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ENVIRONMENTAL CLEAN TECHNOLOGIES LIMITED. — Annual Report 2003
Sep 21, 2003
64819_rns_2003-09-21_7b1ad21b-8421-498f-99ae-77bbef7f4763.pdf
Annual Report
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ENVIRONMENTAL SOLUTIONS INTERNATIONAL LTD
(A.C.N. 009 120 405)
FINANCIAL REPORT
FOR THE YEAR ENDED
30 JUNE 2003
ENVIRONMENTAL SOLUTIONS INTERNATIONAL LTD A.C.N. 009 120 405
FINANCIAL REPORT
FOR THE YEAR ENDED
30 JUNE 2003
CONTENTS
Chairman's Report Directors' Report Corporate Governance Statement Independent Audit Report Directors' Declaration Statement of Financial Performance Statement of Financial Position Statement of Cashflows Notes to the Financial Statements Shareholders' Information
CORPORATE PROFILE
Directors
T.E. O'CONNOR QC - Chairman D.P. GLENNON AO, BA (Hons), MSc, FAICD - Managing Director D.H. O'NEILL BSc (Hons) - Mech Eng J.B.H. CHEAK B Econ (UWA)
Company Secretary
P.A. HOPPS C.A., A.S.L.A.
Registered Office
21 Teddington Road PO Box 116 BURSWOOD WA 6100 Telephone: 08-9470 4004 Facsimile: 08-9355 0998
Auditors
Deloitte Touche Tohmatsu Level 16, Central Park 152 - 158 St Georges Terrace PERTH WA 6000
Solicitors Fearis Salter Power Shervington 52 Ord Street WEST PERTH WA 6005
Share Registry
Security Transfer Registrars Pty Ltd 770 Canning Highway, P O Box 535 APPLECROSS WA6153 Telephone: 08-9315 0933 Facsimile: 08-9315 2233
Bankers
Commonwealth Bank of Australia 150 St Georges Terrace PERTH WA 6000
Stock Exchange
The Company's Home Exchange Australian Stock Exchange Limited 2 The Esplanade PERTH WA 6000
CHAIRMAN'S REPORT
Overview
The main features of the financial year were as follows:
- Intense tendering activity in the water/wastewater area particularly during the second half of the year, ٠ resulting in a record order book of approximately \$65 million at the date of this report.
- The award to your company of several important new water/wastewater contracts.
- Continued work on the commercial and technical development of the ENERSLUDGETM technology.
Regrettably, the company incurred a loss of \$2.86 million after tax, due mainly to the run off of current contracts and delays in the award of new water and wastewater contracts.
Water and Wastewater Technologies
Of particular significance in the water area was the construction and commissioning of three water treatment plants at Daintree, Mossman and Whyanbeel in Northern Oucensland on behalf of Douglas Shire Council. This was a very important contract as it demonstrated ESI's capability in the design and construction of ultra filtration membrane plants capable of treating "raw" water in a cost effective and environmentally efficient way, the latter being particularly important in the ecologically important area of Daintree.
The Daintree project was followed by the award of two further water treatment contracts at:
- Longford in Tasmania, again in a heritage environment. This was the first contract undertaken by ESI in ٠ Tasmania and should act as a "launching pad" for further water and wastewater business in that state.
- Mildura in Victoria where ESI will design, construct and operate a state-of-the-art treatment plant to supply drinking water to the people of Mildura and surrounding districts.
The intense tendering activity referred to above, although costly, resulted in the award, in many cases, very late in the year of several water and wastewater contracts. Some of the major projects which were originally scheduled to commence in the early part of the year did not commence until later in the year. Understandably this has had a detrimental impact on revenue and profitability. On the other hand 1 believe that the 03/04 and 04/05 financial years will see the benefit of tendering effort expended in the last financial year.
As already announced, in joint venture with the Tenix Alliance, the company has been awarded the contract by Bega Valley Shire Council in New South Wales for the new Bega Valley Sewerage Project. Work to be carried out includes the upgrading of sewerage treatment plants in Bega. Tathra. Tura Beach, Bermagui and Merimbula and the construction of new sewerage schemes in Cobargo. Candelo, Wallaga Lake. Wolumla and Kalaru. The value of the contract to the joint venture is \$58 million plus operations and maintenance of the plants over a 15 year period. This is an exciting long-term contract for ESI and I congratulate our staff for their hard work in securing it for the company. Incidentally this is the first major long term operations and maintenance contract that has been awarded to truly Australian interests. All other such contracts awarded in Australia in the last decade have gone to overseas consortia.
In addition to the above, new wastewater contracts have been awarded at Port Pirie (SA), Dalvellup (WA), Canungra (Old), Bolivar (SA), Colac (Vic) and Yarra Valley (Vic). With the current record order book and several other projects where ESI enjoys "preferred tenderer" status ESI's water/wastewater business is in a very strong position to go forward.
ENERSLUDGETM Technology
The commercialisation of ENERSLUDGETM technology has been much slower than both the company and the market anticipated. Whilst the phasing out of sludge disposal in landfills is moving ahead in most EU countries, the reduction in land disposal has not occurred as quickly as anticipated. The sludge coming from the small capacity reductions that have occurred has been readily absorbed by an over-capacity in the Northern European incineration market. However, Holland, Belgium and Switzerland have now banned the use of sludges on land as fertilizer it is anticipated that other Northern European countries/regions will follow shortly. No pyrolysis or gasification contracts have been awarded in the European Union for the processing of sludge in the last three years. ENERSLUDGETM is the only pyrolysis technology to have been demonstrated at commercial scale anywhere in the world and is still a leading technology in the sludge market, your company remains optimistic for the future.
As the European sewage sludge market has not evolved as anticipated and the broader world market for thermal plants is still evolving, your Company has continued to review and adjust its strategy for the commercialisation of ENERSLUDGE™ to ensure the right balance is achieved between:
- the business risks of continuing to invest in the technology and
- the potential future rewards.
ESI's original strategy for commercialisation of ENERSLUDGE™ was developed when the emerging market was predicted by market analysts to grow more rapidly. This strategy was centred on appointing licensees in selected key markets and, through these parties, rolling out the technology. Using this strategy, ESI's geographic location (essentially on the other side of the world to the target markets) and modest balance sheet were not seen as significant impediments. Additionally, the lack of any proven competing technology and an operating demonstration plant in Australia indicated this to be the right approach.
ESI has been successful in finding and securing two high profile Licensees (Mitsubishi for the Japanese Market and Ondeo-Degrémont for the French/European Market), and negotiations are ongoing with others. This strategy alone is likely to take some time to produce significant returns. Thus, the Board has decided to also pursue the option of finding a strong Joint Venture partner to participate in the final steps of the commercialisation of the technology. This will help bring much greater market presence, a stronger balance sheet, and potentially funding of the ENERSLUDGETM business, relieving to some degree the burden on the company. In particular, we are considering private sector companies who have direct responsibility for sludge management operations - companies to whom the benefits associated with the commercial use of the $ENERSLUDGE^{TM}$ process will immediately translate into a substantially improved bottom line.
The Future
Despite the disappointing financial result this in the financial year the company's balance sheet remains strong with no external debt. The current order book places the company in a good position to move forward. Accordingly its priorities will be:
- Return the company to profitability and recommence payment of dividends to shareholders. ٠
- Maintain the business development momentum. ٠
- Deliver the current project workload on time and at or below budget. ٠
- Pursue the best direction forward for ENERSLUDGETM. ٠
- Continue the development of new technologies to maintain the company at the forefront of the industry in $\bullet$ which it operates.
Staff
Finally I would like to acknowledge the efforts our Managing Director. Denis Glennon and his staff. Given the heavy tendering load, everyone in the company has been operating under great pressure. To their credit they have risen to the occasion and have done an excellent job. On behalf of the Board and Shareholders I would like to extend our thanks for a job extremely well done.
T E O'Connor O.C. Chairman
ENVIRONMENTAL SOLUTIONS INTERNATIONAL LTD (A.C.N. 009 120 405)
DIRECTORS' REPORT
The Directors submit herewith the annual financial report for the financial year ended 30 June 2003. In order to comply with the provisions of the Corporations Act 2001, the Directors report as follows:
Directors
The names and particulars of the Directors of the company in office during or since the end of the financial year are:
| Name | Particulars |
|---|---|
| Terence Edward O'Connor QC | Chairman, Non-Executive Director, joined the board on 18 November 1985. Chancellor of the University of Notre Dame Australia, Chairman of Ausdrill Ltd, Director of Elkington Bishop Molineaux Insurance Brokers Ltd, Director of GES International Ltd and Chairman of the Western Australian Anti Corruption Commission. |
| Denis Patrick Glennon, AO | Managing Director, joined the board on 1 July 1989. Mr Glennon has |
| B.A. (Hons), M.Sc., FAICD | extensive experience in business development, technology commercialisation and environmental regulations. |
| Dennis Hamilton O'Neill | Non-Executive Director, joined the board on 12 April 1995. Mr |
| B.Sc. (Hons) - Mech. Eng | O'Neill is former Managing Director and Chief Executive of United Group and former Managing Director of Evans Deakins Industries Ltd. He has extensive experience in engineering and in the export of Australian expertise and technologies. |
| John Boon Heng Cheak | Non-Executive Director, joined the board on 16 February 1996. Mr |
| B. Econ. (UWA) | Cheak is the CEO/Director of CH Offshore Ltd, Managing Director of Cleanway Environmental Services, Cleanway Systems and Technologies Pte Ltd and CFX Sdn Bhd Malaysia. Non-Executive |
| Director of Finbar International Ltd and Zicom Australia Limited. He has extensive experience in sales, marketing, investment and venture management in Asia and Australia. |
Principal Activities
During the year, the principal activities of the consolidated entity constituted by this company and the entities it controlled from time to time, consisted of the sale of water and wastewater treatment processes and services. There was no significant change in the nature of those principal activities during the year.
Dividends
In respect of the financial year ended 30 June 2002, as detailed in the directors' financial report for that year, a final dividend of 0.3 cents per share (unfranked) was paid to the holders of fully paid ordinary shares on 31 October 2002.
The directors do not recommend the payment of a dividend in respect of the financial year ended 30 June 2003.
Review of Operations
During 2002/2003, the marketing of water and waste treatment processes and services continued. Full details of the years' activities are contained in the "Chairman's Report".
Changes In State of Affairs
There were no significant changes in the state of affairs of the consolidated entity other than as referred to elsewhere in this report, or in the attached financial report.
Share Options
Share Options Granted to Directors and Executives
During or since the end of the financial year no options over unissued shares or interest have been granted to any director or employee of the company
Executive and Employee Share Option Plan
At the date of this report the following options to acquire Ordinary Shares of the company were on issue:
| Number of Options | Number of Ordinary Shares under Option |
Exercise Price |
Expiry Date | |
|---|---|---|---|---|
| Unlisted Employee Options | 2,248,000 | 2.248,000 | \$0.32 | 7/09/2005 |
| 100,000 | 100,000 | \$0.40 | 30/11/2005 | |
| 1,297,500 | 1,297,500 | \$0.65 | 19/03/2007 | |
| 1,297,500 | 1,297,500 | \$0.75 | 20/03/2007 | |
| 4,943,000 | 4,943,000 | |||
| Unlisted Ordinary Options | 500,000 | 500,000 | \$0.45 | 30/11/2004 |
| 1,413,750 | 1,413,750 | \$0.40 | 30/11/2005 | |
| 1,913,750 | 1,913,750 | |||
| Total Options | 6,856,750 | 6,856,750 | ||
During the financial year, an aggregate of 25,000 options were exercised in accordance with the provisions of the employee share plan resulting in the issue of $25,000$ ordinary shares in the company at an issue price of \$0.30.
Holders of options will only be permitted to participate in new issues of securities provided they first exercise their options.
No person entitled to exercise any of the options issued by the company had or has any right, by virtue of the option, to participate in any share of any other body corporate.
Further details of the Employee Share Plan are disclosed at Note 5 to the Financial Statements.
Subsequent Events
There have not been any matters or circumstances that have arisen since the end of the financial year that have significantly affected, or may significantly affect, the operations of the consolidated entity, the results of these operations, or the state of affairs of the consolidated entity in financial years subsequent to this financial period.
Future Developments
Details of likely future developments of the company are contained in the Chairman's Report which accompanies the financial report.
Directors and Executives Remuneration
The remuneration of directors is set by the Board within overall limits approved by shareholders at the Annual General Meeting. The remuneration of the Managing Director is set by the Chairman after discussion by the Board. The Managing Director approves the remuneration of Senior Executives and other staff within budgetary limits set by the Board.
Remuneration packages include the following key elements:
- $(a)$ Salary and fees:
- Benefits including the provision of motor vehicle and superannuation; and $(b)$
- $(c)$ Value placed on any options including options granted under the Employee Share Plan. As noted above, no options were issued during the year.
The following table discloses the remuneration of the directors and executives of the company:
| Salary and | Value | ||||
|---|---|---|---|---|---|
| Name | Office | Fees | Benefits | Placed on | Total |
| \$ | \$ | Options $(i)$ | \$ | ||
| Directors: | |||||
| T E O'Connor, OC | Non-Executive Director | 45,000 | 3,600 | 48,600 | |
| D P Glennon | Executive Director | 216,365 | 133.635 | 350,000 | |
| D H O'Neill | Non-Executive Director | 25,000 | 25,000 | ||
| J B H Cheak | Non-Executive Director | 25,000 | 25,000 | ||
| Executives: | |||||
| T R Bridle | Technical Director | 144,776 | 65,128 | 10.857 | 220,761 |
| P A Ashford | General Manager Enersludge | 171,694 | 27.857 | 9,908 | 209,459 |
| M P Peters | Engineering Director | 109,700 | 59.951 | 10.857 | 180,508 |
| J R Jennings | Senior Project Manager | 93,941 | 37,908 | 6.514 | 138,363 |
| 831,476 | 328.079 | 38.136 | 1.197.691 |
(i) The "Value Placed on Options" in the table above is based on the valuation at the date of issue, using the Black-Scholes model, pro-rated over the period from grant date to vesting date. It should be noted that the options referred to were all issued in previous financial years and their full value disclosed in the Directors Reports of previous financial years. The company did not issue any options to Directors or employees during the financial year ended 30 June 2003. The above disclosure is made in order to comply with the requirements of the Australian Securities and Investment Commission.
Directors' Shareholdings
The Directors of the company have an interest in the following shares and options in the company as at the date of this report.
| Fully Paid Ordinary Shares | Options | |
|---|---|---|
| T E O'Connor, OC | 225.000 | 250,000 |
| D P Glennon | 1.693.250 | 1.413.750 |
| D H O'Neill | 803.000 | $\overline{\phantom{a}}$ |
| J B H Cheak | 575.000 | 250.000 |
Directors' Meeting
The number of directors' meetings held in the period each director held office during the financial year and the number of meetings attended by each director are:
| Director | Board of Directors Meetings | |||
|---|---|---|---|---|
| Number Held whilst a Director | Number Attended | |||
| TEO'Connor, OC | 8 | |||
| D H O'Neill | x | 8 | ||
| D P Glennon | 8 | 8 | ||
| J B H Cheak | x |
Indemnification of Officers and Auditors
During the financial year, the company paid a premium in respect of a policy insuring the directors of the company (as named above), the company secretary, Mr P A Hopps, and all executive officers of the company and of any related body corporate against any liability incurred as a director, secretary or executive officer to the extent permitted by the Corporations Act 2001. The insurance policy prohibits disclosure of its contents and the amount of the premium.
The company has not otherwise, during or since the financial year, indemnified or agreed to indemnify an officer of the company or of any related body corporate against a liability incurred as an officer or auditor.
Environmental Regulations
The consolidated entity's operations are not subject to any particular and significant environmental regulation under a law of the Commonwealth or of a State or Territory.
Reunding off of Amounts
The company is a company of the kind referred to in ASIC class Order 98/0100, dated 10 July 1998, and in accordance with that Class Order amounts in the financial report have been rounded off to the nearest thousand dollars.
Signed in accordance with a resolution of the directors made pursuant to section 298(2) of the Corporations Act 2001.
On behalf of the Board
D P GLENNON Managing Director
Perth 9 September 2003
CORPORATE GOVERNANCE STATEMENT
The directors are responsible for protecting the rights and interests of the shareholders through the implementation of strategies and action plans and the development of an integrated framework of controls over the company's resources, functions and assets. The Company's main corporate governance practices in place during the financial year are summarised below.
Board Composition and Membership
The Board comprises both executive and non-executive directors with a majority, including the Chairman, being non-executive.
The full Board is responsible for establishing criteria for Board membership, reviewing Board membership and identifying and nominating directors. Board membership is reviewed regularly to ensure the Board has an appropriate mix of qualifications, skills and experience. Candidates are appointed by the Board and must stand for election at the next General Meeting of shareholders held subsequent to their appointment.
At the date of the directors' report, the Board consisted of three non-executive directors and one executive director. Details of directors are set out in the directors' report.
Remuneration of Directors and Executives
The remuneration of directors is set by the Board within overall limits approved by shareholders at General Meeting. The remuneration of the Managing Director is set by the Chairman after discussion by the Board. The Managing Director approves the remuneration of Senior Executives and other staff within budgetary limits set by the Board.
Independent Professional Advice
In fulfilling their duties, the Directors may obtain independent professional advice at the Company's expense.
Audit Committee
The company does not have a formally constituted Audit Committee as the Board considers the company's size and operation does not warrant such a Committee. The Board acts as a de facto Audit Committee in conjunction with its regular Board meetings.
The Board regularly reviews the Company's financial reports and evaluates the scope and effectiveness of the external audit function on an annual basis.
Identifying and Managing Business Risks
The Board regularly monitors the operational and financial performance of the Company and consolidated entity against budget and other key performance measures. The Board also reviews and receives advice on areas of operational and financial risks. Appropriate risk management strategies are developed to mitigate any identified risks to the business.
Ethical Standards
The Company is aware of its Corporate Governance responsibilities and seeks to operate to the highest ethical standards.
INDEPENDENT AUDIT REPORT TO THE MEMBERS OF ENVIRONMENTAL SOLUTIONS INTERNATIONAL LTD
Scope
The financial report and directors' responsibility
The financial report comprises the statement of financial position, statement of financial performance, statement of cashflows, accompanying notes to the financial statements, and the directors' declaration for both Environmental Solutions International Ltd (the company) and the consolidated entity, for the financial year ended 30 June 2003 as set out on pages 12 to 39. 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.
Independence
In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001.
Audit Opinion
In our opinion, the financial report of Environmental Solutions International Ltd 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 as at 30 June 2003 and of $(i)$ their performance for the year ended on that date; and
- $(ii)$ complying with Accounting Standards in Australia and the Corporations Regulations 2001; and
- $(b)$ other mandatory professional reporting requirements in Australia.
DELOITTE TOUCHE TOHMATSU
P McIver Partner Chartered Accountants Perth, 10 September 2003
The liability of Deloitte Touche Tohmatsu is limited by, and to the extent of, the Accountants' Scheme under the Professional Standards Act 1994 (NSW).
DIRECTORS' DECLARATION FOR THE FINANCIAL YEAR ENDED 30 JUNE 2003
The Directors declare that:
- $(a)$ The attached financial statements and notes thereto comply with Accounting Standards;
- $(b)$ The attached financial statements and notes thereto give a true and fair view of the financial position and performance of the company and the consolidated entity;
- In the Directors' opinion the attached financial statements and notes thereto are in accordance with the Corporations Act $(c)$ 2001; and
- $(d)$ 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.
Signed in accordance with a resolution of the Directors made pursuant to section 295(5) of the Corporations Act 2001.
On behalf of the Board
D P Glennon Managing Director
Perth 9 September 2003
STATEMENT OF FINANCIAL PERFORMANCE FOR THE FINANCIAL YEAR ENDED 30 JUNE 2003
| Consolidated Note |
Company | ||||
|---|---|---|---|---|---|
| 2003 \$'000 |
2002 \$'000 |
2003 \$'000 |
2002 \$'000 |
||
| Revenue from ordinary activities | 14,921 | 21,884 | 14,921 | 22,067 | |
| Material and Subcontractor expenses | (11,104) | (14, 871) | (11, 104) | (14, 871) | |
| Employee benefits expense | (4, 484) | (3,660) | (4, 484) | ||
| Depreciation and amortisation expense | (337) | (263) | (337) | (263) | |
| Borrowing costs | (4) | (3) | (4) | (3) | |
| Occupancy expense | (251) | (202) | (251) | (202) | |
| Service fee expense | (3,843) | ||||
| Insurance expense | (295) | (143) | (295) | (143) | |
| Other expenses from ordinary activities | (1,314) | (1,428) | (1,691) | (1,428) | |
| Profit/(Loss) From Ordinary Activities Before Income Tax Expense |
2 | (2,868) | 1,314 | (3,245) | 1,314 |
| Income tax expense relating to ordinary activities | 6 | ||||
| Profit/(Loss) From Ordinary Activities After Related Income Tax Expense |
(2,868) | 1,314 | (3,245) | 1,314 | |
| Total Revenue and Expense Attributable to Members of the Parent Entity Recognised Directly in Equity |
(2,868) | 1,314 | (3,245) | 1,314 | |
| Total Changes in Equity Other than those Resulting from Transactions with Owners as Owners |
20 | (2,868) | 1,314 | (3,245) | 1,314 |
| Earnings Per Share - Basic (cents per share) | 33 | (3.72) | 1.72 | ||
| - Diluted (cents per share) | 33 | (3.72) | 1.68 |
Notes to the financial statements are included on pages 16 to 39.
STATEMENT OF FINANCIAL POSITION As at 30 June 2003
| Note | Consolidated | Company | |||
|---|---|---|---|---|---|
| 2003 \$2000 |
2002 \$'000 |
2003 \$'000 |
2002 \$'000 |
||
| Current Assets | |||||
| Cash Assets | 7 | 6,210 | 8,642 | 6,210 | 8,580 |
| Receivables | 8 | 4,076 | 8,206 | 4,064 | 8,194 |
| Other | 9 | 2,618 | 137 | 2,618 | 137 |
| Total Current Assets | 12,904 | 16,985 | 12,892 | 16,911 | |
| Non-Current Assets | |||||
| Receivables | $10\,$ | 183 | 218 | 922 | 930 |
| Other Financial Assets | $\mathbf{1}$ | 305 | 305 | ||
| Property, Plant and Equipment | 12 | 578 | 681 | 578 | 681 |
| Intangible Assets | 13 | 1,654 | 1,720 | 188 | 254 |
| Total Non-Current Assets | 2,415 | 2,619 | 1,993 | 2,170 | |
| Total Assets | 15,319 | 19,604 | 14,885 | 19,081 | |
| Current Liabilities | |||||
| Payables | 14 | 5,189 | 6,590 | 5,178 | 6,356 |
| Interest Bearing Liabilities | 15 | 7 | 26 | 7 | 26 |
| Provisions | 16 | 625 | 625 | 625 | 231 |
| Total Current Liabilities | 5,821 | 7,241 | 5,810 | 6,613 | |
| Non-Current Liabilities | |||||
| Interest Bearing Liabilities | 17(a) | 3 | 7 | 3 | 7 |
| Other | 17(b) | 151 | |||
| Total Non-Current Liabilities | 3 | $\overline{7}$ | 3 | 158 | |
| Total Liabilities | 5,824 | 7,248 | 5,813 | 6,771 | |
| Net Assets | 9,495 | 12,356 | 9,072 | 12,310 | |
| Equity | |||||
| Contributed Equity | $18\,$ | 23,254 | 23,247 | 23,254 | 23,247 |
| Reserves | 19 | 3,176 | 3,176 | 856 | 856 |
| Accumulated Losses | $20\,$ | (16, 935) | (14,067) | (15,038) | (11, 793) |
| Total Equity | 9,495 | 12,356 | 9,072 | 12,310 |
Notes to the financial statements are included on pages 16 to 39.
STATEMENT OF CASH FLOWS For the year ended 30 June 2003
| Note | Consolidated Inflow (Outflow) |
Company Inflow (Outflow) |
|||
|---|---|---|---|---|---|
| 2003 \$'000 |
2002 \$'000 |
2003 \$'000 |
2002 \$'000 |
||
| Cash Flows From (Used In) Operating Activities | |||||
| Receipts from customers | 20,022 | 16,660 | 20,022 | 17,208 | |
| Payments to suppliers and employees | (22, 390) | (18,982) | (22, 544) | (19, 584) | |
| Interest Received | 316 | 365 | 316 | 365 | |
| Net Cash Flow From (Used In) Operating Activities |
31(a) | (2,052) | (1,957) | (2,206) | (2,011) |
| Cash Flows from (Used in) Investing Activities | |||||
| Payments for property, plant and equipment | (168) | (420) | (168) | (420) | |
| Payment for business acquisition | 31(b) | (60) | (60) | ||
| Net Cash (Used In) Investing Activities | (168) | (480) | (168) | (480) | |
| Cash Flows from Financing Activities | |||||
| Proceeds from issue of equity securities | 7 | 381 | 7 | 381 | |
| Proceeds (Repayment) from borrowings | (23) | (22) | (23) | (22) | |
| Loans (advanced) repaid by related entity | 216 | 3 | |||
| Employee Share Plan Loans (advanced) repaid | 35 | (78) | 35 | (78) | |
| Dividends paid | (231) | (609) | (231) | (609) | |
| Net Cash from(Used in) Financing Activities | (212) | (328) | 4 | (325) | |
| Net Increase (Decrease) in Cash Held | (2,432) | (2,765) | (2,370) | (2,816) | |
| Cash held at the beginning of the financial year | 8,642 | 11,407 | 8,580 | 11,396 | |
| Cash at the End of the Financial Year | 32 | 6,210 | 8,642 | 6,210 | 8,580 |
Notes to the financial statements are included on pages 16 to 39.
NOTES TO THE FINANCIAL STATEMENTS
1. Summary of Accounting Policies
This 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 costs 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 financial statements have been prepared by combining the financial statements of all the entities that comprise the consolidated entity being the company and the entities it controlled during the year. Where entities are not controlled throughout the financial year, the consolidated results include the results of those entities for that part of the year during which control exists. The controlled entities are listed in Note 26 to the financial statements.
The effect of all transactions between entities in the consolidated entity and inter-entity balances are eliminated in full in preparing the consolidated financial statements.
Where necessary dissimilar accounting policies adopted by controlled entities have been amended to ensure consistent policies are adopted within the consolidated entity.
(B) CAPITAL GAINS TAX
Capital gains tax is not taken into account in determining the carrying amount of revalued non-current assets unless a definite decision to sell has been taken and the related capital gains tax can be reliably determined.
(C) DEPRECIATION OF PLANT AND EQUIPMENT
Depreciation is provided on plant and equipment and is calculated on a straight-line basis so as to write off the net cost of each asset during its expected useful life. Leased assets are amortised over the period of the lease or estimated useful life, whichever is the shorter, using the straight-line method.
The following estimated useful lives are used in the calculation of depreciation:
- Plant and Equipment: 5 years
- Equipment under finance lease: 5 years
(D) RECOVERABLE AMOUNT OF NON-CURRENT ASSETS
Non-current assets are written down to recoverable amount where the carrying value of any non-current assets exceeds recoverable amount. Recoverable amount is determined as the present value (not discounted) of the amount expected to be recovered through the cash inflows and outflows arising from the continued use and subsequent disposal of the non-current asset.
(E) INCOME TAX
Tax effect accounting principles have been adopted whereby income tax expense has been calculated on pre-tax accounting profits after adjustments for permanent differences. The tax effect of timing differences, which occur when items are included or allowed for income tax purposes in a period different to that for accounting, is shown at current taxation rates in provision for deferred income tax and future income tax benefit as applicable.
NOTES TO THE FINANCIAL STATEMENTS
(F) INTANGIBLES
(i) LICENCES, PATENTS AND RIGHTS TO TECHNOLOGY ASSETS
The Directors are of the opinion that the carrying amount for these assets does not exceed the recoverable amount and the future benefits are expected to equal or exceed the carrying value plus any future costs necessary to give rise to the future benefit.
The licences, patents and technology assets are reviewed regularly to ensure the criterion for deferral continues to be met.
Amortisation commences with the commercial production of the product and the basis of amortisation employed is determined by reference to the benefits expected to arise from the sale or use of the product. The assets are to be amortised over 10 years from the date of commercialisation in order to match such amortisation costs with related benefits.
(ii) GOODWILL
Goodwill, representing the excess of the cost of acquisitions over the fair value of the identifiable net asset acquired, is amortised on a straight-line basis over a period of 10 years.
(G) CONSTRUCTION WORK
The value of unbilled amounts due from customers is arrived at by taking to account cost plus profits recognised to date less progress billings received and provisions for foreseeable losses. Profits are recognised in proportion to the percentage of completion of the contract. A provision for a foreseeable loss is made as soon as the loss is anticipated and is made both for work in progress completed to date and for future work on the contract.
Revenue from fixed price contracts is recognised in accordance with the percentage of completion method. Stage of completion is measured by reference to physical survey of the works as agreed with the client.
(H) JOINT VENTURES
Interests in joint venture operations have been reported in the financial statements, including the consolidated entity's share of assets employed in the joint venture, the share of liabilities incurred in relation to the joint venture and the share of any expenses incurred in relation to the joint venture in their respective classification categories.
(I) RECEIVABLES
Trade receivables and other receivables are recorded at amounts due less any provision for doubtful debts.
(J) 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.
(K) EMPLOYEE ENTITLEMENTS
Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave, long service leave and sick leave when it is probable that settlement will be required and are capable of being measured reliably.
Provisions made in respect of wages and salaries, annual leave, sick leave, and other employee entitlements expected to be settled within 12 months are measured at their nominal values, using the remuneration rate expected to apply at the time of settlement.
Provisions made in respect of long service leave not expected to be settled within 12 months are measured as the present value of the estimated future outflows to be made by the consolidated entity in respect of services provided by employees up to the reporting date.
NOTES TO THE FINANCIAL STATEMENTS
(L) FINANCIAL INSTRUMENTS
Debt and Equity Instruments
Where applicable, debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement.
Interest and Dividends
Interest and dividends are classified as expenses or as distributions of profit consistent with the statement of financial position classification of the related debt or equity instruments.
(M) LEASED ASSETS
Operating lease payments are recognised as an expense on a basis which reflects the pattern in which economic benefits from the leased asset are consumed.
Leased assets classified as finance leases are recognised as assets. The amount initially brought to account is the present value of minimum leased payments.
A finance lease is one which effectively transfers from the lessor to the lessee substantially all the risks and benefits incidental to ownership of the leased property.
Finance leased assets are amortised on a straight-line basis over the estimated useful life of the asset.
Finance lease payments are allocated between interest expense and reduction of lease liability over the term of the lease. The interest expense is determined by applying the interest rate implicit in the lease to the outstanding lease liability at the beginning of each lease payment period.
(N) REVENUE RECOGNITION
Rendering of Services
Revenue from a contract to provide design and engineering services is recognised by reference to the stage of completion of the contract.
(O) GOODS AND SERVICES TAX
Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except:
- $(i)$ where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or
- $(ii)$ for receivables and payables which are recognised inclusive of GST.
The net amount of any GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables.
Cash flows are included in the statement of cash flows on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows.
(P) ACOUISITION OF ASSETS
Assets acquired are recorded at the cost of acquisition, being the purchase consideration determined as at the date of acquisition plus costs incidental to the acquisition.
In the event that settlement of all or part of the cash consideration given in the acquisition of an asset is deferred, the fair value of the purchase consideration is determined by discounting the amounts payable in the future to their present value as at the date of acquisition.
(O) INVESTMENTS
Investments in controlled entities are recorded at cost.
NOTES TO THE FINANCIAL STATEMENTS
| Consolidated | Company | |||
|---|---|---|---|---|
| 2003 \$'000 |
2002 \$7000 |
2003 \$'000 |
2002 \$'000 |
|
| 2 Operating Profit/(Loss) | ||||
| The operating profit/(loss) before income tax includes the following items of revenue and expense: |
||||
| (a) Operating Revenue | ||||
| Sales Revenue: | ||||
| Rendering of services | 14,605 | 21,373 | 14,605 | 21,373 |
| Share of Joint Venture Rendering of Services | 146 | 146 | ||
| 14,605 | 21,519 | 14,605 | 21,519 | |
| Interest Revenue: | ||||
| Other Entities | 316 | 365 | 316 | 365 |
| Other | 183 | |||
| Total Revenue from ordinary activities | 14,921 | 21,884 | 14,921 | 22,067 |
| (b) Expenses | ||||
| Depreciation or amortisation of: | ||||
| Plant and Equipment | 254 | 197 | 254 | 197 |
| Intangibles: | ||||
| Technologies Goodwill |
55 $\mathbf{1}$ |
55 $\mathbf{1}$ |
55 11 |
55 |
| Transfer to/from provisions: | ||||
| Employee entitlements | ||||
| Annual leave | 98 | 22 | 98 | |
| Long service leave | 133 | 4 | 133 | |
| Operating lease minimum rental expenses | 251 | 202 | 251 | 202 |
| Loss on disposal of fixed assets | 4 | 4 | ||
| Finance Leases | 4 | 3 | 4 | 3 |
| Finance Charges Amortisation |
17 | 22 | 17 | 22 |
| Loans to wholly owned controlled entities | $\ddot{\phantom{0}}$ | 384 | ||
| forgiven | 2003 | 2002 | 2003 | 2002 |
| ${\mathbb S}$ | \$ | \$ | ${\mathbb S}$ | |
| (c) Auditor Remuneration | ||||
| Auditing the financial report | 25,000 | 19,000 | 25,000 | 19,000 |
| Other Services | 12,950 | 23,713 | 12,950 | 23,713 |
| 37,950 | 42,713 | 37,950 | 42,713 | |
NOTES TO THE FINANCIAL STATEMENTS
| Consolidated | Company | ||||
|---|---|---|---|---|---|
| 2003 | 2002 | 2003 | 2002 | ||
| \$ | \$ | \$ | \$ | ||
| 3 Remuneration of Directors The Directors of Environmental Solutions International Ltd during the year were: T E O'Connor, Q.C. D H O'Neill D P Glennon |
|||||
| J B H Cheak | |||||
| The aggregate of income, paid or payable, or otherwise made available, in respect of the financial year, to all directors of the company, directly or indirectly, by the company or by any related party. |
448,600 | 445,000 | |||
| The aggregate of income paid or payable, or otherwise made available, in respect of the financial year, to all directors of each entity in the consolidated entity, directly or indirectly, by the entities in which they are directors or by any related |
793,361 | 783,700 | |||
| party. | |||||
| The number of directors of the Company whose total income falls within each successive \$10,000 band of income: |
|||||
| \$20,000 - \$29,999 \$40,000 - \$49,999 \$350,000 - \$359,999 |
2 $\mathbf{I}$ 1 |
2 $\mathbf{I}$ 1 |
|||
| There were no retirement benefits paid to any Director of the Company or of any other entity within the economic entity. |
|||||
| 4 Remuneration of Executives | |||||
| Aggregate remuneration of executive officers of the company working mainly in Australia and receiving \$100,000 or more from the company or from any related party. |
2,071,615 | 1,199,058 | |||
| The income disclosed in this note includes the value placed on options issued to Executives. Refer to "Directors and Executives Remuneration" in the Directors Report which accompanies these Financial Statements. |
|||||
| Aggregate remuneration of executive officers of each entity in the consolidated entity working mainly in Australia and receiving \$100,000 or more from the entity for which they are executive officers or from any related party. |
2,071,615 | 1,199,058 |
NOTES TO THE FINANCIAL STATEMENTS
| Consolidated | Company | |||
|---|---|---|---|---|
| The number of executive officers whose remuneration falls within each successive \$10,000 band of income. |
||||
| \$100,000 - \$109,999 | ۲ | 5 | ||
| \$110,000 - \$119,999 | 3 | 3 | ||
| \$120,000 - \$129,999 | ||||
| \$130,000 - \$139,999 | ||||
| \$150,000 - \$159,999 | ||||
| \$160,000 - \$169,999 | ||||
| \$180,000 - \$189,999 | ||||
| \$200,000 - \$209,999 | ||||
| \$210,000 - \$219,999 | ||||
| \$220,000 - \$229,999 | ||||
| \$350,000 - \$359,999 |
5 Employee Share Plan
The company has an incentive based share plan for employees. In accordance with the provisions of the plan, as approved by shareholders at an annual general meeting, employees, at the discretion of the directors, are eligible to acquire shares or be granted options in the company. The number of shares or options and the terms of the options are at the discretion of the directors. At 30 June 2003, employees are entitled to purchase an additional 4,943,000 ordinary shares with the terms and conditions disclosed in note 18 to the financial statements.
The market price of the company's ordinary shares at 30 June 2003 was 26.5¢.
During the financial year, 25,000 shares were issued by the company to employees as a result of the exercise of options granted under the Employee Share Plan. The difference between the total market value of options issued during a financial year, at the date of issue, and the total amount received from executives and employees is not recognised in the financial statements except for the purposes of determining directors' and executives' remuneration in respect of that financial year as disclosed in notes 3 and 4 to the financial statements and in the Director's Report accompanying the financial statements.
NOTES TO THE FINANCIAL STATEMENTS
6 Income Tax
The prima facie income tax expense (benefit) on pretax accounting profit or (loss) reconciles to the income tax expense in the financial statements as follows:
| Consolidated | Company | |||
|---|---|---|---|---|
| 2003 \$'000 |
2002 \$'000 |
2003 \$'000 |
2002 \$'000 |
|
| (a) Profit (Loss) from ordinary activities | (2,868) | 1,314 | (3,245) | 1,314 |
| Income tax (benefit)/expense calculated at 30% | (860) | 394 | (974) | 394 |
| Add (less): | ||||
| Tax effect of permanent differences | ||||
| Other | 3 | 4 | 118 | 4 |
| Amortisation of intangible assets | 20 | 20 | 20 | 20 |
| Tax loss not previously recognised now brought to account | (201) | ÷ | (201) | |
| Provision for deferred income tax no longer required | (217) | (217) | ||
| Timing differences and tax losses not brought to account as future income tax benefits (note $6(b)$ ). |
837 | 836 | ||
| (b) Future income tax benefits at 30% not brought to account as assets: |
||||
| Attributable to tax losses | ||||
| Revenue | 1,600 | 836 | 1,600 | 836 |
| 1.600 | 836 | 1.600 | 836 | |
NOTES TO THE FINANCIAL STATEMENTS
| Consolidated | Company | |||
|---|---|---|---|---|
| 2003 \$'000 |
2002 \$'000 |
2003 \$'000 |
2002 \$'000 |
|
| The taxation benefits of tax losses and timing differences not brought to account will only be obtained ìf: |
||||
| (a) Assessable income is derived of a nature and of an amount sufficient to enable the benefit |
||||
| from the deductions to be realised; (b) Conditions for deductibility imposed by the law are complied with; and |
||||
| (c) No changes in tax legislation adversely affect the realisation of the benefit from the deductions. |
||||
| Tax Consolidation System 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 substantially enacted on 21 October 2002. This legislation, which includes both mandatory and elective elements, is applicable to the company. All wholly owned entities within the consolidated entity (excluding the parent entity) are non operating. Accordingly the directors have elected that all entities within the consolidated entity will continue to be taxed as separate entities from 1 July 2002. |
||||
| 7 Cash Assets | ||||
| Cash on deposit | 6,210 | 8,642 | 6,210 | 8,580 |
| 8 Current Receivables | ||||
| Trade Receivables | 3,543 | 7,586 | 3,531 | 7,574 |
| Allowance for doubtful debts | (14) | (14) | (14) | (14) |
| 3,529 | 7,572 | 3,517 | 7,560 | |
| Goods and services tax (GST) recoverable | 384 | 484 | 384 | 484 |
| Sundry debtors and prepayments | 163 | 150 | 163 | 150 |
| 4,076 | 8,206 | 4,064 | 8,194 | |
| 9 Current - Other | ||||
| Amount due from customers for unbilled contract costs (Work in progress) (Note 23) |
2,618 | 137 | 2,618 | 137 |
NOTES TO THE FINANCIAL STATEMENTS
10 Non-Current Receivables Employee Share Plan Loans 183 218 183 $218\,$ Amounts receivable from: Wholly owned controlled entities 739 712 $\omega$ $\omega_{\rm c}$ 183 218 922 930 11 Other Non-Current Financial Assets Non quoted investments Shares in wholly-owned controlled entities, $305$ 305 at cost $\overline{ }$ $\omega_{\perp}$ 305 305 $\omega$ $\omega$
NOTES TO THE FINANCIAL STATEMENTS
| Consolidated | Company | |||||
|---|---|---|---|---|---|---|
| Plant and Equipment \$'000 |
Equipment under finance lease \$'000 |
Total \$'000 |
Plant and Equipment \$'000 |
Equipment under finance lease \$7000 |
Total \$7000 |
|
| 12 Plant and Equipment, at cost Gross Carrying Amount |
||||||
| Balance at 30 June 2002 | 1,081 | 76 | 1,157 | 991 | 76 | 1,067 |
| Additions | 168 | 168 | 168 | 168 | ||
| Disposals | ||||||
| Balance at 30 June 2003 | 1,249 | 76 | 1,325 | 1,159 | 76 | 1,235 |
| Accumulated Depreciation | ||||||
| Balance at 30 June 2002 | 439 | 37 | 476 | 349 | 37 | 386 |
| Disposals | ||||||
| Depreciation expense | 254 | 17 | 271 | 254 | 17 | 271 |
| Balance at 30 June 2003 | 693 | 54 | 747 | 603 | 54 | 657 |
| Net Book Value | ||||||
| As at 30 June 2002 | 642 | 39 | 681 | 642 | 39 | 681 |
| As at 30 June 2003 | 556 | 22 | 578 | 556 | $22\,$ | 578 |
| Consolidated | Company | |||||
| 2003 \$'000 |
2002 \$'000 |
2003 \$'000 |
2002 \$'000 |
|||
| 13 Intangibles | ||||||
| Goodwill, at cost | 110 | 110 | 110 | 110 | ||
| Accumulated amortisation | $22\,$ | $\mathbf{1}$ | $22\,$ | $\mathbf{11}$ | ||
| $88\,$ | 99 | 88 | 99 | |||
| Licenses, patents and rights to technology at cost | 2,016 | 2,016 | 550 | 550 | ||
| Accumulated amortisation | 450 | 395 | 450 | 395 | ||
| 1.566 | 1.621 | 100 | 155 |
Aggregate depreciation and amortisation allocated during the year are recognised as an expense as disclosed in note 2 to the financial statements.
1,720
188
1,654
254
NOTES TO THE FINANCIAL STATEMENTS
| Consolidated | Company | ||||
|---|---|---|---|---|---|
| 2003 \$'000 |
2002 \$'000 |
2003 \$'000 |
2002 \$7000 |
||
| 14 Current Payables | |||||
| Unsecured | |||||
| Payables | 2,587 | 3,262 | 2,578 | 3,253 | |
| Goods and services tax (GST) Payable Sundry creditors and accruals |
548 507 |
1,137 788 |
548 505 |
1,137 563 |
|
| Accrued contract costs (Note 23) | 1,547 | 1,403 | 1,547 | 1,403 | |
| 5,189 | 6,590 | 5,178 | 6,356 | ||
| 15 Current Interest Bearing Liabilities Secured |
|||||
| Finance Lease Liabilities (Note 21b) | 7 | 26 | 7 | 26 | |
| Secured over the leased assets | |||||
| 16 Current Provisions | |||||
| Employment entitlements: | |||||
| Annual leave | 376 | 277 | 376 | ||
| Long service leave | 249 | 117 | 249 | ||
| 625 | 394 | 625 | |||
| Dividend | 231 | 231 | |||
| 625 | 625 | 625 | 231 | ||
| 17(a) Non-Current Interest Bearing Liabilities | |||||
| Secured | |||||
| Finance Lease liabilities (Note 21b) | |||||
| Secured over leased assets | 3 | 7 | 3 | 7. | |
| 17(b) Non-Current Liabilities - Other | |||||
| Unsecured | |||||
| Loans from wholly owned entities | 151 | ||||
| 18 Contributed Equity | |||||
| (a) Contributed Equity | |||||
| 77,097,512 fully paid ordinary shares (2002:77,072,512) |
23,254 | 23,247 | 23,254 | 23,247 | |
| 2003 | 2002 | ||||
| No. | \$'000 | No. '000 |
\$400 | ||
| Fully Paid Ordinary Shares | .000 | ||||
| Balance at beginning of the financial year Issue of shares under the Employee Share Option |
77,072 | 23,247 | 75,791 | 22,816 | |
| Plan Issue of shares upon conversion of options |
25 | 7 | 1,125 | 347 | |
| issued to Directors | 86 | 34 | |||
| Issued as part consideration of business acquisition |
70 | 50 | |||
| Balance at end of the financial year | 77,097 | 23,254 | 77,072 | 23,247 |
NOTES TO THE FINANCIAL STATEMENTS
(b) Fully Paid Ordinary Share Capital
Fully paid ordinary shares carry one vote per share and carry the right to dividends.
(c) Share Options
In accordance with the provisions of the employee share options plan (Note 5), as at 30 June 2003, employees are entitled to purchase the following ordinary shares.
| 2003 | 2002 | |||||
|---|---|---|---|---|---|---|
| Number of Options |
Exercise Price |
Expiry Date |
Number of Options |
Exercise Price |
Expiry Date |
|
| Unlisted Employee Options | 225,000 | \$0.30 | 25/11/2002 | |||
| 2,248,000 | \$0.32 | 07/09/2005 | 2.248,000 | \$0.32 | 07/09/2005 | |
| 100,000 | \$0.40 | 30/11/2005 | 100,000 | \$0.40 | 30/11/2005 | |
| 1,297,500 | \$0.65 | 19/03/2007 | 1,297,500 | \$0.65 | 19/03/2007 | |
| 1,297,500 | \$0.75 | 20/03/2007 | 1,297,500 | \$0.75 | 20/03/2007 | |
| 4,943,000 | 5,168,000 | |||||
| Unlisted Ordinary Options | 500,000 | \$0.45 | 30/11/2004 | 500,000 | \$0.45 | 30/11/2004 |
| $\overline{\phantom{a}}$ | 300,000 | \$0.40 | 26/11/2002 | |||
| 1,413,750 | \$0.40 | 30/11/2005 | 1,413,750 | \$0.40 | 30/11/2005 | |
| 1,913,750 | 2,213,750 | |||||
| Total Options | 6,856,750 | 7.381,750 |
Employee and ordinary options do not carry any voting rights or entitlement to dividends.
Options Exercised During the Financial Year
2003 No. of No. of Fair Fair Value Options Shares Value of Shares at Grant Exercise Expiry Exercise Options - Series Exercised Date of Issue Date Date Date Price Issued Received $\mathbf S$ S S Issued 26 Nov 1997 25/11/2002 7,500 9,625 25,000 26/11/1997 16/08/2002 \$0.30 25,000
2002
| Options - Series | No. of Options Exercised |
Grant Date |
Exercise Date |
Expiry Date |
Exercise Price S |
No. of Shares Issued |
Fair Value Received S |
Fair Value of Shares at Date of Issue э |
|---|---|---|---|---|---|---|---|---|
| Issued 8 Sep 2000 | 200,000 | 8/09/2000 | 8/09/2001 | 7/09/2005 | \$0.32 | 200,000 | 64,000 | 122,000 |
| Issued 8 Sep 2000 | 150,000 | 8/09/2000 | 29/10/2001 | 7/09/2005 | \$0.32 | 150.000 | 48,000 | 90,000 |
| Issued 8 Sep 2000 | 125,000 | 8/09/2000 | 25/01/2002 | 7/09/2005 | \$0.32 | 125,000 | 40,000 | 81,250 |
| Issued 26 Nov 1997 | 100.000 | 26/11/1997 | 22/08/2001 | 25/11/2002 | \$0.30 | 100,000 | 30,000 | 68,800 |
| Issued 26 Nov 1997 | 150,000 | 26/11/1997 | 2/07/2001 | 25/11/2002 | \$0.30 | 150.000 | 45,000 | 93,150 |
| Issued 26 Nov 1997 | 400,000 | 26/11/1997 | 6/05/2002 | 25/11/2002 | \$0.30 | 400,000 | 120,000 | 174,800 |
| 1,125,000 | 1,125,000 | 347,000 | 630,000 |
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 of close of trade on the date of their issue.
Options Lapsed During the Financial Year
| Options - Series | 2003 | 2002 |
|---|---|---|
| No. | Na. | |
| (1) Issued 26 Nov 1997 | 200,000 | E |
| $(2)$ Issued 27 Nov 1997 | 300,000 | |
| $(3)$ ssued 8 Sep 2000 | 274,000 |
Options series (1) were options to purchase ordinary shares for 30 cents per share at any time within 2 to 5 years from the date of issue. Options series (2) were options to purchase ordinary shares for 40 cents per share at any time within 2 to 5 years from the date of issue. Options series (3) were options to purchase ordinary shares for 32 cents per share at any time within 1 to 5 years from the date of issue. None of the above series carried voting or dividend rights.
| Consolidated | Company | |||
|---|---|---|---|---|
| 2003 \$'000 |
2002 \$'000 |
2003 \$'000 |
2002 \$'000 |
|
| 19 Reserves | ||||
| Reserves comprise: | ||||
| Asset Revaluation | 3,176 | 3,176 | 856 | 856 |
| 3,176 | 3,176 | 856 | 856 | |
| The Asset Revaluation Reserve arises on the revaluation of non-current assets in prior years. |
||||
| 20 Accumulated Losses | ||||
| Balance at beginning of financial year | (14,067) | (14,920) | (11,793) | (12,646) |
| Net Profit/(Loss) | (2,868) | 1,314 | (3,245) | 1,314 |
| Final dividends provided | (231) | (231) | ||
| Interim dividend paid | (230) | (230) | ||
| Balance at end of financial year | (16.935) | (14.067) | (15,038) | (11,793) |
NOTES TO THE FINANCIAL STATEMENTS
| Consolidated | Company | |||
|---|---|---|---|---|
| 2003 \$'000 |
2002 \$'000 |
2003 \$'000 |
2002 \$'000 |
|
| 21 Lease Commitments | ||||
| (a) Commitments under non-cancellable operating leases |
||||
| Not later than one year | 246 | 192 | 246 | 192 |
| Later than one year but not later than five years |
250 | 327 | 250 | 327 |
| Later than five years | ||||
| 496 | 519 | 496 | 519 | |
| Lease commitments represent leases over office premises in Perth and Brisbane. Details shown above are based upon current rentals which may escalate periodically in line with CPI. The company does not have an option to purchase the leased assets at the expiry of the lease period. There are no restrictions imposed by the lease agreement on dividends, additional debt and further leasing. |
||||
| (b) Commitments under non-cancellable finance leases |
||||
| Not later than one year | 7 | 26 | 7 | 26 |
| Later than one year but not later than five years |
6 | 13 | 6 | 13 |
| Later than five years | w | |||
| 13 | 39 | 13 | 39 | |
| Less future finance charges | (3) | (6) | (3) | (6) |
| Finance bearing liabilities | $10\,$ | 33 | $10\,$ | 33 |
| Included in the financial statements are: | ||||
| Current liabilities (Note 15) | 7 | 26 | 7 | 26. |
| Non-current liabilities (Note 17) | 3 | 7 | 3 | 7 |
| 10 | 33 | $10\,$ | 33 | |
Finance leases relate to vehicles and equipment
with lease terms of 3 to 4 years. The company
has the option to purchase the goods at residual value at the conclusion of the lease agreements. There are no restrictions imposed by the lease agreement on dividends, additional debt and further leasing.
NOTES TO FINANCIAL STATEMENTS
22 Joint Venture Operation
The economic entity has a nil (2002:50%) interest in the ESI/Clough Joint Venture, the principal activity of which was the design and construction of the world's first commercial scale ENERSLUDGETM sludge treatment plan
The following amounts represent the economic entity's interest in the assets, liabilities and R&D activities of the above joint venture. The amounts are included in the consolidated financial statements under their respective categories.
| Consolidated | Company | |||
|---|---|---|---|---|
| 2003 \$'000 |
2002 \$'000 |
2003 \$'000 |
2002 \$'000 |
|
| Current Assets | ||||
| Cash | 46 | 46 | ||
| Receivables | 135 | 135 | ||
| Total Current Assets | 181 | 181 | ||
| Current Liabilities | ||||
| Payables | 181 | 181 | ||
| Total Current Liabilities | 181 | 181 | ||
| 23 Construction Contracts | ||||
| Construction work in progress | 29,920 | 15,375 | 29,920 | 15,375 |
| Progress billings and advances received | 28,849 | 16,641 | 28,849 | 16,641 |
| Advances received | ||||
| Progress billings | 28,849 | 16,641 | 28.849 | 16,641 |
| 1,071 | (1,266) | 1,071 | (1,266) | |
| Recognised and included in the financial statement as: | ||||
| Amount due from customers for unbilled contract costs: Current (Note 9) Amount accrued for contract costs: |
2,618 | 137 | 2,618 | 137 |
| Current (Note 14) | (1, 547) | (1,403) | (1, 547) | (1, 403) |
| 1,071 | (1,266) | 1,071 | (1,266) | |
| Retention included in progress billing |
24 Contingent Liabilities
The Company and its subsidiaries have no contingent liability for termination benefits under service agreements with Directors or persons who take part in the management of the Company.
The company has issued bank guarantees to customers to the value of \$8,111,294. These guarantees have been issued to secure the company's obligations under various contracts entered into by the company in the normal course of its business.
NOTES TO FINANCIAL STATEMENTS
25 Subsequent Events
There have not been any matters or circumstances that have arisen since the end of the financial year that have significantly affected, or may significantly affect the operations of the consolidated entity, the results of these operations, or the state of affairs of the consolidated entity in financial years subsequent to this financial period.
26 Details of Controlled Entities
Parent Entity:
Environmental Solutions International Limited
Controlled Entities:
| Place of Incorporation | Percentage of Shares | ||
|---|---|---|---|
| 2003 | 2002 | ||
| ESI Research and Development Pty Ltd (i) | WA | 100% | 100% |
| DF No. 1 Pty Ltd $(i)$ | NSW | 100% | 100% |
| Campbell Group Unit Trust (Surda Pty Ltd) (i) | WA. | 100% | 100% |
| E.S.I. Marketing Pty Ltd (i) | NSW | 100% | 100% |
| ESA Technologies Pty Ltd (i) | WA | 100% | 100% |
| Campbell Environmental Ltd (i) | WA | 100% | 100% |
| ESI Marketing and Sales Pty Ltd (i) | ACT | 100% | 100% |
| ESI Eire Joint Venture Pty Ltd (i) | OLD | 100% | 100% |
| Enersludge Inc (ii) | Canada | 100% | 100% |
Controlled entities are classified as small proprietary companies and, in accordance with the Corporations Act 2001, are $(i)$ relieved from the requirement to prepare, audit and lodge financial statements.
$(ii)$ Dormant company
27 Segment Information
The consolidated entity operates predominantly in Australia and in the Water and Wastewater industry. The nature of this activity comprises the design, construction, commissioning and operation of Water and Wastewater Treatment Plants. These activities are generally undertaken in accordance with contracts awarded to the entity by its customers.
28 Superannuation Commitments
Corporations within the consolidated entity contribute to a number of superannuation funds designated by employees. The Company contributes 9% of salary into these funds on behalf of employees. All funds are accumulation type. Environmental Solutions International Limited does not participate in any of the funds.
NOTES TO THE FINANCIAL STATEMENTS
29 Related Party Disclosures
1. Ownership Interests In Related Parties
Information in relation to ownership interests in related parties is provided in the notes indicated: Controlled Entities Note 26 Ownership interests in associated companies are as follows:
| Balance Date | Carrying Value \$'000 | Ownership of Interest | |||
|---|---|---|---|---|---|
| 2003 | 2002 | ||||
| Darenth Pty Ltd (Non Operating) | 30/06/2003 | L | 30% | 30% | |
| Equity accounting has not been adopted as its impact is immaterial. |
2. Transactions With Directors And Director Related Entities
- (a) Directors who held office during the year were as follows: $T E O' Comor Q.C.$ DH O'Neill J B H Cheak D P Glennon
- (b) Remuneration and retirement benefits of directors. Details in relation to remuneration and retirement benefits of directors are disclosed in Note 3.
- (c) Directors Equity Holdings
| 2003 Number |
2002 Number |
|||
|---|---|---|---|---|
| Fully Paid Ordinary Shares |
Executive Share Options |
Fully Paid Ordinary Shares |
Executive Share Options |
|
| Issued during the financial year to directors and their | ||||
| director-related entities by Environmental Solutions | ||||
| International Ltd | 86.250 | |||
| Held at the reporting date by directors and their director- | ||||
| related entities in Environmental Solutions International Ltd | 3.296.250 | 1.913.750 | 2,431,250 | 2.212.750 |
NOTES TO FINANCIAL STATEMENTS
(d) Directors Loans
| Consolidated | Company | |||
|---|---|---|---|---|
| 2003 \$ |
2002 S |
2003 \$ |
2002 \$ |
|
| Loans in existence as at the reporting date | ||||
| Current | 7.965 | 7,965 | 7.965 | 7,965 |
| Non-Current | 45.917 | 53,882 | 45.917 | 53,882 |
| 53,882 | 61,847 | 53,882 | 61,847 |
The above loan was made in accordance with the terms and conditions of the Employee Share Plan to fund the conversion of options to ordinary shares and was made on the same terms and conditions as those available to all employees of the company. Such loans are interest free.
| Repayments received from Mr D P Glennon during | ||||
|---|---|---|---|---|
| the financial year in respect of loans made in | ||||
| accordance with the terms and conditions of the Employee Share Plan |
7.965 | 7.353 | 7.965 | 7.353. |
3. Transactions With Entities In The Wholly Owned Group
The Company advanced and repaid loans, received loans and provided accounting and administrative assistance to other entities in the wholly owned group during the current and previous financial years.
With the exception of the accounting and administrative assistance, which was provided free of charge, and interest free loans provided to and by the company, these transactions were on commercial terms and conditions.
Amounts receivable from wholly owned entities are shown at Note 10 and amounts borrowed from wholly owned entities are shown at Note 17.
During the year the parent entity forgave loans totalling in aggregate \$384,027 owing by wholly owned non operating subsidiary entities.
NOTES TO FINANCIAL STATEMENTS
30 Standby Arrangements and Credit Facilities
| Consolidated | Company | |||
|---|---|---|---|---|
| 2003 \$'000 |
2002 \$'000 |
2003 \$'000 |
2002 \$'000 |
|
| Entities in the economic entity have access to: | ||||
| Credit standby arrangements: | ||||
| unsecured bank guarantee facility | 11,000 | 11,000 | 11,000 | 11,000 |
| amount of credit used w |
8,111 | 4,325 | 8,111 | 4,325 |
| amount of credit unused | 2,889 | 6,675 | 2,889 | 6,675 |
| Subsequent to year end the Company secured an increase in its unsecured bank guarantee facility to \$15 million. |
||||
| 31(a) Reconciliation of Net Cash Flows from Operating Activities to Operating Profit after Income Tax |
||||
| Operating profit (loss) after income tax | (2,868) | 1,314 | (3,245) | 1,314 |
| Amortisation of Intangibles | -66 | 66 | 66 | 66 |
| Depreciation and amortisation of non-current assets |
271 | 197 | 271 | 197 |
| Loss on disposal of assets | 4 | 4 | ||
| Change in assets/liabilities | ||||
| Receivables | 4,130 | (4,859) | 4,130 | (4,859) |
| Amount due from customers for unbilled contract costs |
(2,481) | 129 | (2,481) | 129 |
| Accounts Payable | (1,401) | 1,170 | (1,178) | 1,138 |
| Provisions | 231 | 22 | 231 | |
| Net Cash (used in) or from Operating Activities | (2,052) | (1,957) | (2,206) | (2,011) |
NOTES TO FINANCIAL STATEMENTS
| Consolidated | Company | |||
|---|---|---|---|---|
| 2003 \$'000 |
2002 \$'000 |
2003 \$'000 |
2002 \$'000 |
|
| 31 (b) Business Acquisition | ||||
| On 1 July 2001 the Szatech business was acquired. The principal activity of Szatech is process design. Details of the acquisition are as follows: |
||||
| Consideration: | ||||
| Cash | 60 | 60 | ||
| Ordinary Shares | 50 | 50 | ||
| 110 | 110 | |||
| Fair value of net assets acquired | ||||
| Goodwill on acquisition | 110 | 110 | ||
| Net cash outflow of acquisition | ||||
| Cash consideration | 60 | 60 | ||
| 32 Reconciliation of Cash For the purposes of the statement of cash flows, cash includes cash on hand and in banks and investments in money market instruments. Cash at the end of the financial year as shown in the statement of cash flows is reconciled to the |
| 6.210 | 8,642 | 6,210 | 8.580 |
|---|---|---|---|
| 6,210 | 8.642 | 6.210 | 8,580 |
NOTES TO THE FINANCIAL STATEMENTS
| Consolidated | ||
|---|---|---|
| 2003 Cents Per |
2002 Cents Per |
|
| Share | Share | |
| 33 Earnings Per Share | ||
| Basic earnings per share | (3.72) | 1.72 |
| Diluted carnings per share | (3.72) | 1.68 |
Basic earnings per share
The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows:
| 2003 \$'000's |
2002 \$'000's |
|
|---|---|---|
| Earnings (a) | (2.868) | 1,314 |
| 2003 No. |
2002 No. |
|
| Weighted average number of ordinary shares (b) | 77,093,128 | 76,498,620 |
| (a) Earnings used in the calculation of basic earnings per share reconciles to net profit in the statement of financial performance as follows: |
||
| 2003 \$'000's |
2002 \$'000's |
|
| Net Profit/(Loss) | (2.868) | 1,314 |
| Earnings used in the calculation of basic EPS | (2.868) | 1,314 |
(b) Unlisted employee and ordinary options are considered to be potential ordinary shares and are therefore excluded from the weighted average number of ordinary shares used in the calculation of basic earnings per share. Where dilutive, potential ordinary shares are included in the calculation of diluted earnings per share (see below).
Diluted Earnings Per Share
The earnings and weighted average number of ordinary and potential ordinary shares used in the calculation of diluted earnings per share are as follows:
| 2003 \$'000's |
2002 \$'000's |
|
|---|---|---|
| Earnings (a) | (2,868) | 1,314 |
| 2003 No. |
2002 No. |
|
| Weighted average number of ordinary shares and potential ordinary shares (b), (c) |
77,093,128 | 78,329,894 |
| (a) Earnings used in the calculation of diluted earnings per share reconciles to net profit in the statement of financial performance as follows: |
2003 | 2002 |
| \$'000's | \$'000's | |
| Net Profit/(Loss) | (2,868) | 1,314 |
| Earnings used in the calculation of diluted EPS | (2,868) | 1,314 |
| (b) Weighted average number of ordinary shares and potential ordinary shares used in the calculation of diluted earnings per share reconciles to the weighted average number of ordinary shares used in the calculation of basic earnings per share as follows: |
||
| 2003 No. |
2002 No. |
|
| Weighed average number of ordinary shares used in the calculation of basic EPS |
77,093,128 | 76,498,620 |
| Unlisted and employee options | 1,831,274 | |
| Weighted average number of ordinary shares and potential ordinary shares used in the calculation of diluted EPS |
77,093,128 | 78,329,894 |
| (c) Weighted average number of converted lapsed or cancelled potential ordinary shares used in the calculation of diluted earnings per share |
||
| 2003 No. |
2002 No. |
|
| Options to purchase shares pursuant to the employee share scheme | 109,580 | |
| 2003 No. |
2002 No. |
|
| (d) The following potential ordinary shares are not dilutive and are therefore excluded from the weighted average number of ordinary shares and potential ordinary shares used in the calculation of diluted earnings per share. |
7,060,312 | 2,595,000 |
NOTES TO THE FINANCIAL STATEMENTS
34 Financial Instruments
a) Significant Accounting Policies
Details of the significant accounting policies and methods adopted in respect of each class of financial asset and financial liability are disclosed in Note 1.
b) Interest Rate Risk
The following details the economic entity's exposure to interest rate risk as at the reporting date:
| 2003 | Average Interest Rate $\frac{6}{5}$ |
Variable Interest Rate \$'000 |
Fixed Interest Rate: Less than 1 Year \$'000 |
Non Interest Bearing \$'000 |
Total \$'000 |
|---|---|---|---|---|---|
| Financial Assets: | |||||
| Cash | 4.8 | 2,475 | 3,614 | 121 | 6,210 |
| Receivables | 3,529 | 3,529 | |||
| Goods and Services Tax recoverable | 384 | 384 | |||
| Sundry debtors and prepayments | 163 | 163 | |||
| Employee Share Plan Loans | 183 | 183 | |||
| 2,475 | 3,614 | 4,380 | 10,469 | ||
| Financial Liabilities: | |||||
| Accounts Payable | 2,587 | 2,587 | |||
| Goods and Services Tax payable | 548 | 548 | |||
| Sundry Creditors and Accruals | 2,054 | 2,054 | |||
| Employee Entitlements | 625 | 625 | |||
| Finance Lease Liabilities | 8.9 | 10 | 10 | ||
| 10 | 5,814 | 5,824 | |||
| 2002 | |||||
| Financial Assets: | |||||
| Cash | 4.8 | 3,974 | 4,554 | 114 | 8,642 |
| Receivables | 7,572 | 7,572 | |||
| Goods and Services Tax recoverable | 484 | 484 | |||
| Sundry debtors and prepayments | 150 | 150 | |||
| Employee Share Plan Loans | 218 | 218 | |||
| 3,974 | 4,554 | 8,538 | 17,066 | ||
| Financial Liabilities: | |||||
| Accounts Payable Goods and Services Tax payable |
3,262 1,137 |
3,262 | |||
| Sundry Creditors and Accruals | 2,191 | 1,137 2,191 |
|||
| Employee Entitlements | 394 | 394 | |||
| Finance Lease Liabilities | 8.9 | 33 | 33 | ||
| 33 | 6,984 | 7,017 | |||
NOTES TO THE FINANCIAL STATEMENTS
34(c) Credit Risk
The consolidated entity does not have any significant credit risk exposure to any single debtor or any group of debtors having similar characteristics.
The carrying amount of financial assets recorded in the financial statements represents the consolidated entity's maximum exposure to credit risk without taking account of the value of any collateral or other security.
34(d) Net Fair Value
The carrying amount of financial assets and financial liabilities recorded in the financial statements approximates their net fair values.
Net fair value is determined based on generally accepted pricing models using, where appropriate, discounted cash flow techniques.
35 Other Information
Environmental Solutions International Limited is a listed public company incorporated and operating in Australia. The company had 53 employees at year end $(2002 – 48)$ .
36 Dividends
| 2003 | 2002 | |||
|---|---|---|---|---|
| Cents per Share |
Total \$'000 |
Cents per Share |
Total \$'000 |
|
| Fully Paid Ordinary Shares: | ||||
| Interim Dividend - Unfranked | $\blacksquare$ | $\mathbf{u}$ | 0.3 | 230 |
| Final Dividend - Unfranked | $\overline{\phantom{a}}$ | $\overline{\phantom{a}}$ | 0.3 | 231 |
| $\overline{\phantom{a}}$ | 461 |
The company has a nil franking account balance.
SHAREHOLDERS' INFORMATION AS AT 10 SEPTEMBER 2003
ORDINARY SHARES
Distribution of Securities
| Spread of Holdings | Number of Holders | Number of Issued Shares | Percentage of Total Issued Capital |
|---|---|---|---|
| $1 - 1,000$ | 239 | 186,895 | 0.24% |
| $1,001 - 5,000$ | 842 | 2,737,996 | 3.55% |
| $5,001 - 10,000$ | 613 | 5,254,717 | 6.82% |
| $10,001 - 100,000$ | 793 | 23,748,226 | 30.80% |
| $100.001 - over$ | 79 | 45.169,678 | 58.59% |
| Total on File | 2,566 | 77,097,512 | 100% |
Shareholders
As at 10 September 2003 the Company had 2,566 shareholders with the listed capital of the Company being of one class (other than options for ordinary shares - see below) with equal voting rights on each share.
Substantial Shareholders
| Shareholder | Number of Issued Shares | % of Equity | |
|---|---|---|---|
| 1. J P Morgan Nominees Australia | 7,629.885 | 9.90% | |
| 2. | Chuan Hup Ventures Pte Ltd | 6.024,459 | 7.81% |
| 3. | Sandhurst Trustees Ltd | 5.312,025 | 6.89% |
| 4. | Equitas Nominees Pty Ltd | 3,429,190 | 4.45% |
Number of Shareholders holding less than a marketable parcel 334.
20 Largest Holders of Equity Securities
| Shareholder | Number of Issued Shares | % of Equity | |
|---|---|---|---|
| 1. | J P Morgan Nominees Australia | 7,629,885 | 9.90% |
| 2. | Chuan Hup Ventures Pte Ltd | 6,024,459 | 7.81% |
| 3. | Sandhurst Trustees Ltd | 5,312,025 | 6.89% |
| 4. | Equitas Nominees Pty Ltd | 3,429,190 | 4.45% |
| 5. | Westpac Custodian Nominees | 2,481,065 | 3.22% |
| 6. | Permanent Trust Australia | 1,850,993 | 2.40% |
| 7. | Glennon D and U | 1,650,000 | 2.14% |
| 8. | Denbrooke Pty Ltd | 1,280,650 | 1.66% |
| 9. | Golden Venture Pty Ltd | 967,500 | 1.25% |
| 10. | Bridle T and K | 800,000 | 1.04% |
| 11. | Steeg Anthony Mark Van de | 635,300 | 0.82% |
| 12. | Zero Nominees Pty Ltd | 575,000 | 0.75% |
| 13. | Cyncoed Holdings Pty Ltd | 550,000 | 0.71% |
| 14. | Solution Concepts Pty Ltd | 502,000 | 0.65% |
| 15. | Cemrum Limited | 400,000 | 0.52% |
| 16. | ANZ Nominees Limited | 370,000 | 0.48% |
| 17. | Hodgson Ian William | 350,000 | 0.45% |
| 18. | Palmer George | 330,000 | 0.43% |
| 19. | Lenorm Pty Ltd | 320,163 | 0.42% |
| 20. | Campbell Charles McFarlan | 317,500 | 0.41% |
UNLISTED OPTIONS FOR ORDINARY SHARES
Distribution of Securities
| Number of Holders | Number or Issued Options | |
|---|---|---|
| Employee Share Plan | ||
| $0 - 100,000$ | 28 | 1,498,000 |
| 100,001 and over | 16 | 3,445,000 |
| Other | ||
| $100,001$ and over | 3 | 1,913,750 |