safequard integrity in financial reporting.

Council Recommendation 4.1: Require the chief executive officer (or equivalent) and the chief financial officer (or equivalent) to state in writing to the board that the Company's financial reports present a true and fair view, in all material respects, of the Company's financial condition and operational results and are in accordance with relevant accounting standards.

Refer Section 4.2 of Corporate Governance Statement.

Council Recommendation 4.2: The board should establish an audit committee.

The Board considers that the Company is not of a size, nor are its financial affairs of such complexity to justify the formation of an audit committee. The Board as a whole undertakes the selection and proper application of accounting policies, the identification and management of risk and the review of the operation of the internal control systems.

The Board acknowledges this does not comply with recommendation 4.2 of the ASX Corporate Governance Guidelines. If the Company's activities increase in size, scope and nature, the appointment of an audit committee will be reviewed by the Board and implemented if appropriate.

Refer Section 1.3 of Corporate Governance Statement.

Council Recommendation 4.3: Structure the audit committee so that it consists of:

only non-executive directors:
a majority of independent directors:
an independent chairperson, who is not chairperson of the board;
at least three members.

Not applicable, Refer Recommendation 4.2.

Council Recommendation 4.4: The audit committee should have a formal operating charter.

Not applicable. Refer Recommendation 4.2.

Continuous Disclosure to ASX 5.

Council Principle 5: Make a timely and balanced disclosure

Council Recommendation 5.1: Establish written policies and procedures designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior management level for that compliance.

The Company complies with this recommendation, Refer Section 3.1 of Corporate Governance Statement.

Communication with Shareholders 6.

Council Principle 6: Respect the rights of shareholders

Council Recommendation 6.1: Design and disclose a communications strategy to promote effective communication with shareholders and encourage effective participation at general meetings.

The Company complies with this recommendation. Refer Section 3.2 of Corporate Governance Statement.

Council Recommendation 6.2: Request the external auditor to attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor's report.

The Company complies with this recommendation, Refer Section 4.3 of Corporate Governance Statement.

7. Risk Management

Council Principle 7: Recognise and manage risk

Council Recommendation 7.1: The Board or appropriate board committee should establish policies on risk oversight and management.

The Company complies with this recommendation. Refer Section 4.1 of Corporate Governance Statement.

Council Recommendation 7.2: The chief executive officer and the chief financial officer should state in writing that:

the statement given in accordance with best practice recommendation 4.1 is founded on a sound $721$ system of risk management and internal compliance and control which implements the policies adopted by the board:
the Company's risk management and internal compliance and control system is operating $7.2.2$ efficiently and effectively in all material respects.

The Company complies with this recommendation. Refer Section 4.2 of Corporate Governance Statement.

Performance 8.

Council Principle 8: Encourage enhanced performance

Council Recommendation 8.1: Disclose the process for performance evaluation of the board, its committees and individual directors, and key executives.

The Company complies with this recommendation. Refer Section 5 of Corporate Governance Statement.

Council Principle 9: Remunerate fairly and responsibly

Council Recommendation 9.1: Provide disclosure in relation to the Company's remuneration policies to enable investors to understand (i) the costs and benefits of those policies and (ii) the link between remuneration paid to directors and key executives and corporate performance.

The Company complies with this recommendation. Refer Section 6 of Corporate Governance Statement.

Council Recommendation 9.2: The board should establish a remuneration committee.

The Board considers that the Company is not currently of a size, nor are its affairs of such complexity to justify the formation of a remuneration committee. The Board as a whole is responsible for the remuneration arrangements for Directors and executives of the Company.

The Board acknowledges this does not comply with recommendation 9.2 of the ASX Corporate Governance Guidelines. If the Company's activities increase in size, scope and nature, the appointment of a remuneration committee will be reviewed by the Board and implemented if appropriate.

Refer Section 1.3 of Corporate Governance Statement.

Council Recommendation 9.3: Clearly distinguish the structure of non-executive directors' remuneration from that of executives.

The Company complies with this recommendation, Refer Section 6 of Corporate Governance Statement.

Council Recommendation 9.4: Ensure that payment of equity-based executive remuneration is made in accordance with thresholds set in plans approved by shareholders.

The Company complies with this recommendation. The Company currently has no equity-based remuneration plan.

10. Interests of Stakeholders

Council Principle 10: Recognise the legitimate interests of stakeholders

Council Recommendation 10.1: Establish and disclose a code of conduct to guide compliance with legal and other obligations to legitimate stakeholders.

The Company complies with this recommendation. Refer Section 2.4 of Corporate Governance Statement.

STATEMENT OF FINANCIAL PERFORMANCE FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

		Consolidated		Imugene
	Note	2004	2003	2004	2003
		\$	\$	\$	\$
Revenue from ordinary activities	$\overline{c}$	123,598	538,544	790,429	253,478
Research and development expense upon
acquisition	3(d)		(487, 936)
Research and development expenses		(885,791)	(456, 023)	(104, 945)
Business development		(249,780)		(124, 890)
Commercialisation expenses	3(a)	(734, 516)	(711,766)	(11,789)	(224, 830)
VosTech Business - restructure expenses Writedown of research and development	3(c)		(286, 346)		(286, 346)
investments	3(a)	(475, 496)		$-(2,200,000)$
Corporate and administrative expenses		(563, 644)		$(640,591)$ $(1,126,415)$	(469, 861)
Loss from ordinary activities before income tax revenue				$(2,785,629)$ $(2,044,118)$ $(2,777,610)$	(727, 559)
Income tax benefit relating to ordinary activities	4(a)	669,954		18,584
Loss from ordinary activities after income tax revenue				$(2, 115, 675)$ $(2, 044, 118)$ $(2, 759, 026)$	(727, 559)
Net loss attributable to outside equity interests	17		699,060
Loss attributable to members of Imugene Limited			$(2, 115, 675)$ $(1, 345, 058)$ $(2, 759, 026)$		(727, 559)

Total changes in equity other than those resulting from transactions with owners as
Owners attributable to members of Imugene			$(2, 115, 675)$ $(1, 345, 058)$ $(2, 759, 026)$		(727, 559)
Earnings per share
Basic earnings per share (cents per share)	23	(2.0)	(1.9)
Dilutive earnings per share (cents per share)	23	(2.0)	(1.9)

Notes to and forming part of the Statement of Financial Performance are set out on pages 20 to 46.

LIMITED

STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2004

		Consolidated		Imugene
	Note	2004	2003	2004	2003
		\$	\$	\$	\$
Current Assets
Cash assets	24(b)	962,743	2,617,829	775,121	2,229,530
Receivables	5			376,015	226,071
Tax assets	6	311,401		311,401
Other	7	75,450	44,927	2,152	5,495
Total Current Assets		1,349,594	2,662,756	1,464,689	2,461,096
Non-current Assets
Other financial assets	8		475,496	4,495,912	5,859,420
Property, plant and equipment	9	18,643	19,045	18,643	19,045
Intangible assets	10	4,647,725	4,986,792
Total Non-current Assets		4,666,368	5,481,333	4,514,555	5,878,465
TOTAL ASSETS		6,015,962	8,144,089	5,979,244	8,339,561
Current Liabilities
Payables	11	551,608	456,202	540,742	268,475
Provisions	12	32,686	10,264	32,686	10,264
Other	13		234,300
TOTAL LIABILITIES		584,294	700,766	573,428	278,739
NET ASSETS		5,431,668	7,443,323	5,405,816	8,060,822
EQUITY
Contributed equity	14	8,164,842	36,751,241	8,164,842	36,751,241
Reserves	15
Accumulated losses	16		$(2,733,174)$ $(29,307,918)$		$(2,759,026)$ $(28,690,419)$
Total Parent Entity Interest in Equity		5,431,668	7,443,323	5,405,816	8,060,822
Total Outside Equity Interest	17
TOTAL EQUITY		5,431,668	7,443,323	5,405,816	8,060,822

Notes to and forming part of the Statement of Financial Position are set out on pages 20 to 46.

LIMITED

STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

		Consolidated			Imugene
	Note	2004 \$	2003 \$	2004 \$	2003 \$
Cash flows from operating activities
Receipts from customers			547,419		42,513
Government grant received		43,000		43,000
Payments to suppliers & employees		(2,001,153)	(1,974,058)	(1,360,664)	(682, 609)
Research and development rebate		358,553
Interest received		80,598	29,470	66,485	23,248
Net cash flows used in operating activities		24(a) (1,519,002)	(1, 397, 169)	(1,251,179)	(616, 848)
Cash flows from investing activities
Proceeds from sales of property, plant and equipment			5,391		5,391
Loans to controlled entities				(301, 446)	(1,464,596)
Repayment of loans by controlled entities Acquisition of property, plant and equipment		(7, 173)	(23, 830)	(7, 173)	6,034 (23, 830)
Purchase of unlisted shares		(234, 300)	(314, 051)		(54, 273)
Purchase of controlled entity	24(d)		(30, 170)

Net cash flows used in investing activities		(241, 473)	(362,660)	(308, 619)	(1,531,274)
Cash flows from financing activities
Proceeds from issues of securities		105,389	3,846,904	105,389	3,846,904
Share issue expenses			(252, 208)		(252, 208)
Net cash flows from financing activities		105,389	3,594,696	105,389	3,594,696
Net increase/(decrease) in cash held		(1,655,086)	1,834,867	(1,454,409)	1,446,574
Cash at the beginning of the financial year		2,617,829	782,962	2,229,530	782,956
Cash at the end of the financial year	24(b)	962,743	2,617,829	775,121	2,229,530

Notes to and forming part of the Statement of Cash Flows are set out on pages 20 to 46.

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NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

It is prepared on an accruals basis and in accordance with the historical cost convention, except for certain assets which, as noted, are at valuation. The accounting policies adopted are consistent with those of the previous year. Comparative information is reclassified where appropriate.

$(a)$ Principles of Consolidation

The consolidated accounts incorporate the assets and liabilities of all entities controlled by Imugene Limited ("Company or Imugene") as at 30 June 2004 and the results of all controlled entities for the year then ended. Imugene and its controlled entities together are referred to in this financial report as the Consolidated Entity. The effects of all transactions between entities in the Consolidated Entity are eliminated in full. Outside equity interests in the results and equity of Controlled Entities are shown separately in the consolidated statement of financial performance and statement of financial position respectively.

$(b)$ Income Tax

Tax effect accounting procedures are followed whereby the income tax expense in the statement of financial performance is matched with the accounting profit (after allowing for permanent differences). The future tax benefit relating to tax losses is not carried forward as an asset unless the benefit is virtually certain of realisation. Income tax on cumulative timing differences is set aside to the deferred income tax or the future income tax benefit accounts at the rates which are expected to apply when those timing differences reverse.

$(c)$ Investments

Imugene's interests in listed and unlisted securities, other than controlled entities in the consolidated accounts, are brought to account at cost and dividend income is recognised in the statement of financial performance when received. The principles of consolidation of interests in controlled entities are set out in Note 1(a).

$(d)$ Recoverable Amount of Non-current Assets

The recoverable amount of an asset is the net amount expected to be recovered through net cash inflows arising from its continued use and subsequent disposal.

Where the carrying amount of a non-current asset is greater than its recoverable amount the asset is revalued to its recoverable amount. Discounted cash flows are used in determining recoverable amounts of non-current assets.

$(e)$ Employee benefits

Provision is made for employee benefits accumulated as a result of employees rendering services up to the reporting date. These benefits include wages and salaries, annual leave, superannuation and long service leave. Liabilities arising in respect of wages and salaries, annual leave, and any other employee benefits expected to be settled within twelve months of the reporting date are measured at their nominal amounts based on remuneration rates which are expected to be paid when the liability is settled.

All other employee benefit liabilities are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the reporting date. In determining the present value of future cash outflows, the market yield as at the reporting date on national government bonds which have terms to maturity approximating the terms of the related liability, is used.

IMUGENE ......................................

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NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

$(f)$ Earnings per Share

Basic Earnings per Share

Basic earnings per share is determined by dividing the operating loss after income tax attributable to members of Imugene by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year.

Diluted Earnings per Share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share by taking into account amounts unpaid on ordinary shares and any reduction in earnings per share that will probably arise from the exercise of options outstanding during the financial year.

Depreciation of property, plant and equipment $(g)$

Depreciation is calculated on a reducing balance or straight line basis to write off the net cost or revalued amount of each item of property, plant and equipment (excluding land) over its expected useful life to the Consolidated Entity. Estimates of remaining useful lives are made on a regular basis for all assets, with annual reassessments for major items. The expected useful lives are as follows:-

$2 - 15$ years Plant and equipment

Where items of property, plant and equipment have separately identifiable components which are subject to regular replacement, those components are assigned useful lives distinct from the item of property, plant and equipment to which they relate.

$(h)$ Intangibles

Goodwill

Goodwill, representing the excess of the cost of acquisition over the fair value of the identifiable net assets acquired, is amortised on a straight line basis over a period of 15 years.

Patents and Licences

Patents and licences are expensed as incurred.

Research and Development

Research and development costs are recognised as an expense when incurred, except to the extent that such costs, together with unamortised deferred costs in relation to that project, are expected, beyond any reasonable doubt, to be recoverable.

Any deferred research and development costs are amortised over the period in which the corresponding benefits are expected to arise, commencing with the commercial production of the product.

The unamortised balance of research and development costs deferred in previous periods is reviewed requiarly at each reporting date, to ensure the criterion for deferral continues to be met. Where such costs are no longer considered recoverable, they are written off as an expense.

Government grants received or receivable in relation to research and development costs, which are deferred, are deducted from the carrying amount. Grants received or receivable in relation to research and development costs, which are recognised as an expense during the current or previous periods, are recognised as revenue.

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NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

${ii}$ Cash

For the purposes of the statement of cash flows, cash includes deposits at call which are readily convertible to cash on hand and are subject to an insignificant risk of changes in value, net of outstanding bank overdrafts.

$(i)$ Revenue Recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. The following specific recognition criterion must also be met before revenue is recognised:

Sale of Goods - Control of the goods has passed to the buyer.

Interest - Control of a right to receive consideration for the provision of, or investment in, assets has been attained.

$(k)$ Comparative Amounts

Comparative figures are, where appropriate, reclassified so as to be comparable with the figures presented for the current financial vear.

The consolidated Statement of Financial Performance for the financial year ended 30 June 2003 has been reclassified as follows: .
Literatura et

	Consolidated
	2003	2003
	Reclassified amount \$	As previously stated \$
Revenue from ordinary activities	538,544	538,544
Research and development expense upon acquisition
	(487.936)	(487,936)
Research and development expenses	(456, 023)	(456, 023)
Business development
Commercialisation expenses	(711, 766)	(583, 415)
VosTech Business - restructure expenses	(286,346)	(286,346)
Writedown of research and development investments
Corporate and administrative expenses	(640, 591)	(548,164)
Other expenses from ordinary activities		(220,778)
Loss from ordinary activities before income tax revenue	(2,044,118)	(2,044,118)

The reclassification was undertaken to correctly classify the amortisation of goodwill, foreign exchange movement and payment of royalties according to their function. The reclassification has no impact on the loss attributable to the members of the Company for the financial year ended 30 June 2004.

IMLIGENE

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NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

		Consolidated		Imugene
	2004	2003	2004	2003
	\$	\$	\$	\$
2. REVENUE
Revenue from operating activities
Licensing fees		503,664
Management fees			680,944	224,830
		503,664	680,944	224,830
Revenue from non-operating activities
Interest received/receivable	80,598	29,470	66,485	23,247
Proceeds from sale of non-current assets		5,391		5,391
Government grant received	43,000		43,000
Other		19		10
	123,598	34,880	109,485	28,648
Total revenues from ordinary activities	123,598	538,544	790,429	253,478
(a) Expenses Depreciation of non-current assets:
- Plant & equipment	7,575	3,877	7,575	3,877
Commercialisation expenses
- Patent expenses	173,033	263,819	3,739
- Employee expenses	220,464	319,596	8,050	224,830
- Ammortisation of goodwill	341,019	128,351
Other provisions:
- Employee benefits	22,422	10,264	22,422	10,264
Recoverable amount writedown:
- Investments - other entities		54,273		54,273
- Investments - controlled entities			2,200,000
- Investments - research and development	475,496
- Property, plant and equipment		18,582		18,582
(b) Losses (Gains) Loss/(Profit) on sale of non-current assets:
- Property, plant & equipment		(5, 391)		(5, 391)

(c) Restructuring of VosTech Business

During the 2003 financial year, the Company incurred expenses associated with the restructuring of the VosTech business. As a result of the restructuring, the VosTech business was transferred into a joint venture entity that was responsible for the development and commercialisation of products associated with the VosTech business, including the Sprayfry technology.

Imugene has now divested its ownership and commitment to the development of the technology and has no further funding obligations. Imugene maintains a variable royalty percentage (based on sales levels) until 1 October 2007.

(d) Research and Development Expenses Upon Acquisition

Upon settlement of the acquisition of the indirect interest in VectoGen Pty Ltd by Imugene in the 2003 financial year, the Consolidated Entity was required to pay a one-off research and development cost of \$487,936 to CSIRO, which was incurred by VectoGen Pty Ltd upon Imugene completing the indirect acquisition of VectoGen Pty Ltd.

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NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

		Consolidated		Imugene
	2004	2003	2004	2003
. the contract of the contract of	-3	э	æ	S

4. INCOME TAX

(a) The aggregate amount of income tax attributable to the financial year differs from the amount calculated on the loss from ordinary activities before tax. The differences are reconciled as follows:

Loss from ordinary activities before tax	(2,785,629)	(2,044,118)	(2,777,610)	(727, 559)
Income tax calculated at $30\%$ (2003: $30\%$ ) Tax effect of permanent differences:	(835, 689)	(613, 235)	(833, 283)	(218, 267)
Non-deductible expenses	378,501	28,606	661,935	24,407
Amortisation of intangible assets	102,305	38,505
Tax losses not brought to account	354,883	546,124	171,348	193,860
Research and development rebate received $-$ year ended 30 June 2003	358,553
Research and development rebate receivable - year ended 30 June 2004	311,401		311,401
	669,954		311.401
Less net income tax expense arising under tax sharing arrangements with subsidiaries in the tax consolidated group			(292.817)
Income tax benefit attributable to loss from ordinary activities	669,954		18,584

(b) Future income tax benefits arising from tax losses and timing differences of controlled entities not brought to account at balance date as realisation of the benefit is not regarded as virtually certain:

2.087.911

1.733.028

1.423.362

1.252.014

Tax losses - calculated using a tax rate of 30%

This future income tax benefit will only be obtained if:-

future assessable income is derived of a nature and of an amount sufficient to enable the benefit to be $(i)$ realised:
the conditions for deductibility imposed by tax legislation continue to be complied with; and $(ii)$
no changes in tax legislation adversely affect the Consolidated Entity in realising the benefit. $(iii)$

Tax consolidation

Effective 1 July 2003, for the purposes of income taxation, Imugene Limited and its 100% owned subsidiaries will form a tax consolidated group. Members of the group will enter into a tax sharing arrangement in order to allocate income tax expense to the wholly-owned subsidiaries on a pro-rata basis. In addition, the agreement will provide for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. As at balance date, the possibility of default is remote. The head entity of the tax consolidated group is Imugene Limited.

There is no material effect on the future income tax benefits as a result of the revised tax legislation. Imugene will formally notify the Australian Taxation Office of its adoption of the tax consolidation regime when lodging its 30 June 2004 consolidated tax return.

5. CURRENT ASSETS - Receivables

Receivables - wholly owned entities	-	٠	376.015	226.071
6. CURRENT ASSETS - Tax assets
Research and development rebate	311.401	$\blacksquare$	311.401	$\overline{\phantom{0}}$

IMLIGENE

Manazini Alexandria LIMITED

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

	Consolidated		Imugene
	2004 \$	2003 \$	2004 \$	2003 \$
7. CURRENT ASSETS - Other
GST Refundable	73,298	39,432
Other	2,152	5,495	2,152	5,495
	75,450	44,927	2,152	5,495
8. NON-CURRENT ASSETS - Other Financial Assets
Investments - controlled entities
- At cost (Note $8(a)$ )			6,695,912	5,859,420
- Recoverable amount write down			(2,200,000)
Total Investments - controlled entities			4,495,912	5,859,420
Investments - other entities
- At $cost$ (Note $8(b)$ )	475,496	529,769		54,273
- Recoverable amount write down	(475, 496)	(54, 273)		(54, 273)
Total Investments - other entities	$\overline{\phantom{a}}$	475,496	$\blacksquare$
		475,496	4,495,912	5,859,420

(a) Investments in Controlled Entities

Name of Entity	Country of Incorporation	Class of Shares	Equity Holding
			2004 %	2003 %
Controlled Entities
Brightsun Investments Pty Ltd	Australia	Ordinary	100	100
VectoGen Pty Ltd	Australia	Ordinary	100	100
BioMimic Technologies Ltd	Australia	Ordinary	100	۰

Note.

VectoGen Pty Ltd changed status during the year from a public company (Ltd) to a proprietary company (Pty Ltd)

(b) Investments in Other Entities

Name of Entity	Principal Activities		Equity Holding	Carrying Value of Investment
		2004	2003	2004	2003
		%	%		S
VosTech Pty Ltd	Development and commercialisation of Sprayfry technology	$\blacksquare$	40	$\overline{\phantom{0}}$
Paragen Pty Ltd	Development of biological flea vaccine	37.5	37.5	$\overline{\phantom{0}}$	475.496

ezhoù ana

LIMITED

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

8. NON-CURRENT ASSETS - Other Financial Assets (continued)

(c) Wholly-owned Group

Details of interests in wholly-owned controlled entities are set out at Note 8(a). Details of dealings with controlled entities are as follows:

Inter-company Account

Imugene provides working capital to its controlled entities. Transactions between Imugene and other controlled entities in the wholly owned Group during the year ended 30 June 2004 consisted of:

Working capital advanced by Imugene Limited; $\left( i\right)$
(ii) Working capital repaid to Imugene Limited; and
$(iii)$ Provision of services by Imugene Limited to its controlled entities.

The above transactions were made interest free with no fixed terms for the repayment of principal on the working capital advanced by Imugene Limited.

At balance date amounts receivable from controlled entities totalled \$376,015 (2003: \$226,071).

(c) Ultimate Parent Company

The ultimate parent company in the wholly-owned Group is Imugene Limited.

	Consolidated		Imugene
	2004 2003		2004	2003
	\$	\$	\$	\$
9. NON-CURRENT ASSETS - Property, Plant and Equipment
Plant & equipment
At cost	26,420	19,247	26,420	19,247
Accumulated depreciation	(11, 103)	(3,798)	(11, 103)	(3,798)
Total plant and equipment (Note 9(a))	15,317	15,449	15,317	15,449
Motor Vehicles
At cost
Accumulated depreciation
Total motor vehicles (Note 9(a))
Fixtures and Fittings
At cost	3,675	3,675	3,675	3,675
Accumulated depreciation	(349)	(79)	(349)	(79)
Total fixtures and fittings (Note 9(a))	3,326	3,596	3,326	3,596
Total Written down value	18,643	19,045	18,643	19,045

MUGENE

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

9. NON-CURRENT ASSETS - Property, Plant and Equipment (continued)

	Consolidated		Imugene
	2004	2003	2004	2003
	\$	\$	\$	\$
(a) Reconciliations

Plant and Equipment
Carrying amount at beginning of year	15,449	14,543	15,449	14,543
Additions	7,173	20,156	7,173	20,156
Writedown to recoverable amount		(15, 452)		(15, 452)
Depreciation expense	(7,305)	(3,798)	(7, 305)	(3,798)
Total plant & equipment	15,317	15,449	15,317	15,449
Motor Vehicles
Carrying amount at beginning of year		3,130		3,130
Writedown to recoverable amount		(3, 130)		(3, 130)
Total motor vehicles			÷

Fixtures and Fittings
Carrying amount at beginning of year	3,596		3,596
Additions		3,675		3,675
Depreciation	(270)	(79)	(270)	(79)
Total fixtures and fittings	3,326	3,596	3,326	3,596

10. NON-CURRENT ASSETS - Intangible assets
Goodwill - at cost	5,117,095	5,115,143
Accumulated amortisation	(469,370)	(128, 351)
	4,647,725	4,986,792

11. CURRENT LIABILITIES - Payables
Trade and other creditors	551,608	421,998	219,442	234,281
Income tax payable arising under tax sharing
arrangements with subsidiaries in the tax
consolidated group			292,817
GST Payable		34,204	28,483	34,194
	551,608	456,202	540,742	268,475
12. CURRENT LIABILITIES - Provisions

Provision for annual leave (Note 18)	32,686	10,264	32,686	10,264

13. CURRENT LIABILITIES - Other
Deferred consideration - additional investment in
Paragen Pty Ltd		234,300
14. CONTRIBUTED EQUITY

(a) Issued and paid up capital:
108,118,080 (2003: 107,172,416) fully paid ordinary
shares	8,164,842	36,751,241	8,164,842	36,751,241

IMUGENE esti ilgini ali provinci ilgini ali provinci ali provinci ali provinci ali provinci ali provinci ali provinci

LIMITED

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

14. CONTRIBUTED EQUITY (continued)

(b) Movements in ordinary share capital during the past two years were as follows:-

Date	Details	Number of Shares	Number of \$0.225 Performance Options	Number of \$0.1125 Options	Number of Executive Performance Options	\$



































30/06/04	Closing Balance	108,118,080	4,633,333	2,461,485	6,000,000	8,164,842

Notes.

Expiry of options with an exercise price of \$2.50 each and transfer of associated option premium to $(i)$ contributed equity (see Note 15).

Following shareholder approval, on 30 August 2002 the Company completed the acquisition of a 100% $(ii)$ interest in Brightsun Investments Pty Ltd.

Following shareholder approval, on 30 August 2002 the Company issued and allotted 50,000,000 fully $(iii)$ paid ordinary shares pursuant to a placement.

Issue of fully paid ordinary shares made pursuant to a pro rata entitlements issue. $(iv)$

Represents costs associated with pro rata entitlements issue and placement to raise working capital. $(v)$

$(v_i)$ Consolidation of share capital on the basis of one share for every 7.5 held following shareholder approval.

Issue and allotment of fully paid ordinary shares pursuant to the Company's Share Purchase Plan. $(vii)$

$(viii)$ Costs associated with the Share Purchase Plan allotment.

$(ix)$ Exercise of unlisted options at \$0.1125 per option.

Issue and allotment of fully paid ordinary shares and options to a former employee as part of a termination $(x)$ package.

$(x_i)$ Issue and allotment of fully paid ordinary shares to Dr Kevin Fahey.

IMLIGENE

2382222383823

e i Miter

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

14. CONTRIBUTED EQUITY (continued)

Issue and allotment of unlisted Performance Options to Southern Cross Equities and Dr Kevin Fahey. $(xii)$
(xiii) Issue and allotment of unlisted Performance Options to employees.
$(xiv)$ Issue and allotment of unlisted Options to Dr Colin Hort.
Issue and allotment of fully paid ordinary shares to Australian Pork Limited as consideration for their $(xy)$ shareholding in VectoGen Pty Ltd. which was acquired by Imugene.
Exercise of unlisted options at \$0.1125 per option. $(xvi)$
Exercise of unlisted options at \$0.1125 per option. (xvii)
Following shareholder approval, issue and allotment of fully paid ordinary shares and Convertible $(xvii)$ Preference Shares to acquire the remaining shares in VectoGen Pty Ltd not held by the Company. $(xix)$ Exercise of unlisted options at \$0.1125 per option.
Placement of fully paid ordinary shares. $(xx)$
Costs associated with share placement referred to in paragraph (xx) of this note. $(xxi)$
$(xxi)$ Exercise of unlisted options at \$0.1125 per option.
Exercise of unlisted options at \$0.1125 per option. (xxiii)
Following shareholder approval, share capital was reduced by applying the amount of cancelled paid up $(xxiv)$ capital of \$28,690,419 against carried forward accumulated losses (see Note 16).
Issue and allotment of unlisted Executive Performance Options subject to vesting conditions to Graham $(xxv)$ Dowland, Warwick Lamb and Michael Sheppard (see Note 14(g) for terms and conditions).
(xxvi) Exercise of unlisted options at \$0.1125 per option.
(xxvii) Exercise of unlisted options at \$0.1125 per option.
Converting Preference Shares (CPS) issued as part consideration for the acquisition of VectoGen Pty Ltd (xxviii) automatically converted into ordinary shares upon market capitalisation milestone not being met by 23 June 2004.
Exercise of unlisted options at \$0.1125 per option. $(xxi)$
$(xxx)$ Costs associated with share issues referred to in paragraphs (xx) of this note.

$(c)$ Rights attaching to Shares

The rights attaching to fully paid ordinary shares ("Shares") arise from a combination of the Company's Constitution, statute and general law.

Shares issued following the exercise of Options in accordance with Note 14(d) will rank equally in all respects with the Company's existing Shares.

Copies of the Company's Constitution are available for inspection during business hours at the Company's registered office. The clauses of the Constitution contain the internal rules of the Company and define matters such as the rights, duties and powers of its shareholders and directors, including provisions to the following effect (when read in conjunction with the Corporations Act 2001 or Listing Rules):

i) Shares

The issue of shares in the capital of the Company and options over unissued shares by the Company is under the control of the Directors, subject to the Corporations Act 2001, ASX Listing Rules and any rights attached to any special class of shares.

ii) Transfer of Shares

The Company participates in the electronic share registration and transfer system known as CHESS operated by ASX under the Security Clearing House Business Rules. Accordingly, the Company will issue holding statements in lieu of share certificates. The Company will not charge any fee for registering a transfer of shares. The Directors may refuse to register a transfer of shares, or request SCH to apply a holding lock to prevent a proper SCH transfer, in the circumstances identified in the Constitution or as otherwise permitted or required under the Corporations Act 2001 or Listing Rules.

iii) Meetings of Members

Directors may call a meeting of members whenever they think fit. Members may call a meeting as provided by the Corporations Act 2001. The Constitution contains provisions prescribing the content requirements of notices of meetings of members and all members are entitled to a notice of meeting. A meeting may be held in two or more places linked together by audio-visual communication devices.

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

14. CONTRIBUTED EQUITY (continued)

A quorum for a meeting of members is 2 natural persons, each of whom is or represents different Shareholders who are eligible to vote.

The Company holds annual general meetings in accordance with the Corporations Act 2001 and the Listing Rules.

iv) Voting

Subject to any rights or restrictions for the time being attached to any shares or class of shares of the Company, each member of the Company is entitled to receive notice of, attend and vote at a general meeting. Resolutions of members will be decided by a show of hands unless a poll is demanded. On a show of hands each eligible voter present has one vote. However, where a person present at a general meeting represents personally or by proxy, attorney or representative more than one member, on a show of hands the person is entitled to one vote only despite the number of members the person represents.

On a poll each eligible member has one vote for each fully paid share held and a fraction of a vote for each partly paid share determined by the amount paid up on that share.

V) Dividends

Subject to any rights attaching to shares that may in the future be issued with special or preferred rights, the Directors may fix the amount, the time for payment and the method of payment of a dividend. Subject to any special rights attaching to shares (such as preference shares), dividends will be paid proportionately to the number of shares held by each member. The Company is not required to pay any interest on dividends.

vi) Winding Up

If on a winding up of the Company there remains a surplus, then under the Constitution and subject to any rights attaching to shares which may in the future be issued with special or preferred rights, all assets representing the surplus that may be legally distributed among Shareholders shall be so distributed in proportion to the number of shares held by each Shareholder.

vii) Dividend Plans

The Company's Constitution contains a provision allowing directors to implement a dividend reinvestment plan and a dividend selection plan. It is not currently intended that either a dividend reinvestment, or dividend selection plan will be implemented.

viii) Changes to the Constitution

The Company's Constitution can only be amended by a special resolution passed by at least three quarters of the members present and voting at a general meeting of the Company. At least 28 days' written notice specifying the intention to propose the resolution as a special resolution must be given.

$\mathbf{ix}$ Share Buv-Backs

The Company may buy-back Shares in itself in accordance with the provisions of the Corporations Act 2001.

x) Listing Rules

Provided the Company remains admitted to the Official List, then despite anything in its Constitution, no act may be done that is prohibited by the Listing Rules, and authority is given for acts required to be done by the Listing Rules. The Company's Constitution will be deemed to comply with the Listing Rules as amended from time to time.

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

14. CONTRIBUTED EQUITY (continued)

Terms and Conditions of \$0.1125 Options $(d)$

The terms and conditions of the \$0.1125 Options are as follows:

$(i)$ each option entitles the holder, when exercised, to one (1) Share:
$(ii)$ the options are exercisable at any time up to and including 31 December 2004;
$(iii)$ the exercise price of the options is 11.25 cents each (on a post-consolidation basis);
$(iv)$ subject to the Corporations Act 2001, the Constitution and the ASX Listing Rules, the options are fully transferable:
the options are exercisable by delivering to the registered office or share register of the Company $(v)$ a notice in writing stating the intention of the option holder to exercise a specified number of options, accompanied by an option certificate, if applicable, and a cheque made payable to the Company for the subscription monies due, subject to the funds being duly cleared funds. The exercise of only a portion of the options held does not affect the holder's right to exercise the balance of any options remaining:
$(v_i)$ all shares issued upon exercise of the options will rank pari passu in all respects with the Company's then issued shares. The options will be unlisted;
$(vii)$ there are no participating rights or entitlements inherent in the options and holders will not be entitled to participate in new issues of options to shareholders during the currency of the options. However, the Company will ensure that, for the purpose of determining entitlements to any issue. Option holders will be notified of the proposed issue at least seven (7) business days before the record date of any proposed issue. This will give option holders the opportunity to exercise the options prior to the date for determining entitlements to participate in any such issue;
in the event of any reconstruction (including consolidation, subdivision, reduction or return of (viii) capital) of the issued capital of the Company prior to the expiry date of the options, all rights of the option holder will be varied in accordance with the ASX Listing Rules; and
in the event the Company makes a pro rata issue of securities, the exercise price of the options $(ix)$ may change in accordance with the formula set out in ASX Listing Rule 6.22.2.

$(e)$ Terms and Conditions of Performance Options

The terms and conditions of the Performance Options are as follows:

$(i)$ each option entitles the holder, when exercised, to one (1) Share;
$(ii)$ $(a)$ Dr Michael Sheppard, Dr Colin Hort and Dr Kevin Fahey -50% of the options are exercisable during the period from 1 December 2003 to 31 October 2007, the balance of the options are exercisable during the period from 1 December 2004 to 31 October 2007:
$(b)$ Southern Cross Equities Limited having successfully completed the capital raising by 31 December 2003, the options are exercisable during the period from 1 January 2004 to 31 October 2007;
$(iii)$ the exercise price of the options is 22.5 cents each:
the options are exercisable by delivering to the registered office or share register of the Company $(iv)$ a notice in writing stating the intention of the option holder to exercise a specified number of options, accompanied by an option certificate, if applicable, and a cheque made payable to the Company for the subscription monies due, subject to the funds being duly cleared funds. The exercise of only a portion of the options held does not affect the holder's right to exercise the balance of any options remaining;

IMUGENE www.andron.com/www.andron.com/www.andron.com/www.andron.com/www.andron.com/www.andron.com/www.andron.com/www.a

CHOOLOGISLAAGE

e baitet

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

14. CONTRIBUTED EQUITY (continued)

$(e)$ Terms and Conditions of Performance Options (continued)

$(v)$ all shares issued upon exercise of the options will rank pari passu in all respects with the Company's then issued shares. The options will be unlisted:
$(v_i)$ there are no participating rights or entitlements inherent in the options and holders will not be entitled to participate in new issues of options to shareholders during the currency of the options. However, the Company will ensure that, for the purpose of determining entitlements to any issue, Option holders will be notified of the proposed issue at least seven (7) business days before the record date of any proposed issue. This will give option holders the opportunity to exercise the options prior to the date for determining entitlements to participate in any such issue:
$(vii)$ in the event of any reconstruction (including consolidation, subdivision, reduction or return of capital) of the issued capital of the Company prior to the expiry date of the options, all rights of the option holder will be varied in accordance with the ASX Listing Rules; and
$(viii)$ in the event the Company makes a pro rata issue of securities, the exercise price of the options will change in accordance with the formula set out in ASX Listing Rule 6.22.2.

$(f)$ Terms and Conditions of Converting Preference Shares

The terms and conditions of the Converting Preference Shares ("CPS") prior to their conversion into 8.872 ordinary shares on 24 June 2004 were as follows:

each series of CPS converts into the following number of fully paid ordinary shares upon $(i)$ achieving the market capitalisation milestone (market capitalisation of Imugene reaching \$33 million for a period of 20 consecutive trading days at any time within a 12 month period ending on 23 June 2004) and the relevant commercial milestone being achieved, as follows:

CPS Series	Commercial Milestone	Expiry Date	No. of Ordinary Shares to be issued for each CPS	No. of CPS on issue in each class as at 1 July 2003	Max No. of Ordinary Shares to be issued if CPS conditions are met

Series A	Merial Limited executing a "FAV Gamma"
	sublicence agreement with VectoGen.	23 Dec 04	1.662	5.324	8.848.488
Series B	Merial Limited executing a "FAV IB"
	sublicence agreement with VectoGen.	23 Dec 04	1.662	1.774	2.948.388
Series C	Merial Limited executing a "PAV Respiratory"
	Product" sublicence agreement with
	VectoGen.	23 Dec 04	1.662	1.774	2,948,388
Total				8,872	14,745,264

$(ii)$ If either the market capitalisation milestone or the relevant commercial milestone is not achieved by the expiry date, then each CPS (for the respective series) will automatically convert into one fully paid ordinary share;
$(iii)$ the CPS are entitled to a cumulative dividend of 5% on the face value of the CPS (\$1.00);
$(iv)$ all shares issued upon conversion of CPS will rank pari passu in all respects with the Company's then issued shares. The CPS will be unlisted: and
in the event of any reconstruction (including consolidation, subdivision, reduction or return of $(v)$ capital) of the issued capital of the Company prior to the expiry date of the CPS, all rights of the CPS holder will be varied in accordance with the ASX Listing Rules.

2222223323 e intern

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

14. CONTRIBUTED EQUITY (continued)

Terms and Conditions of Executive Performance Options $(a)$

The material terms and conditions of the Executive Performance Options are as follows:

Holder	Tranche 1- Number of options vested on 31 December 2003 exercisable @\$0.30	Tranche 2- Number of options vested on 1 July 2004 exercisable $@$ \$0.25	Tranche 3-Number of options vesting on 1 July 2005 exercisable $@$ - refer para (c) below	Total
Mr Graham Dowland	1,250,000	625,000	625,000	2,500,000
Dr Warwick Lamb	1,250,000	625,000	625,000	2,500,000
Dr Michael Sheppard	500,000	250,000	250,000	1,000,000
	3.000.000	1,500,000	1,500,000	6,000,000

$(i)$ each option entitles the holder, when exercised, to one (1) Share;

$(ii)$ the options are exercisable from the date of Vesting to 31 December 2006. The options vest as follows:

Tranche $1(50\%)$ :	31 December 2003
Tranche $2(25%)$ :	1 July 2004
Tranche $3(25%)$ :	1 July 2005;

$(iii)$ the exercise price of the options is as follows:

Tranche 1 (50%) :	30 cents each:
Tranche 2 (25%):	the market weighted average price of the Company's shares as traded
	on the ASX in the period 1 July 2003 to 30 June 2004 (determined to be $$0.25$ each):
Tranche 3 (25%):	the market weighted average price of the Company's shares as traded
	on the ASX in the period 1 July 2004 to 30 June 2005;

$(iv)$ the options are exercisable by delivering to the registered office or share register of the Company a notice in writing stating the intention of the option holder to exercise a specified number of options, accompanied by an option certificate, if applicable, and a cheque made payable to the Company for the subscription monies due, subject to the funds being duly cleared funds. The exercise of only a portion of the options held does not affect the holder's right to exercise the balance of any options remaining;
all shares issued upon exercise of the options will rank pari passu in all respects with the $(v)$ Company's then issued shares. The options will be unlisted;
$(v_i)$ there are no participating rights or entitlements inherent in the options and holders will not be entitled to participate in new issues of options to shareholders during the currency of the options. However, the Company will ensure that, for the purpose of determining entitlements to any issue. option holders will be notified of the proposed issue at least seven (7) business days before the record date of any proposed issue. This will give option holders the opportunity to exercise the options prior to the date for determining entitlements to participate in any such issue:
$(vii)$ in the event of any reconstruction (including consolidation, subdivision, reduction or return of capital) of the issued capital of the Company prior to the expiry date of the options, all rights of the option holder will be varied in accordance with the ASX Listing Rules;
$(viii)$ in the event the Company makes a pro rata issue of securities, the exercise price of the options will change in accordance with the formula set out in ASX Listing Rules;
$(ix)$ in the event that before a Vesting Date the employee's employment with the Company is terminated either:
by the Company as a consequence of a negligent act by the employee involving $(a)$ the Company or the employee is convicted of a criminal offence; or
by the employee by giving notice to the Company; $(h)$

the options that have not vested to the employee shall immediately expire; and

24522291813534

LIMITED

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

14. CONTRIBUTED EQUITY (continued)

Terms and Conditions of Executive Performance Options (continued) $(g)$

$(x)$ in the event that the employee's employment is terminated due to incapacity or illness, he shall be entitled to exercise at any time prior to the expiry of the options, those options which, at the date of such termination, would have been able to have been exercised and the balance of the options shall immediately expire.

	Consolidated		Imugene
	2004	2003	2004	2003
	S	\$	\$	\$
15. RESERVES
Option Premium Reserve
Opening balance		240,000		240,000
Transfer to contributed equity (see Note 14(b))		(240,000)	٠	(240,000)
Closing balance
16. ACCUMULATED LOSSES
Balance at the beginning of the year	29,307,918	27,962,860	28,690,419	27,962,860
Reduction of share capital (see Note 14(b))	(28,690,419)		$-(28,690,419)$
Net loss	2,115,675	1,345,058	2,759,026	727,559
Balance at the end of the year	2,733,174	29,307,918	2,759,026	28,690,419

(a) Franking Credits

In respect to the payment of dividends (if any) by Imugene in subsequent financial years, no franking credits are currently available, or are likely to become available in the next 12 months.

17. OUTSIDE EQUITY INTEREST

585.578
(699,060)

113.482	$\blacksquare$

18. EMPLOYEE ENTITLEMENTS

Employee Benefits

The aggregate employee benefit liability is comprised of: 32.686 Provisions - (current) (see Note 12) 10,264 32.686 10.264

IMUGENE ...................................... ilingungung di serieu

e baitet

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

19. DIRECTOR AND EXECUTIVE DISCLOSURES

(a) Remuneration of Specified Directors and Specified Executives		Salary & Fees	Bonus $^{(2)}$	Super- annuation benefits	Value of options ⁽³⁾	Total
		\$	\$	\$	\$	\$
Specified Directors
Mr Graham Dowland (Executive Chairman)	2004	139,000	100,000	36,000	266,019	541,019
	2003	105,667		20,469		126,136
Dr Warwick Lamb (Managing Director)	2004	160,550	100,000	15,998	266,019	542,567
	2003	75,062		6,756		81,818
Mr Roger Steinepreis (Non-Executive Director)	2004	25,000				25,000
	2003
Total Remuneration - Specified Directors	2004	324,550	200,000	51,998	532,038	1,108,586
	2003	180,729		27,225		207,954
Specified Executives ⁽⁴⁾
Current Executives
Dr Colin Hort (Commercial Manager)	2004	100,917		8,293		109,210
	2003	63,402		5,706	10,613	79,721
Dr Michael Sheppard (Chief Scientific Officer)	2004	131,243		11,812	106,407	249,462
	2003	18,858		1,697	19,900	40,455
Former Executives
Dr Adrian Hodgson (CEO - VectoGen)	2004
	2003	59,185		16,055		75,240
Total Remuneration - Specified Executives	2004	232,160	$\blacksquare$	20,105	106,407	358,672
	2003	141,445		23,458	30,513	195,416
Matan

$(1)$ During the financial year, no remuneration was paid in the form of a long-term incentive bonus, non-monetary benefit,

prescribed benefit or other benefit to a specified director or specified executive. $(2)$

Following an independent review of the Executive Directors' remuneration, which indicated that the Executive Directors 'fixed' remuneration was in the lowest 25% for the biotechnology industry, the Board implemented a cash bonus arrangement to supplement the Executive Directors fixed salary. This bonus is based on the Company's share price and
has been implemented for the period 1 July 2003 to 30 June 2005. The bonus, if any, is payable in January is based on the Company's simple average daily share price over a period of 30 consecutive business days during the previous 6 month period as detailed in the table below. The simple average daily share price of the Company for the 6 month period prior to implementing the 'risked' component of the Executive Directors' remuneration (ie. the period 1 July 2002 to 30 June 2003) was \$0.124:

Simple average daily share price achieved over 30 consecutive	Cash Bonus
business days during 6 month period
> \$0.15	10.000
> \$0.20	25.000
> \$0.25	50.000
> \$0.30	75.000

$>$ \$0.40

The maximum bonus payable each year is limited to \$200,000 per Executive Director.

The fair value of the options has been independently calculated at the date of grant using a Black-Scholes model and $(3)$ allocated to each reporting period evenly over the period from grant date to vesting date. The value disclosed above is the portion of the fair value of the options allocated to this reporting period (see Note 14(e) and (g) for terms and conditions of Performance Options and Executive Performance Options respectively).

150,000

Other than as outlined above, there were no other executive officers of the Company during the year. $(4)$
ÀS) Salary, superannuation and bonuses paid to Mr Dowland were in accordance with his Executive Services Agreement of \$175,000 per annum (inclusive of superannuation) plus a bonus in accordance with (2). Equity based remuneration was granted pursuant to shareholder approval.
$(6)$ Salary, superannuation and bonuses paid to Dr Lamb were in accordance with his Executive Services Agreement of \$175,000 per annum (inclusive of superannuation) plus a bonus in accordance with (2). Back-pay for an amount of \$1,548 was owed to Dr Lamb for the previous financial vear in relation to superannuation. Equity based remuneration was granted pursuant to shareholder approval.
Salary, superannuation and bonuses paid to Dr Hort were in accordance with his Executive Services Agreement of $(7)$ \$110,000 per annum (inclusive of superannuation).
Salary, superannuation and bonuses paid to Dr Sheppard were in accordance with his Executive Services Agreement of $(8)$ \$140,000 per annum (inclusive of superannuation). Back-pay for an amount of \$3,055 was owed to Dr Sheppard for the previous financial year in relation to salary and superannuation. Equity based remuneration was granted pursuant to shareholder approval.

IMLIGENE www.althumana.com/www.althumana.com/

---------------------------------------LIMITED

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

19. DIRECTOR AND EXECUTIVE DISCLOSURES (continued)

(b) Option holdings and transactions

Options exercisable @ \$0.1125 each on or before 31	Held at 1 July	Granted as remuneration	Exercised	Other changes	Held at 30 June	Vested and exercisable
December 2004 (see Note 14(d) for terms and conditions)	2003				2004	at 30 June 2004
Specified Directors ⁽¹⁾
Mr Graham Dowland	23,334		$\blacksquare$		23.334	23.334
Mr Warwick Lamb	46.667	$\overline{\phantom{a}}$	$\blacksquare$		46.667	46,667
Mr Roger Steinepreis	1.060.741	÷.	$\blacksquare$		1.060.741	1.060.741
Specified Executives
Dr Colin Hort ⁽²⁾	266.667	$\bullet$	133,333	$\bullet$	133.334	133,334
Dr Michael Sheppard

(1) Options held by Mr Dowland, Dr Lamb and Mr Steinepreis were granted/acquired in their capacity as shareholders, not as equity based remuneration efer Note 14(d) for terms and conditions.

During the financial year 133,333 options were exercised by Dr Colin Hort for 133,333 ordinary shares in Imugene Limited. $(2)$ The exercise price of each option was \$0.1125. No amounts remain unpaid on the options exercised during the financial year at year end.

(c) Performance Option holdings and transactions

Options exercisable @ \$0.225 each on or before 31 October 2007 (see Note 14(e) for terms and conditions)	Held at 1 July 2003	Exercised	Other changes	Held at 30 June 2004	Vested and exercisable at 30 June 2004
Specified Directors
Mr Graham Dowland	$\omega$	$\blacksquare$	$\tilde{\phantom{a}}$
Mr Warwick Lamb	$\blacksquare$	$\blacksquare$	$\tilde{\phantom{a}}$	$\mathbf{w}$	$\blacksquare$
Mr Roger Steinepreis	$\mathbf{w}$	$\blacksquare$	$\overline{\phantom{a}}$	w	$\blacksquare$
Specified Executives
Dr Colin Hort	133.333	$\mathbf{a}$	$\blacksquare$	133.333	133.333
Dr Michael Sheppard	250.000	$\mathbf{a}$	$\overline{\phantom{a}}$	250,000	250.000

(d) Executive Performance Option holdings and transactions

Options exercisable $@$ various prices on or before 31 December 2006 (see Note 14(g) for terms and conditions)	Held at 1 July 2003	Granted as remuneration	Exercised	Other changes	Held at 30 June 2004	Vested and exercisable at 30 June 2004
Specified Directors
Mr Graham Dowland	$\blacksquare$	2.500.000	$\overline{\phantom{a}}$	$\overline{\phantom{a}}$	2,500,000	1.250.000
Mr Warwick Lamb	٠	2.500.000	$\blacksquare$		2,500,000	1.250.000
Mr Roger Steinepreis	$\omega$
Specified Executives
Dr Colin Hort	$\omega$		$\overline{\phantom{a}}$
Dr Michael Sheppard	$\omega$	1.000.000		$\bullet$	1,000,000	500.000

IMLIGENE --------------------------------------22/22/2012/2012

LIMITED

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

19. DIRECTOR AND EXECUTIVE DISCLOSURES (continued)

(e) Equity holdings and transactions

Ordinary fully paid shares	Held at 1 July 2003	Purchases	Received on exercise of options	Sales	Held at 30 June 2004
Specified Directors Mr Graham Dowland Mr Warwick Lamb Mr Roger Steinepreis	6,766,668 6,353,334 5,202,937	۰ ۰.	$\overline{\phantom{a}}$ $\overline{\phantom{a}}$ $\overline{\phantom{a}}$	۰ 2,000,000	6,766,668 6.353,334 3.202.937
Specified Executives Dr Colin Hort Dr Michael Sheppard	22,403 $\overline{\phantom{0}}$	90.500	133.333 -	45.000	110,736 90,500

(f) Other transactions

During the year, Steinepreis Paganin, a law firm of which Mr Roger Steinepreis is a partner, provided legal services to the Company. For the year ended 30 June 2004, the Company paid \$34,461 (2003: \$94,668) to Steinepreis Paganin and this has been recognised in the financial statements as an expense.

During the year, Vetspec Pty Ltd, a company of which Dr Warwick Lamb is a director and beneficial shareholder, provided a serviced office (in Sydney) and other administration services to the Company. For the year ended 30 June 2004, the Company paid \$36,000 (2003: \$30,000) to Vetspec Pty Ltd and this has been recognised in the financial statements as an expense.

20. EQUITY-BASED REMUNERATION

(a) Movements in equity based compensation during the financial year

	30 June 2004			30 June 2003
	Options	Perf	Exec Perf	Options	Perf	Exec Perf
	$\langle 1 \rangle$	Options	Options (3)	$\left( 1\right)$	Options (2)	Options (3)
Held by executives as at the beginning of the
vear (Note 20(b))	266,667	383.333	$\overline{\phantom{a}}$
Granted during the year (Note 20(c))			6,000,000	266,667	383.333
Exercised during the year (Note 20(d))	(133, 333)
Lapsed during the year (Note 20(e))
Held by executives at the end of the year (Note 20(f))	133.334	383,333	6,000,000	266.667	383.333

Refer Note 14(d) for terms and conditions $(1)$ $(2)$ Refer Note 14(e) for terms and conditions

$(3)$ Refer Note $14(q)$ for terms and conditions

IMLIGENE

Thomas San San A LIMITED

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

20. EQUITY BASED REMUNERATION (continued)

(b) Balance at the beginning of the financial year

Options	Number	Grant Date	Expiry/ Exercise Date	Exercise Price \$
2004
Options ⁽¹⁾	266,667 266,667	26 Mar 03	31 Dec 04	0.1125
Performance Options ⁽²⁾
- Vested 1 Dec 03	191.666	26 Mar 03	31 Oct 07	0.2250
- Vested 1 Dec 04	191,667 383,333	26 Mar 03	31 Oct 07	0.2250
Executive Performance Options ⁽³⁾
- Vested 31 Dec 03		$\tilde{\phantom{a}}$
- Vested 1 Jul 04		$\blacksquare$
- Vested 1 Jul 05.		$\mathbf{a}$

$\binom{1}{2}$ Refer Note 14(d) for terms and conditions

Refer Note 14(a) for terms and conditions
Refer Note 14(e) for terms and conditions
Refer Note 14(g) for terms and conditions

$(3)$

(c) Granted during the financial year

Options	Number	Grant Date	Expiry/ Exercise Date	Exercise Price \$
2004
Options ⁽¹⁾
Performance Options ⁽²⁾
- Vested 1 Dec 03
- Vested 1 Dec 04

Executive Performance Options ⁽³⁾
$-$ Vested 31 Dec 03	3,000,000	27 Nov 03	31 Dec 06	0.3000
- Vested 1 Jul 04	1,500,000	27 Nov 03	31 Dec 06	0.2500
- Vested 1 Jul 05	1,500,000	27 Nov 03	31 Dec 06	Note $14(g)(c)$
	6,000,000
2003
Options ⁽¹⁾	267,667	26 Mar 03	31 Dec 04	0.1125
	267,667
Performance Options ⁽²⁾
- Vested 1 Dec 03	191,666	26 Mar 03	31 Oct 07	0.2250
- Vested 1 Dec 04	191,667	26 Mar 03	31 Oct 07	0.2250
	383,333
Executive Performance Options ⁽³⁾
- Vested 31 Dec 03
- Vested 1 Jul 04
- Vested 1 Jul 05

(1) Refer Note 14(d) for terms and conditions

Refer Note 14(e) for terms and conditions

$\binom{2}{3}$ Refer Note $14(g)$ for terms and conditions

IMUGENE ______________________________________

22222233233

LIMITED

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

20. EQUITY BASED REMUNERATION (continued)

(d) Exercised during the financial year

Options	Number	Grant Date	Exercise Date	Expiry Date	Exercise Price \$	Number of Shares issued	Fair Value Received \$	Fair Value of Shares at Date of Issue \$
2004
Options ⁽¹⁾	133,333	26 Mar 03	8 Oct 03	31 Dec 04	0.1125	133,333	15,000	38,000
	133,333					133,333	15,000	38,000
Performance Options ⁽²⁾
- Vested 1 Dec 03
- Vested 1 Dec 04

Executive Performance Options ⁽³⁾
- Vested 31 Dec 03
- Vested 1 Jul 04
- Vested 1 Jul 05

2003
Options ⁽¹⁾
Performance Options ⁽²⁾
- Vested 1 Dec 03
- Vested 1 Dec 04

Executive Performance Options ⁽³⁾
- Vested 31 Dec 03
- Vested 1 Jul 04
- Vested 1 Jul 05

Refer Note 14(d) for terms and conditions $(1)$

$\langle 2 \rangle$ Refer Note 14(e) for terms and conditions

$(3)$ Refer Note 14 $(g)$ for terms and conditions

Fair value of consideration received is measured as the nominal value of cash receipts on conversion. The fair value of shares at the date of their issue is measured as the market value at close of trade on the date of their issue.

(e) Lapsed during the financial year

The following equity based instruments issued to employees have lapsed during the financial year:

Options	Number 2004	Number 2003
Options ⁽¹⁾
Performance Options ⁽²⁾
- Vested 1 Dec 03 - Vested 1 Dec 04
Executive Performance Options ⁽³⁾
- Vested 31 Dec 03
- Vested 1 Jul 04 - Vested 1 Jul 05
Refer Note 14(d) for terms and conditions (1)

Refer Note 14(e) for terms and conditions $(2)$

Refer Note $14(g)$ for terms and conditions $(3)$

IMUGENE ______________________________________

proportion LIMITED

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

20. EQUITY BASED REMUNERATION (continued)

(g) Balance at end of the financial year:

Options	Number	Number Vested	Number Unvested	Grant Date	Expiry Date	Exercise Price \$
2004
Options ⁽¹⁾	133,334	133,334		26 Mar 03	31 Dec 04	0.1125
	133,334	133,334
Performance Options ⁽²⁾
- Vested 1 Dec 03	191.666	191.666		26 Mar 03	31 Oct 07	0.2250
- Vested 1 Dec 04	191,667	191,667		26 Mar 03	31 Oct 07	0.2250
	383.333	383.333
Executive Performance Options ⁽³⁾
$-$ Vested 31 Dec 03	3,000,000	3,000,000		27 Nov 03	31 Dec 06	0.3000
- Vested 1 Jul 04	1.500.000		1.500.000	27 Nov 03	31 Dec 06	0.2500
- Vested 1 Jul 05	1,500,000		1,500,000	27 Nov 03	31 Dec 06	Note $14(g)(c)$
	6,000,000	3,000,000	3,000,000
2003
Options ⁽¹⁾	266,667	266,667		26 Mar 03	31 Dec 04	0.1125
	266.667	266,667
Performance Options ⁽²⁾
- Vested 1 Dec 03	191.666	191,666		26 Mar 03	31 Oct 07	0.2250
- Vested 1 Dec 04	191,667		191,667	26 Mar 03	31 Oct 07	0.2250
	383,333	191,666	191,667
Executive Performance Options ⁽³⁾
- Vested 31 Dec 03
- Vested 1 Jul 04
- Vested 1 Jul 05
	$\blacksquare$

Note

Refer Note 14(d) for terms and conditions $(1)$

Refer Note 14(e) for terms and conditions $(2)$

(3) Refer Note 14(g) for terms and conditions

The difference between the total market value of options issued during a financial year, at the date of issue, and the total amount received from executives and employees is not recognised in the financial statements except for the purposes of determining directors' and executives' remuneration in respect of that financial year as disclosed in Note 19 to the financial statements. The amounts are disclosed in remuneration in respect of the financial years over which the entitlement was earned.

Consideration received on the exercise of equity-based remuneration is recognised in contributed equity. During the financial year \$15,000 (2003: nil) was recognised in contributed equity arising from the exercise of equitybased remuneration.

Options exercisable at \$0.1125 held by Mr Dowland, Dr Lamb and Mr Steinepreis were granted/acquired in their capacity as shareholders, not as equity based remuneration.

	Consolidated		Imugene
	2004	2003	2004	2003
	\$	\$	\$	\$
21. REMUNERATION OF AUDITORS
Amounts received or due and receivable by auditors of the parent entity for: - an audit or review of the financial reports of the entity and any other entity in the Consolidated
Entity - other services in relation to the entity and any	19.500	11.000	19,500	11,000
other entity in the Consolidated Entity		8.000		8,000
Total Auditors' Remuneration	19.500	19.000	19,500	19,000

IMUGENE www.althumanamanamanamanamana.

222222333 LIMITED

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

22. SEGMENT INFORMATION

Business Segment	Animal Health		VosTech		Other		Consolidated
	2004 \$	2003 \$	2004 \$	2003 \$	2004 \$	2003 \$	2004 \$	2003 S
Operating revenue Licence fees from outside of the
Consolidated Entity Other revenues from outside the		503.664						503.664
Consolidated Entity	43.000		$\omega$	5.391			43.000	5,391
Unallocated revenue				w	80.598	29.489	80.598	29,489
Total revenue	43,000	503.664		5.391	80,598	29,489	123,598	538.544
Segment result Unallocated	(2,302,583)	(1,209,608)	$\omega$	(286, 346)	80,598		(2.221.985)	(1, 495, 954)
expenses							(563,644)	(548, 164)
Consolidated Entity operating profit							(2,785,629)	(2,044,118)

All assets and liabilities of the Consolidated Entity as at 30 June 2004 and 30 June 2003 formed part of the Animal Health business segment. The Consolidated Entity's business segments only operated in Australia. Acquisitions of assets and related depreciation and amortisation during the year relate solely to the Animal Health segment.

23. EARNINGS PER SHARE

The following reflects the income and share data used in the calculations of basic and diluted earnings per share:

	Consolidated
	2004 \$	2003 \$
Net loss used in calculating basic and diluted earnings per share	(2, 115, 675)	(1,345,058)
	Number of Shares 2004	Number of shares 2003
Weighted average number of ordinary shares used in calculating basic earnings per share Effect of dilutive securities (see Note 23(a))	107,719,949	70,381,647
Adjusted weighted average number of ordinary shares used in calculating basic and diluted earnings per share	107,719,949	70,381,647

(a) Non dilutive securities

The following potential ordinary shares are not dilutive and are therefore excluded from the weighted average number of ordinary shares and potential ordinary shares used in the calculation of diluted earnings per share:

	Number of securities	Number of securities	Number of potential shares	Number of potential shares
	2004	2003	2004	2003
Converting Preference Shares (Note 14(f))		8.872	$\blacksquare$	14,745,264
Options - 11.25 cents exercise price (Note 14(d))	2,461,485	3,398,277	2.461.485	3,398,277
Options – 22.5 cents exercise price (Note 14(e))	4.633.333	4.633.333	4.633.333	4,633,333
Executive Performance Options (Note 14(g))
- vested - exercisable $@$ \$0.30	3.000.000	$\blacksquare$	3.000.000
- vested 1 July 2004 - exercisable $@$ \$0.25	1.500.000	$\blacksquare$	1.500.000
- not vested - exercisable $@$ other	1,500,000		1,500,000

(b) Conversions, calls, subscriptions or issues after 30 June 2004

There have been no conversions to, calls of, or subscriptions for ordinary shares or issues of potential ordinary shares since the reporting date and before the completion of this financial report.

IMLIGENE

2232222333333 LIMITED

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

	Consolidated		Imugene
	2004	2003	2004	2003
	\$	\$	\$	\$
24. STATEMENTS OF CASH FLOWS
(a) Reconciliation of Net Loss to Net Cash Outflow from Operating Activities
Net loss		$(2, 115, 675)$ $(2, 044, 118)$	(2,759,026)	(727, 559)
Loss/(profit) on disposal of non-current assets		(5, 391)		(5, 391)
Depreciation and amortisation	348,594	132,228	7,575	3,877
Provision for employee entitlements	22,422	10,264	22,422	10,264
Provision for diminution in property, plant &
equipment		18,582		18,582
Provision for diminution in investments		54,273	2,200,000	54,273
Provision for write-down of research and
development investments Net assets (liabilities) acquired from purchase of	475,496
controlled entity		33,522
Change in operating assets and liabilities, net of
effects from purchase/sale of controlled entities:
(Increase)/decrease in other assets	(341, 924)	(44, 927)	(548, 336)	(5, 495)
(Increase)/decrease in receivables		43,755	(442, 762)	(182, 316)
(Decrease)/increase in payables	92,085	404,643	268,948	216,917
Net cash outflow from operating activities	(1,519,002)	(1, 397, 169)	(1, 251, 179)	(616, 848)
(b) Reconciliation of Cash Assets
Cash at bank and on hand	962.743	2.617.829	775.121	2,229,530

$(c)$ Credit Standby Arrangements with Banks

At balance date, the Consolidated Entity had no used or unused financing facilities.

$(d)$ Non Cash Flow Items - Acquisition of Controlled Entities

Initial Acquisition of Brightsun Investments Pty Ltd - Prior Financial Year Transaction

On 30 August 2002, the Company acquired a 100% interest in Brightsun Investments Pty Ltd, an unlisted Australian company that holds a 40% controlling interest in VectoGen Pty Ltd and a 23% interest in Paragen Pty Ltd ("Brightsun Group"). Both VectoGen and Paragen are companies involved in the research and development of animal health products.

	S
Consideration
- Shares issued	1,600,000
- Cash paid	1,010,293
	2,610,293

LIMITED

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

24. STATEMENTS OF CASH FLOWS (continued)

$(d)$ Non Cash Flow Items - Acquisition of Controlled Entities (continued)

Net assets of Brightsun Investments Pty Ltd at acquisition date	\$
Cash	980,123
Other financial assets	241.195
Other	37,941
	1,259,259
Payables	(288, 590)
Fair value of net assets	970,669
Outside equity interest in net assets	(585,578)
Parent interest in net assets	385,091
Goodwill arising on acquisition	2,225,202
	2,610,293
	\$
Net cash effect - 30 August 2002
Cash consideration paid	1,010,293
Cash included in net assets acquired	(980, 123)
Cash paid for purchase of controlled entity as reflected in the consolidated financial report	30.170

Increase in shareholding of VectoGen Pty Ltd to 100% - Prior Financial Year Transaction

During the period 1 April 2003 to 23 June 2003, Imugene exercised an option over unissued ordinary shares in VectoGen Pty Ltd and also acquired all outside equity interests in ordinary shares issued by VectoGen Pty Ltd.

	Value of Consideration \$	Share of net assets acquired \$	Goodwill at cost \$
Consideration
- Shares issued	2,777,520	(13, 420)	2,764,100
- Cash paid (transaction costs)	5,835		5,835
- Cash paid (exercise of option)	200,010	(80,004)	120,006
			2,889,941
Goodwill upon initial acquisition			2,225,202
Total goodwill on acquisition			5,115,143

Conversion of Converting Preference Shares - Current Financial Year Transaction

On 24 June 2004, 8,872 Converting Preference Shares (CPS) issued as part consideration for the acquisition of VectoGen Pty Ltd automatically converted into ordinary shares upon the market capitalisation milestone not being met by 23 June 2004.

	Value of Consideration \$	Share of net assets acquired \$	Goodwill at cost
Goodwill arising upon previous acquisitions	٠	$\blacksquare$	5,115,143
Conversion of CPS - Shares issued	1.952		1,952
Total goodwill on acquisition (Note 10)			5,117,095

LIMITED

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

25. FINANCIAL INSTRUMENTS

Interest Rate Risk Exposure $(a)$

The Consolidated Entity's exposure to interest rate risk and the effective weighted average interest rate for each class of financial assets and financial liabilities is set out below:

		Fixed Interest Maturing
	Note	Weighted Average Effective Interest Rate	Floating Interest Rate	1 Year or Less	from 1 to 5 Years	Non- Interest Bearing	Total
2004			\$	\$	\$	\$	\$
Financial Assets
Cash and deposits	24	4.9%	962,743				962,743
Tax assets Other	6 7					311,401 75,450	311,401
Other financial assets	8						75,450
Total Financial Assets			962,743			386,851	1,349,594

Financial Liabilities
Payables	11					551,608	551,608
Total Financial Liabilities						551,608	551,608

Net Financial Assets/(Liabilities)			962,743		$\blacksquare$	(164, 757)	797,986
				$\overline{\phantom{a}}$
2003 Financial Assets
Cash and deposits	24	4.7%	2,617,829				2,617,829
Other	7					44,927	44,927
Other financial assets Total Financial Assets	8		2,617,829			475,496 520,423	475,496 3,138,252

Financial Liabilities
Payables	11					456,202	456,202
Other	13					234,300	234,300
Total Financial Liabilities						690,502	690,502
Net Financial
Assets/(Liabilities)			2,617,829			(170, 079)	2,447,750

$(b)$ Net Fair Value of Financial Assets and Liabilities

The net fair value of cash, cash equivalents and non-interest bearing monetary financial assets and financial liabilities approximates their carrying value.

The net fair value of other monetary financial assets and financial liabilities is based upon market prices and approximates carrying value.

Credit Risk Exposure $(c)$

The credit risk on financial assets of the Consolidated Entity which have been recognised on the statement of financial position is generally the carrying amount. The Consolidated Entity does not have off-balance sheet financial instruments.

IMUGENE ......................................

22222233233

e intern

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

	Consolidated		Imugene
	2004	2003	2004	2003
	\$	\$	\$	Ş
26. COMMITMENTS FOR EXPENDITURE
(a) Research and Development
Not longer than 1 year		607.345
Longer than 1 year and not longer than 5 years
Longer than 5 years
		607,345

27. SUBSEQUENT EVENTS

No event has arisen since 30 June 2004 that would be likely to materially affect the operations of the Consolidated Entity, the results of the Consolidated Entity or the state of affairs of the Consolidated Entity not otherwise disclosed in the Consolidated Entity's financial report.

28. CONVERGENCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS

The Australian Accounting Standards Board is adopting the Standards of the International Accounting Standards Board for application to reporting periods beginning on or after 1 January 2005. Accounting standard AASB 1 'First-time Adoption of Australian Equivalents to International Financial Reporting Standards' prescribes transitional provisions for first-time adopters.

AASB 1047 'Disclosing the Impacts of Adopting Australian Equivalents to International Financial Reporting Standards' requires financial reports to disclose information about the impacts of any changes in accounting policies in the transition period leading up to the adoption date and will apply for June 2004 reporting.

The Company has allocated internal resources and in conjunction with its auditors is assessing those accounting policies and key areas that are likely to be impacted by the transition to International Financial Reporting Standards (IFRS). As the Company has a 30 June year-end, priority has been given to the consideration of the impact of the Australian equivalents to the IFRS and the preparation of a balance sheet in accordance with those Australian equivalent standards as at 30 June 2004. This will form the basis of accounting for Australian equivalents of IFRS in the future, and is required when the Company prepares its first fully IFRS compliant report for the year ended 30 June 2006. As required by AASB 1047, the key accounting policies which will change and may have an impact on the financial report of the Company are set out below.

Goodwill

Under AASB 3 "Business Combinations" and AASB 128 "Investments in Associates", goodwill acquired on a business combination or in acquiring an investment in an associate company will no longer be able to be amortised, but instead will be subject to annual impairment testing. Under the new policy, amortisation will no longer be charged and if there is any impairment, it will be recognised immediately through the statement of financial performance.

Intangible assets

Under AASB 138 "Intangible Assets", intangibles acquired in a business combination and which have finite useful lives must be amortised over their useful lives. Internally generated goodwill, brands, costs related to research activities and items similar in substance may not be recognised as assets. All expenditure on research must be expensed when it is incurred.

Share based payments

The Group currently does not recognise an expense for options issued to directors and staff. Under AASB 2 "Share Based Payments", the Company will be required to recognise an expense for all share based remuneration, including options, and will amortise those expenses over the relevant vesting periods.

122312341344

e intern

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

28. CONVERGENCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS (continued)

Income Tax

The Consolidated Entity currently recognises deferred taxes by accounting for the differences between accounting profits and taxable income, which give rise to 'permanent' and 'timing' differences. Under A-IFRS, deferred taxes are measured by reference to the 'temporary differences' determined as the difference between the carrying amount and the tax base of assets and liabilities recognised in the balance sheet. Because A-IFRS has a wider scope than the Consolidated Entity's current accounting policies, it is likely that the amount of deferred taxes recognised in the balance sheet will increase. In particular, significant increases in deferred tax liabilities are anticipated in relation to deferred taxes associated with fair value adjustments and intangibles arising in relation to pre-transition business combinations, and investments in associates.

The Consolidated Entity also has carried forward tax losses which have not been recognised as deferred tax assets as they do not satisfy the 'virtually certain' criteria under current GAAP (see Note 5(b)). Under A-IFRS, it may be easier to recognise these tax losses as deferred tax assets as they are recognised based on a 'probable' recognition criteria. The impact of this difference may be to increase deferred tax assets and opening retained earnings, and result in a higher level of recognised deferred tax assets on a go-forward basis. Adjustments to the recognised amounts of deferred taxes will also result as a consequence of adjustments to the carrying amounts of assets and liabilities resulting from the adoption of other A-IFRS. The likely impact of these changes on deferred tax balances has not currently been determined.

Impairment of Assets

Under AASB 136 "Impairment of Assets" the recoverable amount of an asset is determined as the higher of net selling price and value in use. This will result in the Company's current accounting policy which determines recoverable amount of an asset on the basis of discounted (undiscounted) cash flows.

Financial Instruments

Under AASB 139 "Financial Instruments: Recognition and Measurement" financial instruments will be required to be classified into five categories and to be measured based on the nature of the classification. The five categories and basis of measurement are:

Financial asset or financial liability measured at fair value through the profit and loss
Held to maturity investments measured at amortised cost, subject to impairment
Loans and receivables measured at amortised cost, subject to impairment
Available for sale assets measured at fair value with changes in fair value measured directly in equity
Financial liability measured at amortised cost

This will result in a change in the current accounting policy that does not classify financial instruments.

DIRECTORS' DECLARATION

The directors declare that:

the attached financial statements and notes thereto comply with Accounting Standards; $(a)$
the attached financial statements and notes thereto give a true and fair view of the financial position and $(b)$ performance of the Company and the Consolidated Entity;
$(c)$ in the directors' opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001; and
$(d)$ in the directors' opinion, there are reasonable grounds to believe that the Consolidated Entity will be able to pay its debts as and when they become due and payable.

Signed in accordance with a resolution of the directors as required by section 295(5) of the Corporations Act 2001.

On behalf of the Directors

GRAHAM DOWLAND Executive Chairman

Perth, 30 August 2004

Deloitte

Deloitte Touche Tohmatsu A B N 74 490 121 060

Central Park Level 16 152-158 St. Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia

DX 206 Tel: +61 (0) 8 9365 7000 Eax: +61 (0) 8 9365 7001 www.deloitte.com.au

INDEPENDENT AUDIT REPORT TO THE MEMBERS OF IMUGENE LIMITED

Scope

The financial report and directors' responsibility

The financial report comprises the statement of financial position, statement of financial performance, statement of cashflows, accompanying notes to the financial statements, and the directors' declaration for both Imugene Limited (the company) and the consolidated entity, for the financial year ended 30 June 2004 as set out on pages 17 to 47. The consolidated entity comprises the company and the entities it controlled at the year's end or from time to time during the financial year.

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

Audit approach

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

We performed procedures to form an opinion whether, in all material respects, the financial report is presented fairly in accordance with the Corporations Act 2001 and Accounting Standards and other mandatory professional reporting requirements in Australia so as to present a view which is consistent with our understanding of the company's and the consolidated entity's financial position, and performance as represented by the results of their operations and their cash flows.

Our procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial report, and the evaluation of accounting policies and significant accounting estimates made by the directors.

Deloitte.

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

The audit opinion expressed in this report has been formed on the above basis.

Independence

In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001.

Audit Opinion

In our opinion, the financial report of Imugene Limited is in accordance with:

the Corporations Act 2001, including: $(a)$
giving a true and fair view of the company's and consolidated entity's financial $(i)$ position as at 30 June 2004 and of their performance for the year ended on that date; and
$(ii)$ complying with Accounting Standards in Australia and the Corporations Regulations 2001; and
$(b)$ other mandatory professional reporting requirements in Australia.

Deloitte Tonche Tohmatsu

DELOITTE TOUCHE TOHMATSU

Robert McPre).

PETER McIVER Partner Chartered Accountants

Perth, WA, 30 August 2004

AI assistant

IMUGENE LIMITED — Annual Report 2004

65124_rns_2004-08-30_b5d5d7cf-24a8-4e92-ab94-abae546d3ef3.pdf

PRELIMINARY FINAL REPORT FINANCIAL RESULTS FOR THE YEAR ENDED 30 JUNE 2004

Imugene Limited

Appendix 4E - 30 June 2004 Preliminary Final Report

$3.$ Statement of Financial Performance

4. Statement of Financial Position

$5.$ Statement of cash flows

$6.$ Dividend Payments

$\overline{7}$ . Dividend Reinvestment Plans

8. Statement of retained earnings

$9.$ Net Tangible Assets Per Security

$10.$ Gain or loss of control over entities

$11.$ Joint Venture

$12.$ Other significant information

$13.$ Foreign Entities

$14.$ Commentary on results for the year

15. Progress of Audit / Review

16. Audit dispute or Qualification

LIMITED

IMUGENE LIMITED

FINANCIAL REPORT

30 JUNE 2004

CORPORATE DIRECTORY

Directors

Key Executives and Consultants

Registered and Principal Office

Share Register

Stock Exchange Listing

DIRECTORS' REPORT 30 JUNE 2004

Directors

Current Directors

Mr Graham Dowland - Executive Chairman

Dr Warwick Lamb - Managing Director

Qualifications - BVSc. M Vet Clin Stud. FACVSc

Mr Roger Steinepreis - Non-Executive Director

Principal Activities

Employees

Dividends

Corporate Structure

Note

Consolidated Results

Operating Results

Post Balance Date Events

Significant Changes in the State of Affairs

Environmental Regulation

Likely Developments

Information on Directors' Interests in Securities of Imugene

Meetings of Directors

Share Options

Options issued to executives

Converting Preference Shares

Directors' and Executives' Remuneration

Fair Value of Options

Insurance of Officers and Auditors

CORPORATE GOVERNANCE STATEMENT

$\overline{1}$ . Board of Directors

Role of the Board and Management $1.1$

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$1.3$ Committees of the Board

Conflicts of Interest $1.4$

Independent Professional Advice $1.5$

$2.$ Ethical Standards

Code of Conduct for Directors

IMIIRFNF

Code of Ethics and Conduct $2.2$

Dealings in Company Securities

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2.4 Interests of Other Stakeholders

$3.$ Disclosure of Information

Continuous Disclosure to ASX $3.1$

$3.2$ Communication with Shareholders

$\overline{4}$ . Risk Management

$4.1$ Identification of Risk

$4.2$ Integrity of Financial Reporting

$4.3$ Role of Auditor

$5.$ Performance Review

6. Remuneration Arrangements

IMIIRFNF

IMUGENE LIMITED Annual Report 2004

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