IMUGENE LIMITED — Annual Report 2005

Sep 12, 2005

Rule 4.3A

Appendix 4E

Preliminary final report Year ended 30 June 2005

Name of entity
IMUGENE LIMITED

ABN
	99 009 179 551

.Financial year ended ("current year")

30 June 2005

Comparative year ended ("prior year") 30 June 2004

Statement

This report is based on information extracted from the Company's audited 30 June 2005 Annual Financial Report, a copy of which is attached to this Appendix 4E.

Results for announcement to the market

	UP/DOWN	CHANGE \$'000	% CHANGE
Revenues from ordinary activities	UP.	266	68%
Revenue for the year has increased primarily due to the award of an additional Business Innovation Fund (BIF) grant for Imugene's Avian Influenza project as well as additional interest income on increased cash reserves.
Loss from ordinary activities after tax attributable to members.	DOWN	-321	18%
Loss for the year is lower primarily due to the BIF grant mentioned above, combined with the non- recurrence of the 2004 writedown of Imugene's investment in Paragen Pty Ltd
Net loss for the period attributable to members	DOWN	321	18%
No dividends have been paid during or are proposed in respect of the financial year ended 30 June 2005.

Appendix 4E - Contents and checklist of requirements
For the year ended 30 June 2005

1.	Reporting period and the previous corresponding period.	Refer Page 1 of this Appendix 4E.
2,	Results for announcement to the market.	Refer Page 1 of this Appendix 4E
3.	Statement of financial performance with notes to the statement.	Refer Page 3 of this Appendix 4E
4.	Statement of financial position with notes to the statement.	Refer Page 5 of this Appendix 4E
5.	Statement of cash flows with notes to the statement.	Refer Page 6 of this Appendix 4E
6.	Details of individual and total dividends or distributions and dividend or distribution payments.	No dividends or other distributions have been paid during or are proposed in respect of the financial year ended 30. June 2005.
7.,	Details of dividend or distribution reinvestment plans in	No dividends or other distributions plans
	operation and the last date for the receipt of an election notice for participation in any dividend or distribution reinvestment plan.	are in operation in respect of the financial vear ended 30 June 2005.
8.	Statement of retained earnings.	Refer Page 7 of this Appendix 4E
9.	Net tangible assets per security.	Refer Page 8 of this Appendix 4E
10	Details of entities over which control has been gained or lost during the period.	No such transactions during the year to 30 June 2005.
11,	Details of joint venture entities and associated entities.	The Company has no material associated or joint venture entities.
12.	Any other significant information needed by an investor to make an informed assessment of the entity's financial performance and financial position	Refer Page 8 of this Appendix 4E
13.	Accounting standards used in compiling reports by foreign. entities (e.g. International Accounting Standards).	Not applicable.
14.		Refer Page 4 of this Appendix 4E
	A commentary on the results for the period.
15.	A statement as to whether the report is based on accounts. which have been audited or subject to review, are in the process of being audited or reviewed, or have not yet been audited or reviewed.	Refer Page 1 of this Appendix 4E.
16.	If the accounts have not yet been audited or subject to review and are likely to be subject to dispute or qualification, a description of the likely dispute or qualification.	Not applicable.
17.	If the accounts have been audited or subject to review and are subject to dispute or qualification, a description of the dispute or qualification	Not applicable.

Statement of Financial Performance

For the year ended 30 June 2005

	Consolidated Entity
	Year ended 30 June
	- 2005 . 5	2004 5
Revenue from ordinary activities	389,501	123,598
Research and development expenses Business development Commercialisation expenses	(810, 377) (247,500) (870, 245)	(885,791) (249,780) (734, 516)
Writedown to recoverable amount of research and development investments Corporate and administrative expenses	$-(578, 347)$	(475, 496) (563, 644)
Loss from ordinary activities before income tax revenue	(2, 116, 968)	(2,785,629)
Income tax benefit relating to ordinary activities	322.760	669,954
Loss from ordinary activities after income tax revenue	(1,794,208)	(2, 115, 675)
Net loss attributable to outside equity interests
Loss attributable to members of Imugene Limited	(1,794,208)	(2, 115, 675)
expenses attributable to members of Imugene Total Limited recognised directly in equity
Share Issue Costs	(261,717)	(3,321)
Total changes in equity other than those resulting from transactions with owners as owners attributable to members of imugene Limited	(2,055,925)	(2, 118, 996)
Earnings per share
Basic earnings per share (cents per share)	1.5)	(2.0)
Diluted earnings per share (cents per share)	$\mathbb{C}(1.5)$	(2.0)

The above Statement of Financial Performance is an extract from the audited full Financial Report. Refer to the 30 June 2005 full Financial Report lodged together with this document for detailed notes to the statement of Financial Performance.

Commentary on Results

For the year ended 30 June 2005

Trends in Revenue from Ordinary Activities

Current year revenues are \$265,903 higher than 2004, an increase of 68%. This increase is primarily due to the award of an additional Business Innovation Fund (BIF) grant for Imugene's Avian Influenza project as well as additional interest income on the consolidated increased cash reserves.

Other Significant Features of Operating Performance

Commercialisation spend has increased by \$135,729 (18%) in comparison to last year as the Company continues to progress its products towards distribution and ensure protection of its intellectual property rights.

There has been no recurrence of the 2004 write down to recoverable amount of consolidated research & development investments, with the group now focusing on commercialising its existing technologies.

The 2005 income tax benefit arising from the research and development concession is lower than in 2004, as the 2004 figure included claims made in respect of both the 2003 and 2004 financial years.

Statement of Financial Position

As at 30 June 2005

	Consolidated Entity
	Year ended 30 June
	2005	2004
	\$	\$
Current Assets
Cash assets	4,346,447	962,743
Receivables
Tax assets	286,991	311,401
Other	109,563	75,450
Total Current Assets	4,743,001	1,349,594
Non-current Assets
Property, plant and equipment	14,597	18,643
Intangible assets	4,306,585	4,647,725
Total Non-current Assets	4,321,182	4,666,368
TOTAL ASSETS	9,064,183	6,015,962
Current Liabilities
Payables	362,630	551,608
Provisions	48,893	32,686
TOTAL LIABILITIES	411,523	584,294
NET ASSETS	8,652,660	5,431,668
EQUITY
Contributed equity	13,180,042	8,164,842
Accumulated losses	(4,527,382)	(2,733,174)
Total Parent Entity Interest in Equity	8,652,660	5,431,668
Total Outside Equity Interest
TOTAL EQUITY	8,652,660	5,431,668

The above Statement of Financial Position is an extract from the audited full Financial Report. Refer to the 30 June 2005 Financial Report lodged together with this document for detailed notes to the Statement of Financial Position.

Statement of Cash Flows

For the year ended 30 June 2005

	Consolidated Entity
	Year ended 30 June
Cash flows from operating activities	2005	2004 \$
Government grant received	$-254,199$	43,000
Payments to suppliers & employees	(2,365,106)	(2,001,153)
Research and development rebate	347,170	358,553
Interest received	134,729	80,598
Net cash flows used in operating activities	(1,629,008)	(1,519,002)
Cash flows from investing activities Loans to controlled entities Acquisition of property, plant and equipment Purchase of unlisted shares		(7, 173) (234, 300)
Net cash flows used in investing activities	(2,488)	(241, 473)
Cash flows from financing activities Proceeds from issues of securities Share issue expenses	$-5,276,917$ (261, 717)	105,389
Net cash flows from financing activities	5,015,200	105,389
Net increase/(decrease) in cash held	3,383,704	(1,655,086)
Cash at the beginning of the financial year	962,743	2,617,829
Cash at the end of the financial year	4,346,447	962,743

The above Statement of Cash Flows is an extract from the audited full Financial Report. Refer to the 30 June 2005 full Financial Report lodged together with this document for detailed notes to the Statement of Cash Flows.

Statement of Accumulated Losses

As at 30 June 2005

	Consolidated Entity
	Year ended 30 June
	-2005	2004
		\$
Balance at the beginning of the year	2,733,174	29,307,918
Reduction of share capital (see Note 14(b))	CONSULT	(28, 690, 419)
Net loss from ordinary activities after income tax	The state of 1,794,208	2,115,675
Balance at the end of the year	4,527,382	2,733,174

Net Tangible Assets per Security
As at 30 June 2005

	Consolidated Entity
	Year ended 30 June
	$\begin{array}{c c} \text{2005} \ \text{\color{blue}\blacklozenge} \end{array}$	2004
	The communication of the com-	¢
Net tangible assets per ordinary share	The company of the company of 3.33	0.07

Analyses and Discussion

For the year ended 30 June 2005

Statement of Financial Position

During the year, the Company announced that it had finalised a \$5 million share placement comprising 20 million new shares at 25 cents each and 4 million new options exercisable at 50 cents on or before 31 January 2007. The funds were raised from institutional and sophisticated investors.

The capital-raising has left the consolidated entity in a strong financial position as at 30 June 2005, with net assets of \$8,652,660 compared with \$5,431,668 as at 30 June 2004.

Statement of Cash Flows

Cash flows applied to operating activities during the year have increased by \$110,006. This is a result of increased government grant and interest revenues being offset by increased commercialisation spend and working capital fluctuations.

Cash flows applied to investing activities have decreased by \$238,985 in comparison to last year as the consolidated entity has focussed on developing and commercialising its existing technologies.

Cash flows from financing activities are \$4.909.811 higher than in 2004 due to the successful share placement finalised during the year.

Other Significant Information

For the year ended 30 June 2005

Reconciliation of Movements in Issued and Quoted Capital

	Ordinary Shares
	Number
Opening Balance at 1 July 2004	.118.080	8,164,842
Option conversion Share and Option Placement	200,000 3.475.000	22.500 3,368,750
Option conversion Share and Option Placement	2,261,484 6.525,000	254,417 1.631.250
Share Issue Costs		(261.717)
Closing Balance at 30 June 2005	130,579,564

Impact of Adopting Australian Equivalents to International Financial Reporting Standards

The following information on the impact of adopting Australian equivalents to International Financial Reporting Standards is an extract from the audited full Financial Report. Refer to note 25 of the 30 June 2005 full Financial Report lodged together with this document for a full description of the impact of adopting Australian equivalents to International Financial Reporting Standards.

The Australian Accounting Standards Board (AASB) is adopting International Financial Reporting Standards (IFRS) for application to reporting periods beginning on or after 1 January 2005. The AASB has issued Australian equivalents to IFRS and the Urgent Issues Group has issued interpretations corresponding to IASB interpretations originated by the International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee. These Australian equivalents to IFRS are referred to hereafter as AIFRS. The adoption of AIFRS will be first reflected in the consolidated entity's financial statements for the half-year ending 31 December 2005 and the year ending 30 June 2006.

Other Significant Information (continued)

For the year ended 30 June 2005

Impact of Adopting Australian Equivalents to International Financial Reporting Standards (continued)

Entities complying with AIFRS for the first time will be required to restate their comparative financial statements to amounts reflecting the application of AIFRS to that comparative period. Most adjustments required on transition to AIFRS will be made retrospectively, against opening retained earnings as at 1 July 2004.

The consolidated entity is in the process of transitioning its accounting policies and financial reporting from current Australian Accounting Standards (AGAAP) to AIFRS. The Company allocated internal resources to conduct impact assessments to identify key areas that would be impacted by the transition to AIFRS. Priority has been given to the preparation of an opening balance sheet in accordance with AIFRS as at 1 July 2004, the Company's transition date to AIFRS. In some cases choices of accounting policies are available, including elective exemptions under Accounting Standard AASB 1 First Time Adoption of Australian Equivalents to International Financial Reporting Standards. These choices have been analysed to determine the most appropriate accounting policy for the consolidated entity.

The known or reliably estimable impacts on the financial report for the year ended 30 June 2005 had it been prepared under AIFRS are set out below. Although the adjustments disclosed in this note are based on management's best knowledge of expected standards and interpretations and current facts and circumstances, these may change. For example, amended or additional standards or interpretations may be issued by the AASB and IASB. Therefore until the Company prepares its first full AIFRS financial statements, the possibility cannot be excluded that the accompanying disclosures may have to be adjusted. The directors may at any time until the completion of the consolidated entity's first A-IFRS compliant financial report, elect to revisit, and where considered necessary, revise the accounting policies applied in preparing the proforma financial statements.

(a) Equity-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 granted after 7 November 2002 which had not vested by 1 January 2005.

If the policy required by AASB 2 had been applied during the year ended 30 June 2005, consolidated and parent entity retained losses at 30 June 2005 would have been increased by \$113,405 with a corresponding increase in the share-based payment reserve. For the year ended 30 June 2005, the consolidated and parent entity employee benefits expense would have been \$113,405 higher, with a corresponding increase in the net movement in the share-based payment reserve.

(b) Goodwill

Under AASB 3 "Business Combinations" amortisation of goodwill will be prohibited and will be replaced by annual impairment testing focusing on the cash flows of the related cash generating unit.

This will result in a change to the existing accounting policy, under which goodwill is amortised on a straight line basis over the period during which the benefits are expected to arise and not exceeding 15 years.

If the policy required by AASB 3 had been applied during the year ended 30 June 2005, consolidated goodwill at 3 June 2005 would have been \$341,140 higher and consolidated amortisation expense for the year ended 30 June 2005 would have been \$341,140 lower. There would have been no impact on the parent entity's financial statements.

Other Significant Information (continued)

For the year ended 30 June 2005

Impact of Adopting Australian Equivalents to International Financial Reporting Standards (continued)

(c) 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 AIFRS, 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 AIFRS 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. The likely impact of these changes on deferred tax balances has not currently been determined.

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 AGAAP. Under AIFRS, the criteria for recognition of carried forward losses is 'probable' as compared to the current 'virtually certain' test. the consolidated entity has not recognised these losses as an asset under AIFRS as it is not considered sufficiently probable that these losses will be recouped by means of future profits taxable in Australia.

Tax consolidation

UIG Interpretation 1052 'Tax Consolidation Accounting' mandates a significantly different manner of accounting for income taxes in tax-consolidated group compared to the present Australian requirements. The approved Interpretation is applicable for financial years ending on or after 31 December 2005, and requires that each entity in the tax-consolidated group recognise deferred tax assets (other than unused tax losses and unused tax credits) and deferred tax liabilities relating to its own balances.

Accordingly, deferred tax assets and liabilities of attributable to members of the tax-consolidated group other than the head entity presently recognised as at 30 June 2005 would be derecognised under AIFRS. Differences between the current tax liability (or asset) and the amount of any funding amount arising under a tax funding arrangement are be treated as a contribution by (or distribution to) equity participants.

(d) Financial Instruments

The consolidated entity will be taking advantage of the exemption available under AASB 1 to apply AASB 132 Financial Instruments: Recognition and Measurement only from July 2005. This allows the consolidated entity to apply previous Australian generally accepted accounting principles (Australian GAAP) to the comparative information of financial instruments within the scope of AASB 132 and AASB 139 for the 30 June 2006 financial report. Accordingly, there are no quantitative impacts on the 30 June 2005 financial statements.

LIMITED

IMUGENE LIMITED

FINANCIAL REPORT

30 JUNE 2005

ABN 99 009 179 551

CONTENTS	PAGE NO
CORPORATE DIRECTORY	1
DIRECTORS' REPORT	$\mathbf{2}$
STATEMENT OF FINANCIAL PERFORMANCE	12
STATEMENT OF FINANCIAL POSITION	13
STATEMENT OF CASH FLOWS	14
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS	15
DIRECTORS' DECLARATION	45
INDEPENDENT AUDIT REPORT	46

IMUGENF ...................................... 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 Paul Macleman - Chief Operating Officer Dr Michael Sheppard - Chief Scientific Officer Dr Kevin Fahey - Chairman (Scientific and Commercialisation Advisory Board)

Company Secretary

Mr Alex Neuling

Registered Office

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

Principal Administration Office

Level 20, Allendale Square 77 St Georges Terrace Perth WA 6000 Australia Telephone: (61 8) 9440 2660 Facsimile: (61 8) 9440 2699

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: (618) 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 imugene@imugene.com

DIRECTORS' REPORT 30 JUNE 2005

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 2005 ("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 2004 until the date of this report.

Current Directors

Mr Graham Dowland - Executive Chairman Qualifications - B.Com, CA

Mr Dowland has for the past 17 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.

Other Current Directorships of Listed Companies:

Mr Dowland is also a non-executive director of Aurora Oil & Gas Limited (appointed 22 February 2005).

Former Directorships of Listed Companies in Last 3 years

None.

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.

Other Current Directorships of Listed Companies:

None

Former Directorships of Listed Companies in Last 3 years

None.

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.

Other Current Directorships of Listed Companies:

Mr Steinepreis is an alternate director of Commoditel Limited (appointed 29 June 2005).

Former Directorships of Listed Companies in Last 3 years

Commoditel Limited (August 2003 - December 2003) Ottoman Energy Limited (January 2004 - November 2004) Reward Minerals Limited (June 2002 - June 2002)

Company Secretary

Mr Alexander Neuling Qualifications - BSc (Hons) ACA (ICAEW)

The Company Secretary is Mr Alexander Neuling. Mr Neuling was appointed to the position during the current financial year. Before joining Imugene, he worked at a major international accounting firm in London (1998-2002) and in Perth (since 2002). He holds an honours degree in Chemistry from the University of Leeds in the United Kingdom and is a member of the Institute of Chartered Accountants of England and Wales.

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

	2005	2004
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 2005.

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, 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

	2005 S	2004 S
Loss of the Consolidated Entity from ordinary activities before income tax benefit	(2, 116, 968)	(2,785,629)
Income tax benefit Net loss	322,760 (1,794,208)	669,954 (2, 115, 675)

Operating Results

The Consolidated Entity recorded a net loss of \$1,794,208 (2004: net loss of \$2,115,675) for the year ended 30 June 2005.

Post Balance Date Events

As at the date of this report there are no matters or circumstances, which have arisen since 30 June 2005 that have significantly affected or may significantly affect:

LIMITED

• the operations, in financial vears subsequent to 30 June 2005, of the Consolidated Entity $(a)$ constituted by Imugene Limited and the entities it controls from time to time:
• the results of those operations; or $(b)$
• the state of affairs, in financial vears subsequent to 30 June 2005, of the Consolidated Entity. $\left( \cap \right)$

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 21 January 2005. The Company announced that it had finalised a \$5 million share placement 学 comprising 20 million new shares at 25 cents each and 4 million new options exercisable at 50 cents on or before 31 January 2007. The funds were raised from institutional and sophisticated investors
• ⋟ On 17 November 2004, the Company announced that analysis of the initial batch of the test vaccine responsible for unexpected adverse results in its Avian Influenza pilot trial (reported in October 2004) had revealed a batch defect rendering the trial invalid. The test vaccine is now being reconstructed in order to re-perform the initial trials.
• On 15 November 2004, the Company announced the successful completion of a large scale product ⋟ development trial of its Poultry Productivity Enhancer with substantially improved performance compared with the trial results announced in August 2004. The trial demonstrated up to 13.75 percent weight gains compared with in-feed antibiotics alone.
• On 10 November 2004 the Company announced it had successfully completed pig trials for the efficacy of ₻ its new Porcine Reproductive and Respiratory Syndrome (PRRS) vaccine.

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:

• likely developments in the entities' operations; or $(a)$
• $(b)$ 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 year
	Ordinary Shares (1)	Executive Performance Options (2)	Ordinary Shares (1)
Graham Dowland Warwick Lamb Roger Steinepreis	6.790.002 6,400,001 4,263,678	2,500,000 2,500,000	23,334 46.667 1.060.741

$(1)$ "Shares" means fully paid ordinary shares in the capital of the Company. Shares were issued during the year following the exercise of options at 11.25 cents each.

$(2)$ "Executive Performance Options" means an option to subscribe for one Share exercisable on the terms and conditions outlined in Note 13(g) of the financial statements.

CIMITED

Meetings of Directors

The following table sets out the number of meetings of the Company's directors held during the year ended 30 June 2005, and the number of meetings attended by each director. No meetings of committees took place during the year ended 30 June 2005.

		Board Meetings
	No. eligible to attend	No. attended
Graham Dowland Warwick Lamb Roger Steinepreis	b	b 5

Share Options

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

• 4,633,333 unlisted Performance Options at an exercise price of \$0.225 each (see Notes 13(d) and 13(f) of the financial statements for further details of the terms and conditions of the Performance Options).
• $6,000,000$ unlisted Executive Performance Options (see Notes 13(d) and 13(g) of the financial statements for further details of the terms and conditions of the Executive Performance Options).
• 4,250,000 Listed Options with an exercise price of \$0.50 (see Notes 13(d) and 13(e) for further details of the terms and conditions of the Listed Options).
• 1,400,000 Employee Performance Options (see Notes 13(d) and 13(h) for further details of the terms and conditions of the Employee Performance Options).

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.

Options exercised during the year

During the year, 2,461,484 fully paid ordinary shares were issued following the exercise of 2,461,484 options at \$0.1125 each. Since 30 June 2005, no fully paid ordinary shares have been issued as a result of the exercise of the Company's options.

REMUNERATION REPORT

This report details the amount and nature of remuneration of each director and those executives (other than directors) with the greatest authority for the strategic direction and management of the Company.

The directors of Imugene Limited during the year were:

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

The most highly remunerated executives (other than directors) during the year were:

• Dr Paul Macleman (Chief Operating Officer, appointed 1 November 2004)
• Dr Michael Sheppard (Chief Scientific Officer)
• Dr Colin Hort (Commercial Manager, resigned 28 October 2004)

Other than as disclosed above, there were no executive officers of the Company during the year ended 30 June 2005.

Remuneration Policy

At present, the functions of the Remuneration Committee in relation to the remuneration of the Company's executives including share and benefit plans are carried out by the full Board. Issues of remuneration are considered annually and otherwise as required.

Executives

The objectives of the remuneration policy developed by the Board are to review the competitiveness of the Company's executive compensation programs 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 officers of the highest quality who are expected to be able to generate increased shareholder wealth through improved performance. The remuneration packages approved by the board include a fixed element and performance related bonus provisions. 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 17(b))(2) of the financial statements for further details).

The incorporation of specific, equity related components of executive remuneration are considered to be particular appropriate in the resulting alignment to shareholders' interests and capital management efficiencies.

The remuneration policy in regard to setting the terms and conditions for the executives of the Company has been developed by the Board taking into account market conditions and comparable salary levels for companies of a similar size and operating in similar sectors. Where appropriate, executive directors' remuneration has been structured in conjunction with external remuneration consultants.

Non-Executive Directors

Fees and payments to non-executive directors reflect the demands which are made on and the responsibilities of the directors. The Board policy is to remunerate non-executive directors at market rates for comparable companies for time, commitment and responsibilities. The Board determines payments to the non-executive directors and reviews their remuneration annually, based on market conditions, duties and accountability. The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at General Meeting. Fees for non-executive directors are not linked to the performance of the Company, however to align directors' interests with shareholders' interests, the directors are encouraged to hold shares in the Company.

Service Agreements

Details of service agreements between the Company and its directors and specified officers are disclosed in note 17(e) to the attached financial report.

CIMITED

Emoluments of Directors and Officers

The emoluments (paid or payable) of each Director and the specified executives for the year ended 30 June 2005 are as follows:

	PRIMARY		POST-EMPLOYMENT		EQUITY	TOTAL (1)
	Base remuneration (salary & fees)	Bonuses	Non-cash benefits	Super contributions - 1	Termination and retirement benefits	Options
Current Directors Graham Dowland Warwick Lamb Roger Steinepreis Executive Officers (2) Paul Macleman (appointed 1 November 2004) Mike Sheppard Colin Hort (resigned 28 October 2004)	139,000 142,673 25,000 98.295 146,789 25,229	125,000 125,000	17,877	36,000 14.450 8.847 13.211 2.274		51,481 .51,481 55,305 34,192 $-4,173$	351,481 351,481 25,000 162,447 194,192 31,673

Notes.

• The elements of emoluments have been determined on the basis of the cost to the Consolidated Entity. $\left(1\right)$
• $(2)$ Executives are those directly accountable and responsible for the operational management and strategic direction of the Consolidated Entity.
• See "Share-based Compensation" below. $(3)$

Share-based Compensation

No options were granted to directors during the year to 30 June 2005.

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 2004. 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).

The application of the above policy has resulted in a 'non cash' value of \$51,481 (see below for details of the method for determining fair value pursuant to the Accounting Standard) being attributed to 625,000 options for each of the two executive directors, exercisable at 25 cents each up to 31 December 2006, that vested on 1 July 2005 to each of the two executive directors. These options were granted on 27 November 2003, following shareholder approval, however, the vesting terms required the directors to remain in the employment of the company until 1 July 2005.

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		$\blacksquare$
Expected volatility	72%	72%
Historical volatility	72%	72%
Risk-free interest rate	5.56%	5.5%
Expected life of option	3.1 years	4.6 vears

REMUNERATION REPORT (continued)

Share-based Compensation (continued)

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.

Kabupaten per	F. Remuneration consisting of options	ß Value at CrantDate	m Value at Exercise Date	B Value at Lapse Date	Total of Columns [949]
Directors (Note 1) Graham Dowland Warwick Lamb Roger Steinepreis	14.6% 14.6%	51,481 51.481	A.		51,481 51.481
Other Executives Dr Paul Macleman Dr Michael Sheppard Dr Colin Hort	34.0% 17.6% 13.2%	55.305 34.192 4.173	21,667		55,305 34,192 25,840

A = The percentage of the value of remuneration consisting of options, based on the value at grant date set out in column B
B = The value at grant date calculated in accordance with AASB 1046 Director and Executive Disclos

granted during the year as part of remuneration

C =The value at exercise date of options that were granted as part of remuneration and were exercised during the year D = The value at lapse date of options that were granted as part of remuneration and that lapsed during the year

Note 1

These options were granted on 27 November 2003, following shareholder approval at the 2003 AGM, however, the vesting terms required the directors to remain in the employment of the company until 1 July 2005. Accordingly the non cash value of these options as calculated above is represented as remuneration 'value' in the year ended 30 June 2005.

Options granted to executives

Options over unissued ordinary shares in Imugene Limited granted during or since the end of the financial year to any of the directors or executives are as follows (see also note 13 of the financial report for details of terms and conditions):

a Saalaalaalaa 1998 - 1999 - 1999 - 1999 - 1999 - 1999 - 1999 - 1999 - 1999 - 1999 - 1999 - 1999 - 1999 - 1999 - 1999 - 199	Grant Date kolorakakaraka	Number 83038833883888888888888888888	Exercise Price 1989 - Andrea Barbara	Expiry Date 1989 - 1989 - 1989 - 1989 - 1989 - 1989 - 1989 - 1989 - 1989 - 1989 - 1989 - 1989 - 1989 - 1989 - 1989 - 19	Value per option at grant date	Vesting Date 20202020202020202020
Directors
None granted
Other Executives
Dr Paul Macleman	31 Jan 05 31 Jan 05 31 Jan 05	1,000,000 200.000 200,000	\$0.50 \$0.375 \$0.30	31 Oct 07 31 Oct 07 31 Dec 06	\$0.09 \$0.12 \$0.10	31 October 2007 31 October 2005 1 February 2005
Dr Michael Sheppard	24 Feb 05	250,000	\$0.50	31 Jan 07	\$0.05	On grant date
Dr Colin Hort	24 Aug 05	133.333	\$0.375	31 Oct 07	\$0.03	On grant date

Options Affecting Remuneration

The terms and conditions of each grant of options affecting remuneration in this or future reporting periods are as follows (see also note 13 of the financial report for detailed terms and conditions):

Grant Date	Number	Exercise Price	Expiry Date	Value per option at grant date	Vesting Date
			Directors
27 Nov 2003 27 Nov	1,250,0000 1,250,000	\$0.25 \$0.25	31 Dec 06 31 Dec 06	\$0.13 \$0.13	1 July 2004 1 July 2005
2003			Other Executives
27 Nov 2003	250,000	\$0.25	31 Dec 06	\$0.13	1 July 2005
31 Jan 05	1,000,000	\$0.50	31 Oct 07	\$0.09	31 October 2007
31 Jan 05	200,000	\$0.375	31 Oct 07	\$0.12	31 October 2005
31 Jan 05	200,000	\$0.30	31 Dec 06	\$0.10	1 February 2005
24 Feb 05	250,000	\$0.50	31 Jan 07	\$0.08	On grant date
24 Aug 05	133,333	\$0.375	31 Oct 07	\$0.03	On grant date

Auditor's Independence Declaration

The auditor's independence declaration is included on page 11 of the financial report.

Non-Audit Services

The directors are satisfied that the provision of non-audit services, during the year, by the auditor (or by another person or firm on the auditor's behalf) is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001.

Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined in note 18 to the financial statements (no non-audit services were performed by the auditors during the year ended 30 June 2005).

Insurance of Officers and Auditors

Since the end of the financial year, the Company has agreed to pay a premium in respect of a contract insuring the directors of the Company (as named above) and the company secretary Mr Alexander Neuling against liabilities incurred as such a director, secretary or executive officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. The company has not otherwise, during or since the financial year, indemnified or agreed to indemnify an officer or auditor of the company or of any related body corporate against a liability incurred as such an officer or auditor.

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

GRAHAM DOWLAND Executive Chairman Perth, Western Australia

Deloitte.

Deloitte Touche Tohmatsu A.C.N. 74 490 121 060

Woodside Plaza Level 14 240 St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia

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

The Board of Directors Imagene Limited Level 20/77 St Georges Tee Perth WA 6000

13^th September 2005

Dear Sirs

Imugene Limited

In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Imugene Limited.

As lead audit partner for the audit of the financial statements of Imugene Limited for the financial year ended 30 June 2005, I declare that to the best of my knowledge and belief, there have been no contraventions of:

• (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
• (ii) any applicable code of professional conduct in relation to the audit.

Yours sincerely

Deloitte Tonche Tohmatsu

DELOITTE TOUCHE TOHMATSU

Robert McPre).

Peter McIver Partner Chartered Accountants

STATEMENT OF FINANCIAL PERFORMANCE FOR THE FINANCIAL YEAR ENDED 30 JUNE 2005

		Consolidated		Imugene
	Note	2005 \$	2004 \$	2005 \$	2004 \$
Revenue from ordinary activities	2	389,501	123,598	1,037,806	790,429
Research and development expenses Business development Commercialisation expenses Write down to recoverable amount of research and development investments Corporate and administrative expenses	3 3	(810, 377) (247, 500) (870, 245) (578, 347)	(885, 791) (249,780) (734, 516) (475, 496) (563, 644)	(942, 292) (247,500) (429, 656) (890, 390) (564, 732)	(104, 945) (124, 890) (11,789) (2,200,000) (1, 126, 415)
Loss from ordinary activities before income tax revenue				$(2, 116, 968)$ $(2, 785, 629)$ $(2, 036, 764)$ $(2, 777, 610)$
Income tax benefit relating to ordinary activities	4(a)	322,760	669,954	268,408	18,584
Loss from ordinary activities after income tax revenue				$(1,794,208)$ $(2,115,675)$ $(1,768,356)$ $(2,759,026)$
Net loss attributable to outside equity interests
Loss attributable to members of Imugene Limited				$(1,794,208)$ $(2,115,675)$ $(1,768,356)$ $(2,759,026)$
Total expenses attributable to members of Imugene Limited recognized directly in equity Share Issue Costs		(261, 717)	(3,321)	(261, 717)	(3,321)
Total changes in equity other than those resulting from transactions with owners as owners attributable to members of Imugene Limited				$(2,055,925)$ $(2,118,996)$ $(2,030,073)$ $(2,762,347)$
Earnings per share
Basic loss per share (cents per share)	21	(1.5)	(2.0)
Diluted loss per share (cents per share)	21	(1.5)	(2.0)

Notes to and forming part of the Statement of Financial Performance are set out on pages 15 to 44.

STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2005

		Consolidated			Imugene
	Note	2005	2004	2005	2004
		\$	\$	\$	\$
Current Assets
Cash assets	20(b)	4,346,447	962,743	4,294,399	775,121
Receivables	5				376,015
Tax assets	6	286,991	311,401	286,991	311,401
Other	7	109,563	75,450	5,161	2,152
Total Current Assets		4,743,001	1,349,594	4,586,551	1,464,689
Non-current Assets
Other financial assets	8			4,385,701	4,495,912
Property, plant and equipment	9	14,597	18,643	14,597	18,643
Intangible assets	10	4,306,585	4,647,725
Total Non-current Assets		4,321,182	4,666,368	4,400,298	4,514,555
TOTAL ASSETS		9,064,183	6,015,962	8,986,849	5,979,244
Current Liabilities
Payables	11	362,630	551,608	285,296	540,742
Provisions	12	48,893	32,686	48,893	32,686
TOTAL LIABILITIES		411,523	584,294	334,189	573,428
NET ASSETS		8,652,660	5,431,668	8,652,660	5,405,816
EQUITY
Contributed equity	13	13,180,042	8,164,842	13,180,042	8,164,842
Accumulated losses	14	(4,527,382)	(2,733,174)	(4,527,382)	(2,759,026)
Total Parent Entity Interest in Equity		8,652,660	5,431,668	8,652,660	5,405,816
Total Outside Equity Interest	15
TOTAL EQUITY		8,652,660	5,431,668	8,652,660	5,405,816

Notes to and forming part of the Statement of Financial Position are set out on pages 15 to 44.

STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2005

		Consolidated		Imugene
	Note	2005	2004	2005	2004
		\$	\$	\$	\$
Cash flows from operating activities
Government grant received		254,199	43,000	254,199	43,000
Payments to suppliers & employees		(2,365,106)	(2,001,153)	(1,826,271)	(1,360,664)
Research and development rebate		347,170	358,553	347,170
Interest received		134,729	80,598	131,373	66,485
Net cash flows used in operating activities		20(a) (1,629,008)	(1,519,002)	(1,093,529)	(1, 251, 179)
Cash flows from investing activities
Loans to controlled entities				(399, 905)	(301, 446)
Acquisition of property, plant and equipment		(2,488)	(7, 173)	(2,488)	(7, 173)
Purchase of unlisted shares			(234, 300)
Net cash flows used in investing activities		(2,488)	(241, 473)	(402, 393)	(308, 619)
Cash flows from financing activities
Proceeds from issues of securities		5,276,917	105,389	5,276,917	105,389
Share issue expenses		(261, 717)		(261, 717)
Net cash flows from financing activities		5,015,200	105,389	5,015,200	105,389
Net increase/(decrease) in cash held		3,383,704	(1,655,086)	3,519,278	(1,454,409)
Cash at the beginning of the financial year		962,743	2,617,829	775,121	2,229,530
Cash at the end of the financial year	20(b)	4,346,447	962,743	4,294,399	775,121

Notes to and forming part of the Statement of Cash Flows are set out on pages 15 to 44.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial reporting framework

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

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

Significant accounting policies

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

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

$(a)$ 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 2005 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.

Tax consolidation

Legislation to allow groups, comprising a parent entity and its Australian resident wholly-owned entities, to elect to consolidate and be treated as a single entity for income tax purposes was substantively enacted on 21 October 2002

Effective 1 July 2003, for the purposes of income taxation, Imugene Limited and its 100% owned subsidiaries formed a tax consolidated group. The head entity within the tax-consolidated group for the purposes of the tax

consolidation system is Imugene Limited. Income tax expenses and benefits are allocated between members of the wholly-owned group on a pro-rata basis. Under the terms of this agreement, Imugene Limited and each of the entities in the tax consolidated group will pay a tax equivalent payment to or from the head entity, based on the net accounting profit or loss of the entity and the current tax rate. Such amounts are reflected in amounts receivable from or payable to other entities in the tax consolidated group.

$(c)$ 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 $1(a)$ .

IMIIRENE ......................................

LIMITED

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

$(d)$ 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.

$(f)$ Accounts payable

Trade payables and other accounts payable are recognised when the consolidated entity becomes obliged to make future payments resulting from the purchase of goods and services.

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

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:-

Plant and equipment $2 - 15$ years

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.

Government 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.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) $\overline{2}$ .

$(i)$ 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.

$(k)$ Financial Instruments Issued by the Company

Transaction costs on the issue of equity instruments

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

2. REVENUE

Profit from ordinary activities before income tax includes the following items of revenue and expense

	Consolidated			Imugene
	2005	2004	2005	2004
	\$	\$	\$	\$
Revenue from operating activities
Management fees			651,975	680,944
			651,975	680,944
Revenue from non-operating activities
Interest received/receivable	134,729	80,598	131,373	66,485
Government grant received	254,199	43,000	254,199	43,000
Other	573		259
	389,501	123,598	385,831	109,485
Total revenues from ordinary activities	389,501	123,598	1,037,806	790,429
3. EXPENSES FROM ORDINARY ACTIVITIES
Expenses
Depreciation of non-current assets:
- Plant & equipment	6,533	7,575	6,533	7,575
Commercialisation expenses
- Patent expenses	135,183	173,033	35,734	3,739
- Employee expenses	393,922	220,464	393,922	8,050
- Amortisation of goodwill	341,140	341,019
Other provisions:
- Employee benefits	16,207	22,422	16,207	22,422
Recoverable amount writedown:
- Investments - controlled entities			890,390	2,200,000
- Investments - research and development		475,496

LIMITED

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

		Consolidated		Imugene
	2005	2004	2005	2004
.	Ð			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, 116, 968)		$(2,785,629)$ $(2,036,764)$	(2,777,610)
Income tax calculated at 30% Tax effect of permanent differences:	(635,090)	(835, 689)	(611, 029)	(833, 283)
Non-deductible expenses	241,634	378,501	693,135	661,935
Amortisation of intangible assets	102,342	102,305
Tax losses not brought to account	291,114	354,883	(119,272)	171,348
Research and development rebate received year ended 30 June 2003 year ended 30 June 2004 Research and development rebate receivable	35,769	358,553	18,583
year ended 30 June 2004 year ended 30 June 2005	286,991	311,401	286,991	311,401
Less net income tax expense arising under tax sharing arrangements with subsidiaries in the tax	322,760	669,954	268,408	311,401
consolidated group				(292, 817)
Income tax benefit attributable to loss from ordinary activities	322,760	669,954	268,408	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:

Tax losses	3.058.290	2.087.911	1.149.675	1.423.362
- Associated asset calculated using a tax rate of 30%	917.487	626.373	307.736	427.008

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

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

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

$(iii)$ no changes in tax legislation adversely affect the Consolidated Entity in realising the benefit.

IMUGENE .
Bilimanin markan kalendar markan yang mengelukur.

LIMITED

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

	Consolidated			Imugene
	2005	2004	2005	2004
	\$	\$	\$	\$
5. CURRENT ASSETS - Receivables
Receivables - wholly owned entities				376,015
6. CURRENT ASSETS - Tax assets
Research and development rebate	286,991	311,401	286,991	311,401
7. CURRENT ASSETS - Other
Net GST Refundable	104,402	73,298
Other	5,161	2,152	5,161	2,152
	109,563	75,450	5,161	2,152
8. NON-CURRENT ASSETS - Other Financial Assets
Investments - controlled entities
- At $cost$ (Note $8(a)$ )			6,695,912	6,695,912
- Recoverable amount write down			(3,090,390)	(2,200,000)
Total Investments - controlled entities			3,605,522	4,495,912
Investments - other entities
- At cost (Note 8(b))	475,496	475,496
- Recoverable amount write down	(475, 496)	(475, 496)
Total Investments - other entities	$\blacksquare$	$\overline{\phantom{a}}$	$\overline{a}$
Receivables - controlled entities
- At $cost$ (Note $8(c)$ )			780,179
			4,385,701	4,495,912

In determining the recoverable amount of investments, the expected future cashflows associated with the investment, based on the projected dividend stream and value at expected sale date, have been discounted to their net present value using a discount rate of 10%.

(a) Investments in Controlled Entities

Name of Entity	Country of Incorporation	Class of Shares	Equity Holding
			2005 %	2004 %
Controlled Entities
Brightsun Investments Pty Ltd	Australia	Ordinary	100	100
VectoGen Pty Ltd	Australia	Ordinary	100	100
BioMimic Technologies Ltd	Australia	Ordinary	100	100

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

(b) Investments in Other Entities

Name of Entity	Principal Activities	Equity Holding		Carrying Value of Investment
		2005	2004	2005	2004
		%	%
	Paragen Pty Ltd Biological flea vaccine research	37.5	37.5	Nil	Nil

(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 2005 consisted of:

• Working capital advanced by Imugene Limited; $\left( 0\right)$
• $(ii)$ Provision of services by Imugene Limited, and
• Expenses paid by Imugene Limited on behalf of its controlled entities $(ii)$

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 \$780,179 (2004: \$376,015).

(d) Ultimate Parent Company

The ultimate parent company in the wholly-owned Group is Imugene Limited, a company incorporated in Australia.

	Consolidated		imugene
	2005 \$	2004 \$	2005 \$	2004 \$
9. NON-CURRENT ASSETS - Property, Plant and Equipment
Plant & equipment
At cost	28,394	26,420	28,394	26,420
Accumulated depreciation	(17, 367)	(11, 103)	(17, 367)	(11, 103)
Total plant and equipment (Note 9(a))	11,027	15,317	11,027	15,317
Fixtures and Fittings
At cost	4.184	3.675	4,184	3,675
Accumulated depreciation	(614)	(349)	(614)	(349)
Total fixtures and fittings (Note 9(a))	3,570	3,326	3,570	3,326
Total Written down value	14,597	18,643	14,597	18,643

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

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

	Consolidated		Imugene
	2005	2004	2005	2004
	\$	\$	\$	\$
(a) Reconciliations
Plant and Equipment
Carrying amount at beginning of year	15,317	15,449	15,317	15,449
Additions	1,974	7,173	1,974	7,173
Depreciation expense	(6, 264)	(7, 305)	(6, 264)	(7, 305)
Total plant & equipment	11,027	15,317	11,027	15,317
Fixtures and Fittings
Carrying amount at beginning of year	3,326	3,596	3,326	3,596
Additions	515		515
Depreciation	(271)	(270)	(271)	(270)
Total fixtures and fittings	3,570	3,326	3,570	3,326
10. NON-CURRENT ASSETS - Intangible assets
Goodwill - at cost	5,117,095	5,117,095
Accumulated amortisation	(810, 510)	(469, 370)
	4,306,585	4,647,725
Amortisation expense charged during the year was \$341,140
11. CURRENT LIABILITIES - Payables
Trade and other creditors (unsecured)	284,864	551,608	207,530	219,442
Income tax payable arising under tax sharing arrangements with subsidiaries in the tax
consolidated group PAYG / Superannuation Liability	77,766		77,766	292,817 28,483
	362,630	551,608	285,296	540,742
12. CURRENT LIABILITIES - Provisions
Provision for annual leave (Note 16)	48,893	32,686	48,893	32,686
13. CONTRIBUTED EQUITY
(a) Issued and paid up capital: 130,579,564 (2004: 108,118,080) fully paid ordinary
shares	13,180,042	8,164,842	13,180,042	8,164,842

13. CONTRIBUTED EQUITY (continued)

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

Date	Details		Ordinary Shares	Convertible Preference Shares	\$0.225 Performanc e Options	\$0.1125 Options	\$0.50 Listed Options	Executive Performance Options	Employee Performance Options Series 1	Employee Performance Options Series 2	Employee Performance Options Series 3
		Note	Number 13(c)	Number	Number $13(d)$ & $(f)$	Number 13(d)	Number $13(d)$ &(e)	Number $13(d)$ &(g)	Number $13(d)$ &(h)	Number $13(d)$ &(h)	Number $13(d)$ &(h)
01/07/03	Opening Balance		107,172,41 6	8,872	4,633,333	3,398,276		$\blacksquare$	$\bullet$		×.	36,751,241
27/08/03	Option conversion	(i)	303,457			(303, 457)						34,139
08/10/03	Option conversion	(ii)	333,333			(333, 333)		$\mathbf{r}$				37,500
27/11/03	Reduction of share capital	(iii)										(28,690,419)
27/11/03	Option allotment	(iv)						6,000,000
22/01/04	Option conversion	(v)	66,667		$\overline{\phantom{a}}$	(66, 667)		$\blacksquare$				7,500
23/03/04	Option conversion	(vi)	66,668		$\sim$	(66, 668)		$\blacksquare$				7,500
24/06/04	Conversio n of CPS	(vii)	8,872	(8, 872)								1,952
30/06/04	Option conversion	(viii)	166,667		$\overline{\phantom{a}}$	(166, 667)						18,750
	Share issue costs	(ix)										(3,321)
30/06/04	Closing Balance		108,118,08 0	$\bullet$	4,633,333	2,461,484	٠	6,000,000			٠	8,164,842

IMUGENE 电磁波的放大电流 udahuundurilar LIMITED

13. CONTRIBUTED EQUITY (continued)

Date	Details		Ordinary Shares	Convertible Preference Shares	\$0.225 Performanc е Options	\$0.1125 Options	\$0.50 Listed Options	Executive Performance Options	Employee Performance Options Series 1	Employee Performance Options Series 2	Employee Performance Options Series 3
			Number	Number	Number	Number	Number	Number	Number	Number	Number
		Note	13(c)	13(i)	13(d)&(f)	$13(d)$ &(j)	$13(d)$ &(e)	$13(d)$ &(g)	$13(d)$ &(h)	$13(d)$ &(h)	$13(d)$ &(h)
01/07/04	Opening Balance		108,118,08 0	$\bullet$	4,633,333	2,461,484	$\bullet$	6,000,000	$\bullet$	$\blacksquare$	u,	8,164,842
											$\bullet$
02/09/04	Option conversion	(x)	200,000		$\overline{\phantom{a}}$	(200,000)						22,500
02/12/04	Share and Option	(x)	13,475,000				2,695,000				$\overline{a}$	3,368,750
22/12/04	Placement Option	(xii)	2,261,484		$\overline{\phantom{a}}$	(2,261,484)					۰	254,417
20/01/04	conversion Share and Option Placement	(xiii)	6,525,000			$\overline{\phantom{a}}$	1,305,000	$\overline{\phantom{a}}$			$\overline{\phantom{0}}$	1,631,250
	Share Issue Costs	(xiv)										(261, 717)
31/01/05	Option Allotment	(xv)							200,000	200,000	1,000,000
24/02/05	Option Allotment	(xvi)				$\sim$	250,000	$\overline{\phantom{a}}$	۰
30/06/05	Closing Balance		130,579,56	٠	4,633,333	$\bullet$	4,250,000	6,000,000	200,000	200,000	1,000,000	13,180,042

13. CONTRIBUTED EQUITY (continued)

Notes.

• Exercise of unlisted options at \$0.1125 per option. $(i)$
• Exercise of unlisted options at \$0.1125 per option. $(ii)$
• Following shareholder approval, share capital was reduced by applying the amount of cancelled paid up $(iii)$ capital of \$28,690.419 against carried forward accumulated losses (see Note 14).
• Issue and allotment of unlisted Executive Performance Options subject to vesting conditions to Graham $(iv)$ Dowland, Warwick Lamb and Michael Sheppard (see Notes 13(d) and 13(g) for terms and conditions).
• Exercise of unlisted options at \$0.1125 per option. $(v)$
• Exercise of unlisted options at \$0.1125 per option. $(vi)$
• $(vii)$ Converting Preference Shares (CPS) issued as part consideration for the acquisition of VectoGen Pty Ltd automatically converted into ordinary shares upon market capitalisation milestone not being met by 23 June 2004 (see Note 13(i) for terms and conditions).
• $(viii)$ Exercise of unlisted options at \$0.1125 per option.
• $(ix)$ Costs associated with the placement of fully paid ordinary shares on 27 June 2003.
• Exercise of unlisted options at \$0.1125 per option. $(x)$
• On 3 December 2004 the Company issued 13,475,000 ordinary shares and 2,695,000 free attaching $(xi)$ Listed Options (on a 1 for 5 basis) as the first tranche of a \$5,000,000 share and option placement announced to shareholders on 23 November 2004. The issue was subsequently approved and ratified by shareholders at a general meeting held on 11 January 2005 (see Notes 13(d) and 13(e) for terms and conditions of Listed Options).
• Exercise of unlisted options at \$0.1125 per option. $(xii)$
• Second tranche of the share and option placement referred to in paragraph (xi) of this note $(xiii)$
• Costs associated with the first and second tranches of the placement referred to in paragraph (xi) of this $(xiv)$ note
• Allotment of unlisted options to employees (see Notes 13(d) and 13(h) for terms and conditions) $(xv)$
• $(xvi)$ Allotment of Listed Options to employees (see Notes 13(d) and 13(e) for terms and conditions of Listed Options).

$(c)$ 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 Notes $13(d) - (i)$ 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.

13. CONTRIBUTED EQUITY (continued)

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.

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.

ix) Share Buy-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.

13. CONTRIBUTED EQUITY (continued)

$(d)$ Terms and Conditions of Options

The following terms and conditions apply to all unexpired options granted by the Company as at 30 June $2005:$

• $(i)$ each option entitles the holder, when exercised, to one (1) Share;
• $(ii)$ 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 $(iii)$ Company's then issued shares;
• $(iv)$ 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 $(v)$ 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
• $(v_i)$ in the event the Company makes a pro rata issue of securities, the exercise price of the options may change in accordance with the formula set out in ASX Listing Rule 6.22.2.

Additional terms and conditions specific to the various classes of options granted the Company are disclosed in notes $13(e) - (i)$ below.

$(e)$ Specific Terms and Conditions of Listed \$0.50 Options

In addition to the Terms and Conditions disclosed in note 13(d), the following specific terms and conditions apply to the 4,250,000 Listed Options which have been granted by the Company:

• $(i)$ the options are exercisable at any time up to and including 31 January 2007;
• $(ii)$ the exercise price of the options is 50 cents per option;
• $(iii)$ the options are listed; and,
• $(iv)$ subject to the Corporations Act 2001, the Constitution and the ASX Listing Rules, the options are fully transferable.

$(f)$ Specific Terms and Conditions of \$0.225 Performance Options

In addition to the Terms and Conditions disclosed in note 13(d), the following specific terms and conditions apply to the 4,633,333 Performance Options granted by the Company:

• The options are exercisable during the period from 1 December 2004 to 31 October 2007, $(i)$
• $(ii)$ The exercise price of the options is 22.5 cents per option; and,
• $(iii)$ the options are unlisted.

13. CONTRIBUTED EQUITY (continued)

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

In addition to the Terms and Conditions disclosed in note 13(d), the following specific material terms and conditions apply to the 6,000,000 Executive Performance Options granted by the Company on 27 November 2003:

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 vested on 1 July 2005 exercisable $@$ \$0.25	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

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

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

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

• $(iii)$ the options will be unlisted;
• in the event that before a Vesting Date the employee's employment with the Company is $(iv)$ 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; $(b)$

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

in the event that the employee's employment is terminated due to incapacity or illness, he shall $(v)$ 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.

$(h)$ Terms and Conditions of Employee Performance Options

In addition to the Terms and Conditions disclosed in note 13(d), the following specific material terms and conditions apply to the 1,400,000 Employee Performance Options granted by the Company on 31 January 2005:

$(i)$ Exercise prices, expiry dates and vesting dates are as follows:

Series	Number	Vesting Date	Expiry Date	Exercise Price
	200,000	1 February 2005	31 December 2006	$$0.30$ each
2	200.000	31 October 2005	31 October 2007	\$0.375 each
		1,000,000 31 October 2006	31 October 2007	$$0.50$ each
	1.400.000

13. CONTRIBUTED EQUITY (continued)

The options are unlisted,

• $(ii)$ 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
• $(b)$ by the employee by giving notice to the Company;

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

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

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

In addition to the Terms and Conditions disclosed in note 13(d), the following specific material terms and conditions applied to the \$0.1125 Options granted by the Company prior to their exercise during the financial year:

• $(i)$ the options are exercisable at any time up to and including 31 December 2004;
• the exercise price of the options is 11.25 cents each; $(ii)$
• $(iii)$ subject to the Corporations Act 2001, the Constitution and the ASX Listing Rules, the options are fully transferable.

	Consolidated			Imugene
	2005	2004	2005	2004
	\$	\$	\$	\$
14. ACCUMULATED LOSSES
Balance at the beginning of the year	2.733.174	29,307,918	2.759.026	28,690,419
Reduction of share capital		$-(28,690,419)$		$-(28,690,419)$
Net loss from ordinary activities after income tax	1,794,208	2.115.675	1.768.356	2,759,026
Balance at the end of the year	4,527,382	2,733,174	4,527,382	2,759,026

(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.

15. OUTSIDE EQUITY INTEREST

Balance at the beginning of year
Adjustment for outside equity interest in controlled
entity acquired during the year	$\tilde{\phantom{a}}$	585.578
Less share of operating loss		(699.060)
Adjustment on acquisition of outside equity
interest by Imugene		113.482
Balance at end of year

16. EMPLOYEE BENEFITS

.	Consolidated		Imugene
	2005	2004	2005	2004
	\$	\$	\$	\$
Employee Benefits
The aggregate employee benefit liability is comprised of:
PAYG and Superannuation Liability (see Note 11)	77.766		77,766
Provisions - (current) (see Note 12)	48,893	32.686	48.893	32,686
			2005	2004
The number of full time equivalent people employed by the Consolidated Entity at balance date is:			5	4

17. DIRECTOR AND EXECUTIVE DISCLOSURES

The directors of Imugene Limited during the year were:

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

The executives of Imugene Limited with the greatest authority for the strategic direction and management of the consolidated entity ("specified executives") during the year were:

Dr Paul Macleman (Chief Operating Officer, appointed 1 November 2004)

• Dr Michael Sheppard (Chief Scientific Officer)
• Dr Colin Hort (Commercial Manager, resigned 28 October 2004)

Remuneration Policy

Executives

The objectives of the remuneration policy developed by the Board are to review the competitiveness of the Company's executive compensation programs to ensure the remuneration package properly reflects the executive officer's duties and responsibilities. The remuneration packages approved by the board include a fixed element and performance related bonus provisions. 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.

The incorporation of specific, equity related components of executive remuneration are considered to be particular appropriate in the resulting alignment to shareholders' interests and capital management efficiencies.

The remuneration policy in regard to setting the terms and conditions for the executives of the Company has been developed by the Board taking into account market conditions and comparable salary levels for companies of a similar size and operating in similar sectors. Where appropriate, executive directors' remuneration has been structured in conjunction with external remuneration consultants.

Non-Executive Directors

Fees and payments to non-executive directors reflect the demands which are made on and the responsibilities of the directors. The Board policy is to remunerate non-executive directors at market rates for comparable companies for time, commitment and responsibilities. The Board determines payments to the non-executive directors and reviews their remuneration annually, based on market conditions, duties and accountability. The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at General Meeting. Fees for non-executive directors are not linked to the performance of the Company, however to align directors' interests with shareholders' interests, the directors are encouraged to hold shares in the Company.

LIMITED

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

17. DIRECTOR AND EXECUTIVE DISCLOSURES (continued)

(a) Remuneration of Specified Directors and Specified Executives

		Primary			Post Employment	Equity	Total (1)
		Salary & Fees \$	Bonus $^{(2)}$ \$	Motor Vehicle benefit \$	Super- annuation benefits S	Value of options (3) s.	\$
Specified Directors
Mr Graham Dowland (Executive Chairman)	2005 2004	139,000 139,000	125,000 100,000		36,000 36,000	51,481 266,019	351,481 541,019
Dr Warwick Lamb (Managing Director)	2005 2004	142,673 160,550	125,000 100,000	47,877	14,450 15,998	51,481 266,019	351,481 542,567
Mr Roger Steinepreis (Non-Executive Director)	2005 2004	25,000 25,000					25,000 25,000
Total Remuneration -Specified Directors	2005 2004	306,673 324,550	250,000 200,000	17,877	50,450 51,998	102,962 532,038	727,962 1,108,586
Specified Executives $(4)$ Current Executives
Dr Paul Macleman (Chief Operating Officer - appointed 1 November 2004)	2005 2004	98,295			8,847	55,305	162,447
Dr Michael Sheppard (Chief Scientific Officer)	2005 2004	146,789 131,243			13,211 11,812	34,192 106,407	194,192 249,462
Former Executives
Dr Colin Hort (Commercial Manager - resigned 28 October 2004)	2005 2004	25,229 100,917			2,271 8,293	4,173	31,673 109,210
Total Remuneration - Specified Executives	2005 2004	270,313 232,160			24,329 20,105	70,358 106,407	365,000 358,672

Notes $(1)$

Other than as disclosed above, 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, during the financial year.

17. DIRECTOR AND EXECUTIVE DISCLOSURES (continued)

(b) Remuneration of Specified Directors and Specified Executives (continued)

Notes (continued)

$(2)$ An independent review of the Executive Directors' remuneration was conducted in 2003, 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 and July and is based on the Company's weighted 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 weighted average daily share price of the Company for the 6 month period prior to implementing the Bonus arrangement and hence 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 business days during 6 month period	Cash Bonus 5
> \$0.15	10.000
> \$0.20	25,000
> \$0.25	50,000
> \$0.30	75,000
> \$0.40	150.000

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

• $(3)$ The fair value of the options granted to directors was independently calculated at the date of grant using a Black-Scholes model and 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. An equivalent valuation methodology was applied to options granted to other executives. See Note 13(d) and Notes 13(g) and 13(h) for terms and conditions of Executive Performance Options and Employeee Performance Options respectively. The options granted subsequent to year-end to Mr Hort as part of his termination package have been included in the above calculation of remuneration, refer note 21 (b).
• Other than as outlined above, there were no other executive officers of the Consolidated Entity during the year.
• $\binom{4}{5}$ 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 on 27 November 2003 pursuant to shareholder approval at the Company's 2003 AGM.
• Salary, superannuation and bonuses paid to Dr Lamb were in accordance with his Executive Services Agreement of $(6)$ \$175,000 per annum (inclusive of superannuation) plus a bonus in accordance with (2). Equity based remuneration was granted on 27 November 2003 pursuant to shareholder approval at the Company's 2003 AGM.
• $(7)$ Salary, superannuation and bonuses paid to Dr Sheppard were in accordance with his Executive Services Agreement of \$160,000 per annum (inclusive of superannuation). Equity based remuneration granted in prior years was granted pursuant to shareholder approval at the Company's 2003 AGM.
• Salary, superannuation and bonuses paid to Dr Macleman were in accordance with his Executive Services Agreement of $(8)$ \$163,500 per annum (inclusive of superannuation).

17. DIRECTOR AND EXECUTIVE DISCLOSURES (continued)

(b) Option holdings and Transactions

The terms and conditions of each grant of options affecting remuneration in this or future reporting periods are as follows (see also note 13 for detailed terms and conditions):

Description	Grant :	Number	Exercise Price	Expiry	Terms	Value per	Vesting Date
	Date.			Date.		option at grant date
Directors
Executive	27 Nov	1,250,000	Ŝ.	31 Dec			1 July 2004
Performance	2003			06
Options Executive	27 Nov	1,250,000	\$0	31 Dec			1 July 2005
Performance	2003			06
Options
Specified Executives
Executive	27 Nov	250,000	Sſ	31 Dec			1 July 2005
Performance.	2003.			-06
Options	$31$ Jan $\cdot$	1,000,000	\$0				31 October 2007
Employee Performance	05.
Options
Executive	31 Jan	200.00					31 October 2005
Performance.	05.
Options
Executive Performance.	31 Jan 05.	200,000	\$0				1 February 2005
Options
Listed	$24$ Feb	250,000	\$0				On grant date
Options	05
Employee	24 Aug	133,333	'\$0				On grant date
Performance	05.
Options*

*Options granted subsequent to year but in relation to services prior to 30 June 2005 refer to note 21(b).

Specified Directors	Held at 01-Jul-04	Granted as remuneration	Exercised during the year Note 1	∙Other changes during the year	Held at ×. 30-Jun-05	Vested and exercisable at 30 June 2005
Mr Graham Dowland Dr Warwick Lamb Mr Roger Steinepreis	2,523,33 2,546,66 1,060,74		(23, 334) (46, 667) (1,060,741)			2,500,000 2,500,000
Specified Executives
Dr Paul Macleman Dr Michael Sheppard Dr Colin Hort	750.00 266,66	40( 133.	(133,334)		1.400. 250 133.3	200,000- 1,000,000 133,333

Note 1 - Options exercised during the year by Directors were granted to them in their capacity as shareholders, not as remuneration

17. DIRECTOR AND EXECUTIVE DISCLOSURES (continued)

(b) Option holdings and Transactions (continued)

Options exercised during the financial year

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.

Consideration received on the exercise of equity-based remuneration is recognised in contributed equity. During the financial year \$15,000 (2004: \$15,000) was recognised in contributed equity arising from the exercise of equity-based remuneration.

Options exercised 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.

Options lapsed during the financial year

No equity based instruments issued to employees have lapsed during the financial year (2004:nil).

(c) Equity holdings and transactions

Ordinary fully paid shares	Held at $01 - J$ ul-04	Purchases	Received on exercise of options	Sales	Held at 30- Jun-05
Specified Directors Mr Graham Dowland Dr Warwick Lamb Mr Roger Steinepreis	6,766,668 6.353.334 3.202.937	an.	23.334 46.667 1,060.741	$\mathbf{m}_\mathrm{f}$	6,790,002 6,400,001 4.263.678
Specified Executives Dr Paul Macleman Dr Michael Sheppard	÷ 90.500	138.089	w	$\overline{\phantom{a}}$	228,589

The amounts paid per ordinary share by each director and executive on the exercise of options was \$0.1125.

d) 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 2005, the Company paid \$29,075 (2004: \$34,461) 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 2005, the Company paid \$36,000 (2004: \$36,000) to Vetspec Pty Ltd and this has been recognised in the financial statements as an expense.

17. DIRECTOR AND EXECUTIVE DISCLOSURES (continued)

((e) Service agreements

Remuneration and other terms of employment for the Chairman, Managing Director and the specified executives are formalised in service agreements. These agreements provide for one or more of the following: The provision of performance-related cash bonuses, grant of options or other benefits such as car allowances. Other major provisions of the agreements relating to remunerations are set out below:

All contracts with executives may be terminated by either party with varying notice periods, subject to termination payments as detailed below.

Mr Graham Dowland, Executive Chairman

• Term of agreement indefinite ٠
• Base salary, inclusive of superannuation for the year ended 30 June 2005 of \$175,000, to be reviewed annually by the board
• Payment of a termination benefit on early termination by the Company, other than for gross misconduct, ٠ equal to base salary for twelve months

Mr Warwick Lamb, Managing Director

• Term of agreement indefinite
• Base salary, inclusive of superannuation for the year ended 30 June 2005 of \$175,000, to be reviewed annually by the board
• Payment of a termination benefit on early termination by the Company, other than for gross misconduct, equal to base salary for twelve months

Dr Paul Macleman, Chief Operating Officer

• Term of agreement indefinite
• Base salary, inclusive of superannuation for the year ended 30 June 2005 of \$163,500, to be reviewed annually by the board

• Payment of a termination benefit on early termination by the Company, other than for gross misconduct, ٠ equal to base salary and benefits for six months

• Dr Michael Sheppard, Chief Scientific Officer

• Term of agreement From 23 February 2005 to 22 February 2006
• Base salary, inclusive of superannuation for the year ended 30 June 2005 of \$160,000, to be reviewed annually by the board
• Payment of a termination benefit on early termination by the Company, other than for gross misconduct, ٠ equal to base salary and benefits for the remainder of the contract term.

	Consolidated		Imugene
	2005	2004	2005	2004
	\$	\$	\$	\$
18. REMUNERATION OF AUDITORS
Amounts received or due and receivable by Deloitte Touche Tohmatsu 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 other entity in the Consolidated Entity	25,000	19.500	25.000	19.500
Total Auditors' Remuneration	25,000	19.500	25,000	19.500

19. SEGMENT INFORMATION

The Company and Consolidated Entity operates in one geographical and business segment, being the research, development and commercialisation of animal health technologies in Australia.

20. STATEMENT OF CASH FLOWS

	Consolidated			Imugene
	2005	2004	2005	2004
	\$	\$	\$	\$
(a) Reconciliation of Loss from Ordinary Activities After Related Income Tax Benefit to Net Cash Outflow from Operating Activities
Net loss from Ordinary Activities After Related Income Tax Benefit		$(1,794,208)$ $(2,115,675)$ $(1,768,356)$		(2,759,026)
Depreciation and amortisation	347,673	348.594	6.533	7.575
Provision for employee entitlements	16.207	22,422	16,207	22,422
Writedown to recoverable amount of research and المعاملات والمتحافظ والمتحدث والمتافي المتحاف والمتحاول والمتحاف والمتحاف والمتحدث		475.496	890.390	2,200,000

Writedown to recoverable amount of research and development investments	-	475.496	890.390	2,200,000
(Increase)/decrease in other assets	(9,704)	(341.924)	21,401	(548, 336)
(Increase)/decrease in receivables		۰	(4.257)	(442, 762)
(Decrease)/increase in payables	(188.976)	92.085	(255, 447)	268,948
Net cash outflow from operating activities	1,629,008	(1,519.002)	(1.093.529)	(1,251,179)
(h) Raconciliation of Caeh Accate

(b) Reconciliation of Cash Assets

Cash at bank and on hand

(c) Credit Standby Arrangements with Banks

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

4,346,447

962,743

4,294,399

775,121

21. EARNINGS PER SHARE

The following reflects the earnings and weighted average number of ordinary and potential ordinary shares used in the calculations of basic and diluted earnings per share:

	Consolidated
	2005 \$	2004 \$
Loss	(1,794,208)	(2, 115, 675)
	Number of Shares 2005	Number of shares 2004
Weighted average number of ordinary and potential ordinary shares used in calculating basic earnings per share Effect of dilutive securities (see Note $21(a)$ )	120,115,733	107,719,949
Adjusted weighted average number of ordinary and potential ordinary shares used in calculating diluted earnings per share	120.115.733	107.719.949

(a) Non dilutive securities

The following potential ordinary shares are not dilutive as they would decrease the loss per share 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
	2005	2004	2005	2004
Options - 11.25 cents exercise price (Notes 13(d)&(i))	2,461,485	2.461,485	2.461.485	2,461,485
Options - 22.5 cents exercise price (Notes13(d)&(f))	4.633.333	4.633.333	4.633.333	4.633.333
Options – 50 cents exercise price (Notes 13 (d) $\&e$ (e)) Executive Performance Options (Notes 13 (d)&(g))	4,250,000	٠	4.250.000
- vested – exercisable $@$ \$0.30	3.000.000	3.000.000	3.000.000	3,000,000
- vested 1 July 2004 – exercisable $@$ \$0.25	1,500,000	1,500,000	1,500,000	1,500,000
- vested 1 July 2005 – exercisable $@$ \$0.25	1.500.000	1.500.000	1.500.000	1.500.000

(b) Conversions, calls, subscriptions or issues after 30 June 2005

On 24 August 2005 the Company granted the following options to current and former employees (not directors) of the company:

	No of Options	Exercise Price	Vesting Date	Expiry Date
Current Employees Series 4 Series 5	200,000 50.000	\$0.50 \$0.30	31 October 2005 31 October 2006	31 December 2006 31 October 2007
Former Employees $^{(1)}$	133,333	\$0.375	On grant date	31 October 2007

(1) Granted under the terms of a termination package. The value of these options has been calculated as \$4,173 and this figure has been included in the calculation of specified officers remuneration during the year.

Other than as disclosed above, 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.

22. FINANCIAL INSTRUMENTS

$(a)$ Significant Accounting Policies

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

$(b)$ Interest Rate Risk Exposure

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
2005			\$	s	\$	\$	\$
Financial Assets Cash and deposits	20	5.5%	4,346,447				4,346,447
Tax assets	6					286.991	286,991
Other	7					109,563	109,563
Total Financial Assets			4,346,447			396,554	4,743,001
Financial Liabilities
Payables Total Financial Liabilities	11		$\overline{\phantom{a}}$	$\qquad \qquad -$ $\overline{a}$	$\overline{\phantom{a}}$ $\overline{a}$	362,632 362,632	362,632 362,632
Net Financial Assets/(Liabilities)			4,346,447			33,922	4,380,389
2004			\$	\$	\$	\$
Financial Assets Cash and deposits	20	4.9%	962,743				962,743
Tax assets	6					311,401	311,401
Other	7					75,450	75,450
Other financial assets Total Financial Assets	8		962,743	÷,	÷.	386,851	1,349,594
Financial Liabilities
Payables	11					551,608	551,608
Total Financial Liabilities			÷,	$\bar{a}$		551,608	551,608
Net Financial Assets/(Liabilities)			962,743			(164, 757)	797,986

$(c)$ 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.

$(d)$ Credit Risk Exposure

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.

IMIISENE ......................................

LIMITED

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

	Consolidated		Imugene
	2005	2004	2005	2004
	\$	\$	\$	\$
23. COMMITMENTS FOR EXPENDITURE
(a) Research and Development
Not longer than 1 year	260,000	۰	260,000
Longer than 1 year and not longer than 5 years
Longer than 5 years
	260,000		260,000

24. SUBSEQUENT EVENTS

No event has arisen since 30 June 2005 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.

25. IMPACT OF ADOPTING AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS

The Australian Accounting Standards Board (AASB) is adopting International Financial Reporting Standards (IFRS) for application to reporting periods beginning on or after 1 January 2005. The AASB has issued Australian equivalents to IFRS and the Urgent Issues Group has issued interpretations corresponding to IASB interpretations originated by the International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee. These Australian equivalents to IFRS are referred to hereafter as AIFRS. The adoption of AIFRS will be first reflected in the consolidated entity's financial statements for the half-year ending 31 December 2005 and the year ending 30 June 2006.

Entities complying with AIFRS for the first time will be required to restate their comparative financial statements to amounts reflecting the application of AIFRS to that comparative period. Most adjustments required on transition to AIFRS will be made retrospectively, against opening retained earnings as at 1 July 2004.

The consolidated entity is in the process of transitioning its accounting policies and financial reporting from current Australian Accounting Standards (AGAAP) to AIFRS. The Company allocated internal resources to conduct impact assessments to identify key areas that would be impacted by the transition to AIFRS. Priority has been given to the preparation of an opening balance sheet in accordance with AIFRS as at 1 July 2004, the Company's transition date to AIFRS. In some cases choices of accounting policies are available, including elective exemptions under Accounting Standard AASB 1 First Time Adoption of Australian Equivalents to International Financial Reporting Standards. These choices have been analysed to determine the most appropriate accounting policy for the consolidated entity.

The known or reliably estimable material impacts on the financial report for the year ended 30 June 2005 had it been prepared under AIFRS are set out below. The expected material financial effects of adopting AIFRS are shown for significant aggregates in the statement of financial performance and statement of financial position, with descriptions of the differences. No material impacts are expected in relation to the statement of cash flows.

Although the adjustments disclosed in this note are based on management's best knowledge of expected standards and interpretations and current facts and circumstances, these may change. For example, amended or additional standards or interpretations may be issued by the AASB and IASB. Therefore until the Company prepares its first full AIFRS financial statements, the possibility cannot be excluded that the accompanying disclosures may have to be adjusted. The directors may at any time until the completion of the consolidated entity's first A-IFRS compliant financial report, elect to revisit, and where considered necessary, revise the accounting policies applied in preparing the proforma financial statements.

The following proforma financial statements and the related explanatory notes are designed to illustrate and explain the effect of the transition to AIFRS on material financial statement items presented in the AGAAP financial statements. The following proforma financial statements have not been prepared in accordance with presentation requirements of AASB 101 Presentation of Financial Statements.

25. IMPACT OF ADOPTING AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (CONT'D)

PROFORMA STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2005

		Consolidated			Imugene
		Adjustments				Adjustments
	AGAAP	(a)	(b)	AIFRS	AGAAP	(a)	(b)	AIFRS
CURRENT ASSETS
Cash assets	4,346,447			4,346,447	4,294,399			4,294,399
Tax assets	286.991			286.991	286,991			286,991
Other	109,563			109,563	5,161			5,161
	4,743,001	$\mathbf{r}$		4,743,001	4,586,551	$\mathbf{r}$		4,586,551
NON-CURRENT ASSETS
Other financial assets					4,385,701			4,385,701
Property, plant and equipment	14,597			14,597	14,597			14,597
Intangible assets	4,306,585		341,140	4,647,725
	4,321,182		341,140	4,662,322	4,400,298	$\omega$		4,400,298
Total Assets	9,064,183		341,140	9,405,323	8,986,849	$\omega$		8,986,849
CURRENT LIABILITIES
Payables	(362, 630)			(362, 630)	(285, 296)			(285, 296)
Provisions	(48, 893)			(48, 893)	(48, 893)			(48, 893)
	(411, 523)		$\blacksquare$	(411, 523)	(334, 189)			(334, 189)
Total Liabilities	(411, 523)			(411, 523)	(334, 189)	$\blacksquare$		(334, 189)
Net Assets	8,652,660	$\blacksquare$	341,140	8,993,800	8,652,660	$\omega$		8,652,660
EQUITY
Contributed Equity	13,180,042		$\blacksquare$	13,180,042	13,180,042			13,180,042
Reserves		113,405		113,405		113,405		113,405
Accumulated Losses	(4,527,382)	(113, 405)	341,140	(4,299,647)	(4,527,382)	(113, 405)		(4,640,787)
Total Equity	8,652,660	$\blacksquare$	341,140	8,993,800	8,652,660			8,652,660

IMUGENE

LIMITED

MAGARATAN MASA

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

25. IMPACT OF ADOPTING AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (CONT'D)

PROFORMA STATEMENT OF FINANCIAL PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2005

		Consolidated				Imugene
		Adjustments				Adjustments
	AGAAP	(a)	(b)	IFRS	AGAAP	(a)	(b)	IFRS
Loss from ordinary activities before income tax revenue	(2.116,968)	(113, 405)	341,140	(1,889,233)	(2.036.764)	(113, 405)		(2, 150, 169)
Income tax benefit relating to ordinary activities	322,760		$\overline{a}$	322,760	268,408		$\tilde{\phantom{a}}$	268,408
Loss from ordinary activities after income tax revenue	(1,794,208)	(113, 405)	341,140	(1,566,473)	(1.768.356)	(113, 405)	$\blacksquare$	(1,881,761)
Net Loss attributable to outside equity interests
Loss attributable to members of Imugene Limited	(1,794,208)	(113, 405)	341,140	(1,566,473)	(1,768,356)	(113, 405)	$\blacksquare$	(1,881,761)
Total expenses attributable to members of Imugene Limited recognised directly in equity Share Issue Costs	(261, 717)			(261, 717)	(261, 717)			(261, 717)
Total Changes in equity other than those resulting from transactions with owners as owners attributable to members of Imugene Limited	(2.055, 925)	(113, 405)	341,140	(1,828,190)	(2.030.073)	(113, 405)		(2.143.478)

25. CONVERGENCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS (continued)

(a) Equity-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 granted after 7 November 2002 which had not vested by 1 January 2005.

If the policy required by AASB 2 had been applied during the year ended 30 June 2005, consolidated and parent entity retained losses at 30 June 2005 would have been increased by \$113,405 with a corresponding increase in the share-based payment reserve. For the year ended 30 June 2005, the consolidated and parent entity employee benefits expense would have been \$113,405 higher, with a corresponding increase in the net movement in the share-based payment reserve.

(b) Goodwill

Under AASB 3 "Business Combinations" amortisation of goodwill will be prohibited and will be replaced by annual impairment testing focusing on the cash flows of the related cash generating unit.

This will result in a change to the existing accounting policy, under which goodwill is amortised on a straight line basis over the period during which the benefits are expected to arise and not exceeding 15 years.

If the policy required by AASB 3 had been applied during the year ended 30 June 2005, consolidated goodwill at 3 June 2005 would have been \$341,140 higher and consolidated amortisation expense for the year ended 30 June 2005 would have been \$341,140 lower. There would have been no impact on the parent entity's financial statements.

(c) 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 AIFRS, 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 AIFRS 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. The likely impact of these changes on deferred tax balances has not currently been determined.

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 AGAAP (see Note 4(b)). Under AIFRS, the criteria for recognition of carried forward losses is 'probable' as compared to the current 'virtually certain' test. the consolidated entity has not recognised these losses as an asset under AIFRS as it is not considered sufficiently probable that these losses will be recouped by means of future profits taxable in Australia.

Tax consolidation

UIG Interpretation 1052 'Tax Consolidation Accounting' mandates a significantly different manner of accounting for income taxes in tax-consolidated group compared to the present Australian requirements (refer note 1(o) and note 5). The approved Interpretation is applicable for financial years ending on or after 31 December 2005, and requires that each entity in the tax-consolidated group recognise deferred tax assets (other than unused tax losses and unused tax credits) and deferred tax liabilities relating to its own balances. We have not quantified the impact, if any, of the above in the proforma financial statements.

Accordingly, deferred tax assets and liabilities attributable to members of the tax-consolidated group other than the head entity presently recognised as at 30 June 2005 would be derecognised under AIFRS. Differences between the current tax liability (or asset) and the amount of any funding amount arising under a tax funding arrangement are be treated as a contribution by (or distribution to) equity participants.

25. CONVERGENCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS (continued)

(d) Financial Instruments

The consolidated entity will be taking advantage of the exemption available under AASB 1 to apply AASB 132 Financial Instruments: Recognition and Measurement only from July 2005. This allows the consolidated entity to apply previous Australian generally accepted accounting principles (Australian GAAP) to the comparative information of financial instruments within the scope of AASB 132 and AASB 139 for the 30 June 2006 financial report. Accordingly, there are no quantitative impacts on the 30 June 2005 financial statements.

26. ADDITIONAL COMPANY INFORMATION

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

Registered Office

Level 1 14-20 Delhi road North Ryde NSW 2113 Australia

Principal place of business

Level 1 14-20 Delhi road North Ryde NSW 2113 Australia

DIRECTORS' DECLARATION

The directors declare that:

• (a) in the directors' opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable;
• (b) in the directors' opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the consolidated entity, and;
• (c) the directors have been given the declarations required by s.295A of the Corporations Act 2001

In the directors' opinion, there are reasonable grounds to believe that the company and the consolidated entity will, as a group, be able to meet any obligations or liabilities to which they are subject.

Signed in accordance with a resolution of the directors made pursuant to s.295(5) of the Corporations Act $2001.$

GRAHAM DOWLAND Executive Chairman

Perth, 13 September 2005

Deloitte.

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 cash flows, accompanying notes to the financial statements, and the directors' declaration for both Imagene Limited (the company) and the consolidated entity, for the financial year ended 30 June 2005 as set out on pages 12 to 45. 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.

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.

Deloitte Touche Tohmatsu A.C.N. 74 490 121 060

Woodside Plaza Level 14 240 St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6857 Australia

DX 208 Tel: +61 (0) 8 9365 7000 Fax: +61 (0) 8 9365 7001 www.deloitte.com.au

Member of Defoitte Touche Tobraatsu

Deloitte.

Audit Opinion

In our opinion, the financial report of Imagene 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 position $(i)$ as at 30 June 2005 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
• other mandatory professional reporting requirements in Australia. $(b)$

Defoithe Tonchy Tohmatsu

DELOITTE TOUCHE TOHMATSU

Robert McPre).

Peter McIver Partner Chartered Accountants Perth, 13 September 2005

ADDITIONAL INFORMATION

The shareholder information set out below was applicable as at 30 August 2005.

1. TWENTY LARGEST SHAREHOLDERS

The names of the twenty largest holders of each class of securities are listed below:

Ordinary Shares
Name	No. of Ordinary Shares Held	Percentage of Issued Shares
Queensland Investment Corporation	7,497,997	5.74
Dr Warwick Lamb	6,150,001	4.71
Mrs Treffina Dowland	4,830,001	3.70
Merrill Lynch (Australia) Nominees Ltd	4,055,512	3.11
Blueknight Corporation Pty Ltd	3,202,937	2.45
Mcrae Investments Pty Ltd	2,471,666	1.89
Techstart Australia Pty Ltd	2,387,738	1.83
Walker Corporation Pty Ltd	2,300,000	1.76
Eurasia Pty Ltd	1,666,667	1.28
Lost Ark Nominees Pty Ltd	1,499,479	1.15
ANZ Nominees Ltd	1,395,870	1.07
MHGD Pty Ltd	1,290,000	0.99
Greenfield Company Ltd	1,200,000	0.92
Lost Ark Nominees Pty Ltd	1,100,000	0.84
Blueknight Corporation Pty Ltd	1.060.741	0.81
Lost Ark Nominees Pty Ltd	1,060,741	0.81
Springtide Capital Pty Ltd	1,050,000	0.80
Darley Pty Ltd	1,000,000	0.77
Donwillow Pty Ltd	1,000,000	0.77
Rollason Pty Ltd	1,000,000	0.77
Total Top 20	47,219,350	36.17
Others	83,360,214	63.83
Total Ordinary Shares on Issue	130,579,564	100.00

ADDITIONAL INFORMATION

1. TWENTY LARGEST SHAREHOLDERS (continued)

Listed Options as at 30 August 2005 Name

Name		Percentage of Issued
	No. of Listed Options Held	Listed Options
Queensland Investment Corporation	739,000	17.39
Cogent Nominees Pty Ltd	475,396	11.19
Westpac Custodian Nominees Ltd	375,070	8.83
JP Morgan Nominees Australia Ltd	333,534	7.85
Lost Ark Nominees Pty Ltd	250,000	5.88
Dr Michael Sheppard	250,000	5.88
Merrill Lynch (Australia) Nominees Ltd	205,000	4.82
Goffacan Pty Ltd	137,000	3.22
Tricom Nominees Pty Ltd	100,000	2.35
Cogent Nominees Pty Ltd	98,000	2.31
Asía Union Investments Pty Ltd	95,000	2.24
Equity Trustees Ltd	95,000	2.24
Walker Corporation Pty Ltd	80,000	1.88
Droga Capital Pty Ltd	76,000	1.79
Fortis Clearing Nominees Pty Ltd	52,000	1.22
ANZ Nominees Pty Ltd	50,000	1.18
Lost Ark Nominees Pty Ltd	50,000	1.18
Rollason Pty Ltd	50,000	1.18
Clodene Pty Ltd	40,000	0.94
Elinora Investments Pty Ltd	40,000	0.94
Total Top 20	3,591,000	84.51
Others	659,000	15.49
Total Option Holders	4,250,000	100.00

2. DISTRIBUTION OF EQUITY SECURITIES

(a) Analysis of security by size of holding - number of security holders

		Ordinary Shares	Listed Options
1 -	1.000	693
$1,001 -$	5.000	448	0
	$5,001 - 10,000$	527
$10,001 - 100,000$		829	35
$100,001 -$ and over		142
		2,639	49

(b) Analysis of security by size of holding - number of securities held

		Ordinary Shares	Listed Options
1 -	1.000	201.552	0
$1.001 -$	5.000	1,497,786	0
$5.001 -$	10.000	4,025,120	60,600
$10,001 - 100,000$		28,462,613	1,286,400
$100.001 -$ and over		73,931,009	2,903,000
		108,118,080	4,250,000

ADDITIONAL INFORMATION

3. SUBSTANTIAL SHAREHOLDERS

The following details appear in the company's register as at 30^th August 2005:

Substantial Shareholder	Ordinary Shares
Dr Warwick Lamb	6.400.001
Mrs Treffina Dowland	6.790.002
Queensland Investment Corporation	7.497.997

4. UNQUOTED SECURITIES

The names of the holders holding more than 20% of each class of unlisted securities are listed below:

Performance Options - Exercise Price of \$0.225 and Expiry Date of 31 October 2007

Lost Ark Nominees Pty Ltd	1.079.851
11 other holders (each less than 20% holding)	3.553.482
Total	4,633,333

5. VOTING RIGHTS

See Note 13 of the Notes to the Financial Statements.

6. ON-MARKET BUY BACK

There is currently no on-market buy back program for any of Imugene's listed securities.