ENVIRONMENTAL SOLUTIONS INTERNATIONAL LTD
(A.C.N. 009 120 405)

FINANCIAL REPORT

FOR THE YEAR ENDED

30 JUNE 2004

$\langle \phi_{\rm{max}} \rangle$ , and $\phi_{\rm{max}}$

$\sim$

$\sim 100$ km s $^{-1}$ and $\sim 100$

ENVIRONMENTAL SOLUTIONS INTERNATIONAL LTD A.C.N. 009 120 405

FINANCIAL REPORT

FOR THE YEAR ENDED

30 JUNE 2004

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

and the data state

$\sim 10^{11}$ km $^{-1}$

÷.

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.I.A.

Registered Office

21 Teddington Road POBox 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

$\sim$ $\sim$ . . . . . . . . .

Share Registry Security Transfer Registrars Pty Ltd 770 Canning Highway, P O Box 535 APPLECROSS WA 6153 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

The year under review has been a disastrous one for the Company. Shareholders are entitled to be upset at an operating loss of \$8,726,000. A large part of this loss was on contracts carried out during the year. There was also some loss caused by delays, not caused by ESI, in the commencement of contracts budgeted to start during the year.

When it became apparent to directors that there were serious problems with some of the Company's contracts, the Board asked director Dennis O'Neill who has significant experience in construction and contracting to investigate and report on them. In substance, Mr O'Neill's investigations had found that:

the Company had inadequate disciplines and procedures in carrying out its contracts
the Company had insufficient experienced staff for the volume of work
there was a lack of proper reviews of the day-to-day operations minimising overall risk of the company.

The Board moved quickly to implement procedures and disciplines recommended by Mr O'Neill to address the inadequacies revealed. Although considerable work remains to be done in this area, the Board believes a good start has been made to addressing the problems discovered.

Although it is early days the Company is beginning to see the benefits on the new procedures and disciplines which it has put in place. These procedures and disciplines are being implemented in all new contracts.

Obviously given the nature of contracting it is never possible to completely eliminate risk. However, the Board is committed to continuing to improve and refine the Company's procedures and practices in order to reduce these risks to an absolute minimum.

Unfortunately, these changes were too late to avoid continued losses on the contracts in respect of which the problems first arose. All that could be done was to endeavour to minimise those losses. Fortunately these contracts should be completed by the end of November.

The first half year to December 2004 is likely to also show a loss because, although we have brought to account in the year ended 30 June 2004 all expected losses on completing the troublesome contracts, there will be no profit on these contracts, which will be completed by the end of November, the new contracts which we believe will be profitable are only just gearing up. The Board believes the Company will return to profitability in the second half of the year.

Obviously profitability going forward will depend upon winning new contracts. Fortunately, none of the problems experienced by the Company resulted from failure of its technologies. We believe the Company has a very good name with the marketplace for its technologies and its expertise in the water/wastewater business.

Clearly, the losses have left the Company severely under capitalised for its contracting business. The directors are looking at all alternatives to recapitalise the Company.

The Company has written down the carrying value of the ENERSLUDGE™ technology because the breakthrough of that technology is slower than we had anticipated. We had hoped that regulations forbidding the disposal of sludge in environmentally unfriendly ways e.g. dumping to landfill, spreading to land and discharge to marine environment would be promulgated more quickly than has happened particularly in Europe. ENERSLUDGE^™ is not competitive when compared with disposal methods such as landfill or ocean outfall. When these methods of disposal are forbidden, ENERSLUDGE^TM will become very competitive. For the time being the Company has reduced expenditure on ENERSLUDGE^TM marketing, although we are still pursuing a couple of specific opportunities.

The Board still strongly believes that ENERSLUDGE^TM has a place in the sludge disposal market.

As reported Denis Glennon has retired as Managing Director because of ill health. I would like to express the Board's appreciation of Denis' work over the years as Managing Director.

I would also like to express our thanks to Dennis O'Neill for the work he has done in putting in place procedures and disciplines for the future and for stepping in as acting Chief Executive following the retirement of Denis Glennon.

CHAIRMAN'S REPORT (cont)

Finally, I would like on behalf of the Board to express to shareholders our regret over what has occurred.
Shareholders may be assured we are doing whatever we can to restore value to the Company.

$\mathbf T\,\mathbf E$ O'Connor Q.C. ${\it Chairman}$

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 2004. 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 B.A. (Hons), M.Sc., FAICD	Managing Director, joined the board on 1 July 1989. Mr Glennon has extensive experience in business development, technology commercialisation and environmental regulations.
Dennis Hamilton O'Neill B.Sc. (Hons) - Mech. Eng.	Non-Executive Director, joined the board on 12 April 1995. Mr 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 B. Econ. (UWA)	Non-Executive Director, joined the board on 16 February 1996. Mr 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.

Retired

The above-named directors held office during or since the end of the financial year except for Denis Patrick Glennon AO who retired on 31 August 2004.

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

There were no dividends paid during the financial year or during the preceding financial year. The directors do not recommend the payment of a dividend in respect of the financial year ended 30 June 2004.

Review of Operations

During 2003/2004, 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.

DIRECTORS' REPORT (cont)

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	1,991,000	1,991,000	\$0.32	07/09/2005
	982,500	982,500	\$0.65	19/03/2007
	982,500	982,500	\$0.75	20/03/2007
	3,956,000	3,956,000
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	5,869,750	5,869,750

During the financial year, no options were exercised.

Holders of options will only be permitted to participate in new issues of securities provided they first exercise their options.

All options have vested prior to 1 July 2003.

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.

The issue price of options was determined using the Black Scholes model.

Further details of the Employee Share Plan are disclosed at Note 4 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.

DIRECTORS' REPORT (cont)

Directors and Executives Remuneration (cont)

Remuneration packages include the following key elements:

Primary benefits-Salary and fees and non-monetary benefits including interest free loans; $(a)$
Post-employment benefits including superannuation; and $(b)$
Value placed on any options including options granted under the Employee Share Plan. As noted $(c)$ above, no options were issued during the year.

The following table discloses the remuneration of the directors of the company:

2004		Primary			Post Employment
Specified Directors	Salary & Fees	Bonus	Non Monetary	Super- annuation	Prescribed Benefits	Other	Options	Other Benefit	Total

TEO'Connor QC	45,000			4,050					49,050
D P Glennon	223,431		2,994	96.569					322,994
D H O'Neill	25,000			$\bullet$					25,000
I J B H Cheak	25,000								25,000

The following table discloses the remuneration of the highest remunerated executives of the company and the consolidated entity.

2004		Primary			Post Employment		Equity
Specified Executives	Salary & Fees	Bonu s	Non Monetar	Super- annuatio n	Prescribed Benefits	Other	Options	Other Benefit	Total
						S
TR Bridle	148.481			71.519		$\mathbf{u}$			220,000
M P Peters	124,500		2,448	48,000		$\blacksquare$			174,948
JR Jennings	131.535		1.955	9,047		м			142.537
P A Hopps	100,084		.404ء	32,416		AND			133,904

The company did not issue any options to Directors or employees during the financial year ended 30 June 2004.

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
TEO'Connor, OC	225,000	250,000
$D P$ Glennon	1,693,250	1,413,750
D H O'Neill	803,000
J B H Cheak	1,000,000	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:

		Board of Directors Meetings
Director	Number Held whilst a Director	Number Attended
TEO'Connor, QC
D H O'Neill	7	-7
$D P$ Glennon	7	-7
J B H Cheak	7	6

and a state

DIRECTORS' REPORT (Cont)

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.

Rounding 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

TE O'CONNOR QC Chairman

Perth 30^th September 2004

CORPORATE GOVERNANCE STATEMENT FOR THE YEAR ENDED 30 JUNE 2004

This statement outlines the main corporate governance practices that were in place or introduced during the financial year.

Board of Directors and Its Committees

The Board is responsible for the overall corporate governance policies and practices of Environmental Solutions International Ltd and all subsidiary companies, including strategic direction, approval of the annual and half-year financial reports, establishing goals for management and monitoring the achievement of these goals. The Board of the Company consists of three Non-Executive Directors and the Chief Executive Officer.

Issues of nomination and remuneration of Directors, business risk management and strategy are considered by the full Board. The Board has also established a framework for the management of the consolidated entity including an overall process of internal control, appropriate monitoring of compliance activities and ethical standards.

The Board has seven scheduled full meetings each year. Other meetings are held on short notice when particular issues arise, which require discussions and decisions by the Board.

Owing to the small number of Directors, the full Board acts as the following committees:

Nomination:

It is the responsibility of the full Board to consider the appointment of a new Director. Any invitation to join the Board will be extended, in writing, by the Chairman setting out the terms and conditions of the appointment.

o It is the Board's policy to determine the terms and conditions relating to the appointment and retirement of Non-executive Directors on a case by case basis and in conformity with the requirements of the ASX Listing Rules and the Corporations Act 2001.
The terms and conditions of the appointment of non-executive directors are set out in a formal letter of appointment which deals with the following matters:
duration of appointment (subject to the approval of the shareholders);
remuneration;
expectation concerning preparation and attendance at Board meetings;
conflict resolution; and
the right to seek independent legal and professional advice (subject to the prior approval of the Chairman).

Remuneration

$\sigma$ The Chief Executive Officer absents himself from the meetings before any discussion by the Board in relation to his own remuneration.
Remuneration of Non-executive Directors is determined by the Board with assistance of external advice $\circ$ and within the maximum amount approved by the shareholders from time to time.
The aggregate amount payable to Non-executive Directors as a Director of Environmental Solutions International Ltd must not exceed the maximum annual amount approved by the company's shareholders.
Remuneration packages are set at levels that are intended to attract and retain executives of suitable $\circ$ experience and qualifications.
Executives' remuneration and other terms of employment are reviewed annually by the Board having $\circ$ regard to performance, relevant comparative information and independent expert advice. As well as a base salary, remuneration packages may include superannuation, termination entitlements, performance-related bonuses and fringe benefits.
From time to time options over company shares are issued to executive management in accordance with $\mathbf{C}$ the Executive Option Scheme approved by shareholders at Annual General Meeting.
Details of Directors' and Executives' remnneration and the company's Executive and Employee Share $\circ$ Option plan are set out in notes 3 and 4 to the financial statements.

CORPORATE GOVERNANCE STATEMENT (cont)

Business Risk Management

The Board is responsible for the company's system of internal controls and monitors the operational and financial aspects of the company's activities.
The Annual Budget is presented to the Board by the Chief Executive Officer each year. $\Omega$
The Board reviews and approves the parameters under which risks will be managed before adopting the $\circ$ Budget.
o The Board monitors the risk management by:
receiving monthly reports in respect of operations, financial position of the Company and new contracts;
considering the recommendations and advice of external auditors and other external advisers on the operational and financial risks that face the company;
ensuring recommendations made by the external auditors and other external advisers are investigated and, where considered necessary, appropriate actions are taken to ensure that the company has an appropriate internal control environment in place to manage the key risk identified;
requesting operational project audits be undertaken should the need arise.

Composition of the Board

The composition of the Board is determined using the following principles:

Until otherwise determined by the Company in general meeting the number of directors will be not less than 3 or more than 6 and Non-Executive Directors will always maintain the majority of Directors.
The Chairman of the Board is a non-executive Director.
The Board comprises of Directors with the required operational, financial, industry legal specific skills, which enables the objectives of the consolidated entity to be met.
Non-executive Directors are subject to re-election by rotation at least every three years.

Board 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.

The role of the Board Audit Committee is as follows:

To review the efficiency and effectiveness of the external audit functions, including reviewing the respective audit plans.
To consider matters raised by the external auditors.
To review interim and annual financial statements and reports.
To review the adequacy of the accounting and internal control systems.
To monitor compliance with Corporations Act 2001, Stock Exchange Listing Rules and any matters outstanding with the auditors, Australian Taxation Office, Australian Securities Commission, Australian Stock Exchange and financial institutions.
To review ethical standards as each affects the consolidated entity.
To seek truth and fairness in the preparation and publication of the accounts.
To review the appointment of external auditors.

The current auditors for the consolidated entity are Deloitte Touche Tohmatsu.

CORPORATE GOVERNANCE STATEMENT (cont)

Board Performance

The Board keeps its performance under view no less than once a year. The intent of the review is to gauge the effectiveness of the Board as a whole and not to necessarily focus on individual performance. However it is necessary for the Board, in open forum, to focus on the appropriate skills and characteristics required of Board Members. This assessment should include issues of diversity, age, skills, background, and other matters necessary to achieve the company's objectives and should be viewed in the context of the perceived needs of the Board and the current makeup of the Board at that point in time.

Conflict of Interest

Board Members are required to identify any conflict of interest they may have in dealing with the company's affairs and subsequently to refrain from participating in any discussion or voting on these matters. Directors and senior executives are required to disclose in writing, any related party transactions.

Independent Professional Advice

Each Director has the right to seek independent professional advice at the company's expense. However, prior approval of the Chairman is required, which will not be unreasonably withheld.

Access to Management

Board Members have complete access to senior management. Board Members use their judgement to ensure that this contact is not distracting to the business operation of the consolidated entity.

Trading in Shares

Directors and officers are prohibited from trading of a short-term nature in company shares.

Directors and officers are also prohibited from dealing in Company shares if they are in possession of share price sensitive information. Such an embargo period would include, but not be limited to the period leading up to the profit announcement for June and December or prior to announcements in relation to any material changes in the Company's financial performance or changes to major contracts.

Chief Executive

The performance of the Chief Executive is evaluated annually. The evaluation is based on objective criteria including performance of the business, accomplishment of long-term strategic objectives and development of management.

Code of Ethics

As part of the Board's commitment to the highest standard of conduct, the company adopts Company values to guide executives, management and employees in carrying out their duties and responsibilities.

The values are:

to act fairly and honestly;
to be professional and act with integrity in our business dealings;
to promote a safe, positive and enjoyable work environment;
to consider the impact of our decisions on our colleagues;
to work harmoniously within the communities in which we operate.

All directors and employees are expected to comply with the Company Values where individuals are expected to act with the utmost integrity and objectivity, striving at all times to enhance the reputation and performance of the Company.

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 2004 as set out on pages 15 to 46. 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 2004 and $\left( i\right)$ of their performance for the year ended on that date; and
complying with Accounting Standards in Australia and the Corporations Regulations 2001; and $\rm (ii)$
other mandatory professional reporting requirements in Australia. $(b)$

INDEPENDENT AUDIT REPORT (Cont)

Inherent Uncertainty Regarding Continuation as a Going Concern

Without qualification to the opinion expressed above, attention is drawn to the following matter. As a result of the matters described in Note 1 of the financial report, there is significant uncertainty whether the company and the consolidated entity will be able to continue as going concerns and therefore whether they will realise their assets and extinguish their liabilities in the normal course of business and at the amounts stated in the financial report.

DELOITTE TOUCHE TOHMATSU

P McIver

Partner Chartered Accountants Perth, 30 September 2004

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 2004

The Directors declare that:

The attached financial statements and notes thereto comply with Accounting Standards; $(a)$
The attached financial statements and notes thereto give a true and fair view of the financial position and performance of the $(b)$ 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
In the Directors' opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when $(d)$ 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 behgif of the Board

TE O'Connor QC Chairman

$\overline{\phantom{a}}$ $\sim$ .

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

	Note	Consolidated		Company
		2004 \$'000	2003 \$2000	2004 \$'000	2003 \$'000

Revenue from ordinary activities		40,643	14,921	40,643	14,921
Material and Subcontractor expenses		(40, 254)	(11, 104)	(40, 254)	(11, 104)
Employee benefits expense		(5,089)	(4, 484)	(5,089)	(4, 484)
Depreciation and amortisation expense		(349)	(337)	(349)	(337)
Borrowing costs		(4)	(4)	(4)	(4)
Occupancy expense		(283)	(251)	(283)	(251)
Intangible asset recoverable amount write down		(1, 438)
Investment in subsidiary written off				(305)
Loans to subsidiaries forgiven				(741)
Insurance expense		(377)	(295)	(377)	(295)
Other expenses from ordinary activities		(1,575)	(1, 314)	(1, 573)	(1,691)
Loss From Ordinary Activities Before Income Tax Expense	2	(8,726)	(2,868)	(8,332)	(3, 245)
Income tax expense relating to ordinary activities	5
Loss From Ordinary Activities After Related Income Tax Expense		(8,726)	(2,868)	(8,332)	(3,245)
Total Revenue and Expense Attributable to Members of the Parent Entity Recognised Directly in Equity		(8, 726)	(2,868)	(8,332)	(3,245)
Total Changes in Equity Other than those Resulting from Transactions with Owners as Owners	19	(8, 726)	(2,868)	(8,332)	(3,245)
Earnings Per Share - Basic (cents per share)	32	(11.32)	(3.72)
- Diluted (cents per share)	32	(11.32)	(3.72)

Notes to the financial statements are included on pages 19 to 46.

$\langle\ldots\rangle$ , $\langle\ldots\rangle$

$\langle \tau, \tau \rangle$ .

$\mathcal{L} = {1,2,\ldots, n}$

$\sim 10^{-1}$

$\bar{\mathcal{A}}$

STATEMENT OF FINANCIAL POSITION as at 30 June 2004

	Note	Consolidated		Company
		2004 \$7000	2003 \$'000	2004 \$'000	2003 \$7000
Current Assets
Cash Assets	6	3,463	6,210	3,462	6,210
Receivables	7	7,707	4,076	7,696	4,064
Other	8	2,672	2,618	2,672	2,618
Total Current Assets		13,842	12,904	13,830	12,892
Non-Current Assets
Receivables	9	154	183	154	922
Other Financial Assets	10				305
Plant and Equipment	11	635	578	635	578
Intangible Assets	12	150	1,654	122	188
Total Non-Current Assets		939	2,415	911	1,993
Total Assets		14,781	15,319	14,741	14,885
Current Liabilities
Payables	13	12,569	5,189	12,558	5,178
Interest Bearing Liabilities	14	29	7	29	7
Provisions	15	1,364	625	1,364	625
Total Current Liabilities		13,962	5,821	13,951	5,810
Non-Current Liabilities
Interest Bearing Liabilities	16	50	3	50	3
Total Non-Current Liabilities		50	3	${\sf S0}$	3
Total Liabilities		14,012	5,824	14,001	5,813
Net Assets		769	9,495	740	9,072
Equity
Contributed Equity	$17\,$	23,254	23,254	23,254	23,254
Reserves	18	3,176	3,176	856	856
Accumulated Losses	19	(25, 661)	(16,935)	(23,370)	(15,038)
Total Equity		769	9,495	740	9,072

سادة سادة وواقع الم

Notes to the financial statements are included on pages 19 to 46.

$\sim$ .

بالتباد

STATEMENT OF CASH FLOWS For the year ended 30 June 2004

	Consolidated Note Inflow (Outflow)			Company Inflow (Outflow)
		2004 $$^{4}000$	2003 \$'000	2004 \$'000	2003 \$°000
Cash Flows From (Used In) Operating Activities
Receipts from customers		42,629	20,022	42,629	20,022
Payments to suppliers and employees		(45, 314)	(22,390)	(45,315)	(22, 544)
Interest Received		180	316	180	316
Net Cash Flow From (Used In) Operating Activities	30	(2,505)	(2,052)	(2,506)	(2,206)
Cash Flows from (Used in) Investing Activities
Payments for property, plant and equipment		(340)	(168)	(340)	(168)
Net Cash (Used In) Investing Activities		(340)	(168)	(340)	(168)
Cash Flows from Financing Activities
Proceeds from issue of equity securities			7		7
Proceeds (Repayment) from borrowings		69	(23)	69	(23)
Loans (advanced) repaid by related entity					216
Employee Share Plan Loans (advanced) repaid		29	35	29	35
Dividends paid			(231)		(231)
Net Cash from (Used in) Financing Activities		98	(212)	98	4
Net Increase (Decrease) in Cash Held		(2,747)	(2, 432)	(2,748)	(2,370)
Cash held at the beginning of the financial year		6,210	8,642	6,210	8,580
Cash at the End of the Financial Year	31	3,463	6,210	3,462	6,210

Notes to the financial statements are included on pages 19 to 46.

$18\,$

NOTES TO THE FINANCIAL STATEMENTS

Summary of Accounting Policies 1.

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.

Going Concern Policy

The directors have prepared the financial statements on a going concern basis, which contemplates continuity of normal business activities and the realisation of assets and extinguishment of liabilities in the ordinary course of business. The consolidated entity has incurred a loss in the current year of $\$8,726,000_z$ the net asset position has decreased to $\$769_*000$ as of 30 June 2004 and the net cash outflows from operating activities were \$2,505,000. The ability of the company and the consolidated entity to continue as going concerns and pay their debts as and when they fall due is dependent on the following:

obtaining suitable short term bank funding and retaining its bonding/guarantee facilities;
raising equity funds to recapitalise its financial position;
continuing to win its usual share of water and wastewater contracts;
controlling its operating costs; and
a return to profitability in the near future.

At the date of this report the bank has made an offer in respect of funding and bonding/guarantee facilities being made available through to lanuary 2005. The directors are currently negotiating with the bank and believe that the matters noted above can be achieved. If further funding and/or recapitalisation is not forthcoming there remains significant uncertainty whether the company and the consolidated entity will be able to continue as going concerns.

Should the company and the consolidated entity be unable to continue as going concerns, they may be required to realise their assets and extinguish their liabilities other than in the normal course of business and at amounts different from those stated in the financial report.

The financial report does not contain any adjustments relating to the recoverability and classification of recorded asset amounts nor to the amounts and classification of liabilities that may be necessary should the company and the consolidated entity be unable to continue as going concerns.

(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 25to 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.

NOTES TO THE FINANCIAL STATEMENTS

(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:

5 years Plant and Equipment:
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. In determining the recoverable amount of non-current assets the expected net cash flows have not been discounted to their present value.

(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.

Information about the tax consolidation system is included in note 5.

(F) INTANGIBLES

LICENCES, PATENTS AND RIGHTS TO TECHNOLOGY ASSETS $(1)$

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.

$(i)$ 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.

CONSTRUCTION WORK $(G)$

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.

NOTES TO THE FINANCIAL STATEMENTS

(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.

(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:

$\ddot{\text{o}}$ 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.

NOTES TO THE FINANCIAL STATEMENTS

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) ACQUISITION 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.

(Q) INVESTMENTS

Investments in controlled entities are recorded at cost.

NOTES TO THE FINANCIAL STATEMENTS

	Consolidated		Company
	2004 $$^{\circ}000$	2003 \$3000	2004 \$'000	2003 \$'000
Loss from Ordinary Activities 2.
The loss from ordinary activities before income tax includes the following items of revenue and expense:
(a) Operating Revenue
Sales Revenue:
Rendering of services	38,640	14,605	38,640	14,605
Share of Joint Venture Rendering of Services	1,820		1,820
	40,460	14,605	40,460	14,605
Interest Revenue:
Other Entities	183	316	183	316
Total Revenue from ordinary activities	40,643	14,921	40,643	14,921
(b) Expenses
Depreciation or amortisation of:
Plant and Equipment	283	254	283	254
Intangibles:
Technologies Goodwill	55 $\mathbf{1}$	55 11	55 11	55 11
Transfer to/from provisions:

Employee entitlements
Annual leave	39	98	39	98
Long service leave	29 262	133 251	29 262	133 251
Operating lease minimum rental expenses
Intangible assets recoverable amount write down Finance Leases	1,438	٠
Finance Charges	4	4	4	4
Amortisation	19	17	19	17
Loans to wholly owned controlled entities forgiven			741	384
	2004	2003	2004	2003
	\$	${\bf S}$	\$	S
(c) Auditors Remuneration
Auditing the financial report	26,000	25,000	26,000	25,000
Other Services	18,304	12,950	18,304	12,950
	44,304	37,950	44,304	37,950

$\bar{z}$

$\mathcal{L}(\mathcal{L}^{\mathcal{L}}(\mathcal{L}^{\mathcal{L}}))$ and $\mathcal{L}^{\mathcal{L}}$ are considered

$\frac{1}{2}$ , $\frac{1}{2}$ , $\frac{1}{2}$ , $\frac{1}{2}$

$\sim$ 200 cm and

and manifest $\alpha$

$\tau$ is considered.

$\frac{1}{2}$

$23\,$

NOTES TO THE FINANCIAL STATEMENTS

3. Directors and Executives Remuneration

The specified directors of Environmental Solutions International Ltd during the year were:

	TEO'Connor QC(Chairman, non-executive)
D Glennon	(Managing Director)
D H O'Neill	(Non-executive)
J B H Cheak	(Non-executive)

The specified executives of Environmental Solutions International Ltd during the year were:

(Technical Director) TR Bridle MP Peters (General Manager - Water/Wastewater) (General Manager Engineering Design) JR Jennings (Company Secretary/Chief Financial Officer) P A Hopps

Specified directors and specified executives' remuneration

The remuneration of specified 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 discussions by the Board. The Managing Director sets the remuneration of specified executives with due regard to current market rates benchmarked against comparable industry salaries.

		Primary			Post Employment		Equity
Specified Directors	Salary & Fees	Bonu s	Non- Monetar	Super- annuatio n	Prescribed Benefits	Other	Option S	Other Benefit	Total
	\$					\$	\$
T E O'Connor OC	45,000			4.050					49,050
D P Glennon	223.431		2,994	96,569		۰.	$\sim$		322,994
DH O'Neill	25,000		$\ddot{}$			-			25,000
J B H Cheak	25,000								25,000
Total:	318,431		2,994	100,619		-			422,044

		Primary			Post Employment	Equity
Specified Executives	Salary & Fees	Bonu 8	Non- Monetar	Super- annuation	Prescribed Benefits	Other	Option	Other Benefits	Total
		\$			\$	9	ς
TR Bridle	148.481			71.519					220,000
MP Peters	124.500		2.448	48,000					174,948
J R Jennings	131.535		1.955	9,047					142,537
P A Hopps	100.084		1.404	32,416					133,904
Total:	504,600		5,807	160,982	$\mathbf{r}$				671,389

NOTES TO THE FINANCIAL STATEMENTS

4. 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 2004, employees are entitled to purchase an additional 3,956,000 ordinary shares with the terms and conditions disclosed in note 17 to the financial statements.

The market price of the company's ordinary shares at 30 June 2004 was 10.5¢.

During the financial year, no 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 note 3 to the financial statements and in the Director's Report accompanying the financial statements.

	2004 No.	2003 No.
Movements of share options during the year were as follows:
Unlisted Employee Options
Balance at beginning of the financial year	4,943,000	5,168,000
Granted during the financial year (Note 17c)
Exercised during the financial year (Note 17c)		(25,000)
Lapsed during the financial year (Note 17c)	(987,000)	(200,000)
Balance at the end of the financial year	3,956,000	4,943,000
Unlisted Ordinary Options
Balance at beginning of the financial year	1,913,750	2,213,750
Granted during the financial year (Note 17c)
Exercised during the financial year (Note 17c)
Lapsed during the financial year (Note 17c)		(300,000)
Balance at beginning of the financial year	1,913,750	1,913,750

NOTES TO THE FINANCIAL STATEMENTS

Balance at the beginning of the financial year comprises:

$\mathbf{I}$

Ĵ. $\mathbf i$

Unlisted Employee Options	NO.	vested ivo.	Unvested No.	Grant Date	лхргу Date	Lixercise Price
Issued 8 September 2000	2,248,000	2,248,000		8 Sep 00	7 Sep 05	\$0.32
Issued 30 November 2000	100,000	100,000	÷	30 Nov 00	30 Nov 05	\$0.40
Issued 19 March 2002	1,297,500	1,297,500		19 Mar 02	19 Mar 07	\$0.65
Issued 20 March 2002	1,297,500	1,297,500	۰	20 Mar 02	20 Mar 07	\$0.75
	4,943,000	4,943,000	$\overline{\phantom{a}}$
Unlisted Ordinary Options
Issued 30 November 1999	500,000	500,000		30 Nov 99	30 Nov 04	\$0.45
Issued 30 November 2000	1,413,750	1,413,750		30 Nov 00	30 Nov 05	\$0.40
	1,913,750	1,913,750	$\overline{\phantom{a}}$
Balance at the end of the financial year comprises:
Uniisted Employee Options	No.	Vested No.	Unvested No.	Grant Date	Expiry Date	Exercise Price
Issued 8 September 2000	1,991,000	1,991,000	$\overline{a}$	8 Sep 00	7 Sep 05	\$0.32
Issued 19 March 2002	982,500	982,500	٠	19 Mar 02	19 Mar 07	\$0.65
Issued 20 March 2002	982,500	982,500	۰	20 Mar 02	20 Mar 07	\$0.75
	3,956,000	3,956,000
Unlisted Ordinary Options
Issued 30 November 1999	500,000	500,000		30 Nov 99	30 Nov 04	\$0.45
Issued 30 November 2000	1,413,750	1,413,750	$\blacksquare$	30 Nov 00	30 Nov 05	\$0.40
	1,913,750	1,913,750

$\ddot{\phantom{a}}$

$\mathbf{v}$ $\mathbf{r}$ $x + 1$ $\mathbf{v}$

. . . . . . . . . . . . . . . . . . .

$\sim$ 14 $\sim$

Service Companies

$\mathcal{L}_{\mathcal{A}}$

$\bar{\beta}$

. . . . .

YD. $\overline{1}$

$\alpha$ , $\beta$ , $\beta$ , $\beta$ $\bar{z}$ $\sim$ $\sim$

$\bar{z}$

NOTES TO THE FINANCIAL STATEMENTS

Income Tax $\sqrt{s}$

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
	2004 \$'000	2003 \$°000	2004 \$'000	2003 \$'000
		(2,868)	(8,332)	(3,245)
(a) Profit (Loss) from ordinary activities	(8,726)
Income tax (benefit)/expense calculated at 30%	(2,618)	(860)	(2,499)	(974)
Add (less):
Tax effect of permanent differences
Other	2	3	2	118
Amortisation of intangible assets	20	20	20	20
Debts forgiven			222
Investment in subsidiary write off			93
Recoverable amount write down of intangibles	431	$\blacksquare$	٠
Timing differences and tax losses not brought to account as future income tax benefits (note 5(b)).	2,165	837	2,162	836

(b) Future income tax benefits at 30% not brought to account as assets:
Attributable to tax losses
Revenue	3,715	1,550	3,715	1,550
	3,715	1,550	3,715	1,550

NOTES TO THE FINANCIAL STATEMENTS

	Consolidated		Company
	2004 \$'000	2003 \$1000	2004 \$'000	2003 \$'000
The taxation benefits of tax losses and timing differences not brought to account will only be obtained if: (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.
6. Cash Assets
Cash on deposit	3,463	6,210	3,462	6,210
7. Current Receivables
Trade Receivables	5,891	3,543	5,880	3,531
Allowance for doubtful debts	(14)	(14)	(14)	(14)
	5,877	3,529	5,866	3,517
Goods and services tax (GST) recoverable	1,203	384	1,203	384
Sundry debtors and prepayments	627	163	627	163
	7,707	4,076	7,696	4,064
8. Current-Other
Amount due from customers for unbilled contract costs (Work in progress) (Note 22)	2,672	2,618	2,672	2,618

الدارا الفقار سفريان

$\dot{\pi}$ , and $\dot{\pi}$

NOTES TO THE FINANCIAL STATEMENTS

٠	Consolidated		Company
	2004 \$'000	2003 \$'000	2004 S'000	2003 \$'000
9. Non-Current Receivables
Employee Share Plan Loans	154	183	154	183
Amounts receivable from:
Wholly owned controlled entities			741	739
Debts forgiven			(741)
		w		739
	154	183	154	922
10. Other Non-Current Financial Assets
Non quoted investments
Shares in wholly-owned controlled entities,
at cost			305	305
Amount written off			(305)
				305

and a second companion companion and a construction

$\alpha = \alpha$

$\sim 10^7$

$\bar{z}$

NOTES TO THE FINANCIAL STATEMENTS

Ì $\frac{1}{2}$

$\bar{z}$

		Consolidated		Company
	Plant and Equipment \$7000	Equipment under finance lease \$'000	Total \$2000	Plant and Equipment \$'000	Equipment under finance lease \$'000	Total \$'000
11. Plant and Equipment, at
cost Gross Carrying Amount
Balance at 30 June 2003	1,249	76	1,325	1,159	76	1,235
Additions	256	84	340	256	84	340
Balance at 30 June 2004	1,505	160	1,665	1,415	160	1,575
Accumulated Depreciation
Balance at 30 June 2003	693	54	747	603	54	657
Depreciation expense	264	19	283	264	19	283
Balance at 30 June 2004	957	73	1030	867	73	940
Net Book Value
As at 30 June 2003	556	22	578	556	22	578
As at 30 June 2004	548	87	635	548	87	635
			Consolidated		Company
		2004	2003	2004	2003

	2004 S'000	2003 \$'000	2004 \$2000	2003 \$'000
12. Intangibles
Goodwill, at cost	110	110	110	110
Accumulated amortisation	33	22	33	22
	77	88	77	88
Licenses, patents and rights to technology at cost	2,016	2,016	550	550
Accumulated amortisation	505	450	505	450
	1,511	1,566	45	100
Recoverable amount write down (note (i) below)	1,438
	73	1,566	45	100
	150	1,654	122	188

Aggregate depreciation and amortisation allocated during the year are recognised as an expense as disclosed in note 2 to the
financial statements.

(i)The consolidated entity has written down the carrying value of the ENERSLUDGE^TM technology as the commercialisation of the technology has been slower than anticipated.

المتاريخ المتشرة

المستشفين والمستندر

NOTES TO THE FINANCIAL STATEMENTS

	Consolidated		Company
	2004 \$'000	2003 \$'000	2004 \$'000	2003 \$200
13. Current Payables
Unsecured
Payables	8,095	2,587	8,084	2,578
Goods and services tax (GST) Payable	1,181	548	1,181	548
Sundry creditors and accruals	337	507	337	505
Accrued contract costs (Note 22)	2,956	1,547	2,956	1,547
	12,569	5,189	12,558	5,178
14. Current Interest Bearing Liabilities Secured
Finance Lease Liabilities (Note 20b)
Secured over the leased assets	29	7	29	7
15. Current Provisions

Employment entitlements: Annual leave	412	376	412	376
Long service leave	331	249	331	249
Contract Losses	621		621
	1,364	625	1,364	625

16. Non-Current Interest Bearing Liabilities
Secured
Finance Lease liabilities (Note 20b)	50	3	50	3
Secured over the leased assets
17. Contributed Equity

(a) Contributed Equity
77,097,512 fully paid ordinary shares (2003:77,097,512)	23,254	23,254	23,254	23,254
	2004		2003
			No.
	No. $^{\prime}000$	\$3000	000	\$'000
Fully Paid Ordinary Shares
Balance at beginning of the financial year	77,097	23,254	77,072	23,247
Issue of shares under the Employee Share Option Plan			25	7
Balance at end of the financial year	77,097	23,254	77,097	23,254

(b) Fully Paid Ordinary Share Capital
Fully paid ordinary shares carry one vote per share and carry the right to dividends.

NOTES TO THE FINANCIAL STATEMENTS

(c) Share Options.

In accordance with the provisions of the employee share options plan (Note 4), as at 30 June 2004, employees are entitled to purchase the following ordinary shares.

	2004			2003
Number of Options	Exercise Price	Expiry Date	Number of Options	Exercise Price	Expiry Date
1,991,000	\$0.32	07/09/2005	2,248,000	\$0.32	07/09/2005
982,500	\$0.65	19/03/2007	100,000	\$0.40	30/11/2005
982,500	\$0.75	20/03/2007	1,297,500	\$0.65	19/03/2007
			1,297,500	\$0.75	20/03/2007
3,956,000			4,943,000
500,000	\$0.45	30/11/2004	500,000	\$0.45	30/11/2004
1,413,750	\$0.40	30/11/2005	1,413,750	\$0.40	30/11/2005
1,913,750			1,913,750
5,869,750			6,856,750

Employee and ordinary options do not carry any voting rights or entitlement to dividends.

Options Exercised During the Financial Year

2003 Options - Series	No. of Options Exercised	Grant Date	Exercise Date	Expiry Date	Exercise Price	No. of Shares Issued	Fair Value Received S	Fair Value of Shares at Date of Issue
Issued 26 Nov 1997	25,000	26/11/1997	16/8/2002	25/11/2002	Б \$0.30	25,000	7.500	9.625

2004 j.

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.

NOTES TO THE FINANCIAL STATEMENTS

Options Lapsed During the Financial Year

Options - Series	2004 No.	2003 No
(1) Unlisted Employee Options		200,000
(2) Unlisted Ordinary Options		300,000
(3) Unlisted Ordinary Options	257,000
(4) Unlisted Ordinary Options	315,000
(5) Unlisted Ordinary Options	315,000	ب
(6) Unlisted Ordinary Options	100,000
	987,000	200,000
	987,000	500,000

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. Options series (4) were options to purchase ordinary shares for 65 cents per share at any time within 1 to 5 years from the date of issue. Options series (5) were options to purchase ordinary shares for 75 cents per share at any time within 1 to 5 years from the date of issue. Options series (6) were options to purchase ordinary shares for 40 cents per share at any time within 2 to 5 years from the date of issue. None of the above series carried voting or dividend rights.

	Consolidated		Company
	2004 \$'000	2003 \$'000	2004 \$'000	2003 \$'000
18. 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.
19. Accumulated Losses
Balance at beginning of financial year	(16,935)	(14,067)	(15,038)	(11,793)
Net Profit/(Loss)	(8,726)	(2,868)	(8,332)	(3,245)
Balance at end of financial year	(25,661)	(16,935)	(23, 370)	(15,038)

NOTES TO THE FINANCIAL STATEMENTS

	Consolidated		Company
	2004 \$'000	2003 \$'000	2004 S'000	2003 \$2000
20. Lease Commitments
(a) Commitments under non-cancellable operating leases
Not later than one year	262	246	262	246
Later than one year but not later than five years	47	250	47	250
Later than five years
	309	496	309	496
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	29	7	29	7
Later than one year but not later than five years	62	6	62	6
Later than five years			$\blacksquare$
	91	13	91	13
Less future finance charges	(12)	(3)	(12)	(3)
Finance bearing liabilities	79	$10\,$	79	10
Included in the financial statements are:
Current liabilities (Note 14)	29	7	29	7
Non-current liabilities (Note 16)	50	3	50	3
	79	10	79	10

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

21. Joint Venture Operation

The consolidated entity has a 50% (2003:nil) interest in the ESI/Tenix Pty Ltd Joint Venture, the principal activity of which is the design and construction of wastewater treatment facilities in NSW.

The following amounts represent the consolidated entity's interest in the assets and liabilities of the above joint venture. The amounts are included in the consolidated financial statements under their respective categories.

	Consolidated		Company
	2004 \$'000	2003 \$'000	2004 \$'000	2003 \$3000
Current Assets
Cash	676		676
Receivables	436		436
Total Current Assets	1,112		1,112
Current Liabilities
Payables	729		729
Total Current Liabilities	729		729
22. Construction Contracts
Construction work in progress	64,720	29,920	64,720	29,920
Progress billings and advances received	65,004	28,849	65,004	28,849
Advances received
Progress billings	65,004	28,849	65,004	28,849
	(284)	1,071	(284)	1,071
Recognised and included in the financial statements as:
Amount due from customers for unbilled contract costs: Current (Note 8)	2,672	2,618	2,672	2,618
Amount accrued for contract costs; Current (Note 13)	(2,956)	(1,547)	(2,956)	(1, 547)
	(284)	1,071	(284)	1,071
Retention included in progress billing

23 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 \$13,469 thousand. 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

24 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.

25 Details of Controlled Entities

Parent Entity:

Environmental Solutions International Limited

Controlled Entities:

	Place of Incorporation WA. NSW WA NSW WA WA. ACT	Percentage of Shares
		2004	2003
ESI Research and Development Pty Ltd (i)		100%	100%
DF No. 1 Pty Ltd $(i)$		100%	100%
Campbell Group Unit Trust (Surda Pty Ltd) (i)		100%	100%
E.S.I. Marketing Pty Ltd (i)		100%	100%
ESA Technologies Pty Ltd (i)		100%	100%
Campbell Environmental Ltd (i)		100%	100%
ESI Marketing and Sales Pty Ltd (i)		100%	100%
ESI Eire Joint Venture Pty Ltd (i)	QLD	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 $\left( i\right)$ relieved from the requirement to prepare, audit and lodge financial statements.

Dormant company $(ii)$

26 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.

27 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

28 Related Party Disclosures

Ownership Interests In Related Parties 1.

Information in relation to ownership interests in related parties is provided in the notes indicated: Controlled Entities - Note 25 Ownership interests in associated companies are as follows:

	Balance Date	Carrying Value \$'000	Ownership of Interest
			2004	2003
Darenth Pty Ltd (Non Operating)	30/06/2004	×.	30%	30%
Equity accounting has not been adopted as its impact is immaterial.

Transactions With Directors And Director Related Entities $2.$

(a) Directors who held office during the year were as follows: TEO'Comor Q.C. DHONeill J B H Cheak DP Glennon
(b) Remuneration and retirement benefits of directors. Details in relation to remuneration and retirement benefits of directors are disclosed in Note 3.
(c) Specified directors and specified executives equity holding

Fully paid ordinary shares issued by Environmental Solutions International Ltd

$\mathcal{A}$

$\sim$ $\bar{\mathcal{L}}$

$\alpha = 1/\sqrt{2}$

	Balance 01/07/2003 No.	Net Other Change No.	Balance 30/6/2004 No.
Specified Directors
TEO'Connor	225,000	25,000	250,000
D P Giennon	1,693,250		1,693,250
D H O'Neill	803,000		803,000
I B H Cheak	575,000	425,000	1,000,000
Specified Executives
TR Bridie	800,000		800,000
MP Peters	230,000		230,000
J R Jennings	185,000		185,000
P A Hopps	100,000		100,000
	4,611,250	450,000	5,061,250

$\mathcal{L}=\mathcal{L}$

$\sim$

NOTES TO FINANCIAL STATEMENTS

Ordinary options issued by Environmental Solutions International Ltd

Specified Directors	Balance 7/01/2003 No.	Granted as Remu- neration No.	Other Change No.	Balance 30/6/04 No.	Balance vested at 30/6/04 No.	Vested but not exercisabl e No.	Vested and exercisable No.
TEO'Connor	250,000	$\mathbf{a}$	-	250,000	250,000	×.	$\overline{\phantom{0}}$
D P Glennon	1,413,750	-	$\overline{\phantom{a}}$	1,413,750	1.413.750		$\overline{\phantom{a}}$
$DHO$ 'Neill
J B H Cheak	250,000			250,000	250,000
	1,913,750			1,913,750	1,913,750		$\mathbf{r}$

The issue of the above ordinary options to directors was approved by shareholders at annual general meeting.

Employee Share Plan options issued by Environmental Solutions International Ltd

Specified Directors	Balance 7/01/2003 No.	Granted as Remu- neration No.	Exercised No.	Other Change No.	Balance 30/6/04 Ne.	Balance vested at 30/6/04 Ne.	Vested but not exercisable No.
TEO'Connor	-	$\overline{a}$	$\blacksquare$		٠	٠
D P Glennon
DHO'Neill	$\blacksquare$		$\overline{\phantom{a}}$	$\star$	۰
J B H Cheak		$\blacksquare$
Specified
Executives
TR Bridle	750,000	٠			750,000	750,000
MP Peters	600.000	۰	٠	and in	600,000	600,000	÷
JR Jennings	350,000	٠			350,000	350,000
P A Hopps	350,000	٠		۰	350,000	350,000
	2,050,000	$\blacksquare$		$\bullet$	2,050,000	2,050,000

Each employee share plan option converts into I ordinary share of Environmental Solutions International Ltd on exercise. No amounts are paid or payable by the recipient on receipt of the option. Refer to Note 4 for further details of the Employee Share Plan.

(d) Loans to Directors and Specified Executives

2004	Balance at beginning	Interest not charged	Balance at end
Specified directors	53.882	2,994	45,917
Specified executives	104.366	5.807	89.212
Total	158.248	8.801	135,129

The above loans were made in accordance with the terms and conditions of the Employee Share Plan to fund the conversion of options to ordinary shares. Such loans are interest free.

(e) During the year the consolidated entity paid \$8,250 to a company associated with Mr DH O'Neill for consulting services. The payment was made on normal commercial terms.

NOTES TO FINANCIAL STATEMENTS

3. Transactions With Entities In The Wholly Owned Group

The Company advanced and repaid loans, received and forgave 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 9.

NOTES TO FINANCIAL STATEMENTS

29 Financing Facilities

	Consolidated		Company
	2004 $$*000$	2003 \$'000	2004 $$*000$	2003 \$'000
Entities in the consolidated entity have access to:
Credit standby arrangements:
unsecured bank guarantee facility	15,000	11,000	15,000	11,000
amount of credit used	13,469	8,111	13,469	8,111
amount of credit unused	1,531	2,889	1,531	2,889
The facility and amount of credit used at the date of this report is \$11,386 thousand. Reconciliation of Net Cash Flows from 30 Operating Activities to Operating (Loss)/Profit after Income Tax
Operating (loss)/profit after income tax	(8,726)	(2,868)	(8,332)	(3,245)
Amortisation of Intangibles	66	66	66	66
Depreciation and amortisation of non-current assets	283	271	283	271
Recoverable amount write down of intangibles	1,438
Change in assets/liabilities
Receivables	(2,998)	4,130	(2,998)	4,130
Amount due from customers for unbilled contract costs	(54)	(2,481)	(54)	(2,481)
Accounts Payable	6,747	(1,401)	6,744	(1,178)
Provisions	739	231	739	231
Amount due from subsidiaries forgiven			741
Investment in subsidiaries written off			305
Net Cash (used in) or from Operating Activities	(2,505)	(2,052)	(2,506)	(2,206)
31 Reconciliation of Cash For the purposes of the statement of cash flows, cash includes eash 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 related items in the balance sheet as follows:
Cash at bank	3,463	6,210	3,462	6,210
	3,463	6,210	3,462	6,210

Cash at bank includes \$676 thousand being the company's 50% share of the Tenix ESI Joint Venture cash balance at 30 June 2004, and \$387 thousand being funds on deposit as security for the issue of a bank guarantee. These f of the company.

NOTES TO FINANCIAL STATEMENTS

		Consolidated
	2004 Cents Per Share	2003 Cents Per Share
32 Earnings Per Share
Basic earnings per share	(11.32)	(3.72)
Diluted earnings per share	(11.32)	(3.72)
Basic earnings per share $\mathbf{r}$ and a set of the state of the state of the state of the state of the state of the state of the state of the state of the state of the state of the state of the state of the state of the state of the state of the

The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows:

	2004 \$°000's	2003 $$.000$ 's
Earnings $(a)$	(8, 726)	(2,868)
	2004 No.	2003 No.
Weighted average number of ordinary shares (b)	77,097,512	77,093,128
(a) Earnings used in the calculation of basic carnings per share reconciles to net profit in the statement of financial performance as follows:
	2004 $$°000$ 's	2003 $S^3000$ 's
Net Profit/(Loss)	(8,726)	(2,868)
Earnings used in the calculation of basic EPS	ሪያ ማንዶና	M 9691

(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).

NOTES TO FINANCIAL STATEMENTS

Diluted Earnings Per Share

The carnings and weighted average number of ordinary and potential
ordinary shares used in the calculation of diluted earnings per share are as follows:

	2004 \$'000's	2003 \$'000's
Earnings (a)	(8,726)	(2.868)
	2004 No.	2003 No.
Weighted average number of ordinary shares and potential ordinary shares (b), (c)	77,097,512	77,093,128
(a) Earnings used in the calculation of diluted earnings per share reconciles to net profit in the statement of financial performance as follows:
	2004 S'000's	2003 S'000's
Net Profit/(Loss)	(8, 726)	(2,868)
Earnings used in the calculation of diluted EPS	(8, 726)	(2, 868)
(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:
	2004 No.	2003 No.
Weighed average number of ordinary shares used in the calculation of basic EPS	77,097,512	77,093,128
Unlisted and employee options
Weighted average number of ordinary shares and potential ordinary shares used in the calculation of diluted EPS	77,097,512	77,093,128
(c) Weighted average number of converted lapsed or cancelled potential ordinary shares used in the calculation of diluted earnings per share
	2004 No.	2003 No.
Options to purchase shares pursuant to the employee share scheme
	2004 No.	2003 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.	6,374,106	7,060,312

NOTES TO THE FINANCIAL STATEMENTS

33 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 consolidated entity's exposure to interest rate risk as at the reporting date:

2004	Average Interest Rate $\mathcal{H}_0$	Variable Interest Rate \$'000	Fixed Interest Rate: Less than 1 Year \$'000	Non Interest Bearing \$'000	Total \$'000
Financial Assets:
Cash	4.9	2,746		717	3,463
Receivables				5,877	5,877
Goods and Services Tax recoverable				1,203	1,203
Sundry debtors and prepayments				627	627
Employee Share Plan Loans				154	154
		2,746		8,578	11,324
Financial Liabilities:
Accounts Payable				8,095	8,095
Goods and Services Tax payable				1,181	1,181
Sundry Creditors and Accruals				3,293	3,293
Employee Entitlements				743	743
Finance Lease Liabilities	7.9	79			79
		79		13,312	13,391
2003
Financial Assets:
Cash	4.8	2,475	3,614	121	6,210 3,529
Receivables				3,529 384	384
Goods and Services Tax recoverable					163
Sundry debtors and prepayments				163 183	183
Employee Share Plan Loans					10,469
		2,475	3,614	4,380
Financial Liabilities;				2,587	2,587
Accounts Payable				548	548
Goods and Services Tax payable				2,054	2,054
Sundry Creditors and Accruals				625	625
Employee Entitlements Finance Lease Liabilities	8.9	10			10
		10		5,814	5,824

. . . . . .

NOTES TO THE FINANCIAL STATEMENTS

33(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.

33(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.

34 Other Information

Environmental Solutions International Limited is a listed public company incorporated and operating in Australia. The company had 61 employees at year end $(2003 - 53)$ .

35 Dividends

	2004		2003
	Cents per Share	Total \$'000	Cents per Share	Total \$ 000
Fully Paid Ordinary Shares:
Interim Dividend - Unfranked	$\blacksquare$	$\cdot$	$\overline{\phantom{0}}$	$\overline{\phantom{0}}$
Final Dividend - Unfranked	$\overline{ }$	$\blacksquare$	٠	$\overline{\phantom{0}}$
		$\blacksquare$		$\overline{ }$

The company has a nil franking account balance.

36. Impacts of adopting the Australian equivalents to International Financial Reporting Standards

The Australian Accounting Standards Board (AASB) has issued Australian equivalents to International Financial Reporting Standards (IFRS) for application to reporting periods beginning on or after 1 January 2005. The company has commenced reviewing the transition from its current policies to the AASB equivalents to IFRS. The Company has allocated resources and engaged expert consultants to review, identify and conduct business impact assessments to isolate key areas that will be affected by this transition. The adoption of the AASB equivalents to IFRS will be first reflected in the Group's financial statements for the half-year ending 31 December 2005 and the year ending 30 June 2006. At this stage the Company has not been able to reliably quantify the impacts on the financial statements.

Under AASB1 the Consolidated entity, in complying with Australian equivalents to IFRS for the first time is required to restate its comparative financial statements to amounts reflecting the application of Australian equivalents to IFRS to that comparative period. Most adjustments on transition to Australian equivalents to IFRS will be made, retrospectively, against opening retained earnings as at 1 July 2004.

Key areas where accounting policies are likely to change and may impact on the financial statements of the Consolidated Entity include the following:

NOTES TO THE FINANCIAL STATEMENTS

Income Tax

The consolidated entity currently recognises deferred taxes by accounting for the differences between accounting profits and taxable income, which give rise to "permanent" and "timing" differences. Under A-IFRS, deferred taxes are measured by reference to the "temporary differences" determined as the difference between the carrying amount and the tax base of assets and liabilities recognised in the balance sheet.

Because A-IFRS has a wider scope than the 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 current Australian GAAP (refer note 5(b)). Under A-IFRS, it may be easier to recognise these tax losses as deferred tax assets as they are recognised based on a "probable" recognition criteria. The impact of this difference may be to increase deferred tax assets and opening retained earnings, and result in a higher level of recognised deferred tax assets on a go-forward basis.

Financial Instruments

Under current Australian GAAP, financial assets and financial liabilities are recognised at cost, at fair value, or at net market value. On adoption of A-IFRS, in particular AASB 139 "Financial Instruments : Recognition and Measurement", the consolidated entity will be required to classify financial instruments into various specified categories. The five categories and basis of measurement are:

financial asset or financial liability measured at fair value through the statement of financial performance;
held to maturity investments measured at amortised costs, subject to impairment;
loans and receivables measured at amortised cost, subject to impairment;
available for sale assets measured at fair value with changes in fair value measured directly in equity; and
financial liability measured at amortised cost.

The classification of the instrument will affect the instrument's subsequent measurement. The consolidated entity is evaluating the different options available, but has not made any determination at reporting date of the accounting to be adopted, and consequently, the impact of the change on the financial statements cannot yet be quantified.

Shared Based Payments

Share-based compensation forms part of the remuneration of employees of the consolidated entity (including executives) as disclosed in the notes to the financial statements. The consolidated entity does not recognise an expense for any share-based compensation granted. Under A-IFRS, the consolidated entity will be required to recognise an expense for such share-based compensation. Share-based compensation is measured at the fair value of the share options determined at grant date and recognised over the expected vesting period of the options. A reversal of the expense will be permitted to the extent non-narket based vesting conditions (e.g. service conditions) are not met. The entity will not retrospectively recognise share-based payments vested before 1 January as permitted under A-IFRS first adoption.

The recognition of the expense will decrease the consolidated entity's opening retained earnings on initial adoption of A-IFRS and increase share capital by the same amount for share-based payments issued after 7 November 2002 but not vested before 1 January 2005. Similar impacts will also occur in future projects, however quantification of the impact on equity and in the income statement of the existing share options granted as remuneration has not been completed at the reporting date.

Property, Plant and Equipment

On transition to A-IFRS, the entity has several options in the determination of the cost of each tangible asset, and can also elect to use the cost or fair value basis for the measurement of each class of property, plant and equipment after transition. At the date of this report, the entity has not decided which options and measurement basis will be adopted and the likely impacts therefore cannot be determined.

NOTES TO THE FINANCIAL STATEMENTS

Impairment of Assets

Non-current assets are written down to recoverable amount when the asset's carrying amount exceeds recoverable amount.

Under A-IFRS, both current and non-current assets are tested for impairment. In addition, A-IFRS has a more prescriptive impairment test, and requires discounted cash flows to be used where value in use is used to assess recoverable amount. Consequently, on adoption of A-IFRS, a further impairment of certain assets may need to be recognised, thereby decreasing opening retained earnings and the carrying amount of assets-the consolidated entity has not yet determined the impact, if any, of any further impairment which may be required. It is not practicable to determine the impact of the change in accounting policy for future financial reports, as any impairment or reversal thereof will be affected by future conditions.

SHAREHOLDERS' INFORMATION AS AT 15 SEPTEMBER 2004

ORDINARY SHARES

Distribution of Securities

Spread of Holdings	Number of Holders	Number of Issued Shares	Percentage of Total Issued Capital
$1 - 1,000$	220	168,600	0.22%
$1,001 - 5,000$	736	2,415,900	3.13%
$5,001 - 10,000$	522	4,450,763	5.77%
$10,001 - 100,000$	843	27,532,609	35.72%
$100.001 - over$	109	42.529,640	55.16%
Total on File	2,430	77,097,512	100%

Shareholders

As at 15 September 2004 the Company had 2,430 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
Chuan Hup Ventures Pte Ltd	6,024,459	7.81%

Number of Shareholders holding less than a marketable parcel - 970.

20 Largest Holders of Equity Securities

	Shareholder	Number of Issued Shares	% of Equity
1.	Chuan Hup Ventures Pte Ltd	6,024,459	7.81%
2.	B B Nominees Pty Ltd	3,159,517	4.10%
3.	Willow Tree Press Ltd	2,998,190	3.89%
4.	Mr Denis Patrick Glennon & Mrs Una Caitriona Glennon	1,650,000	2.14%
5.	Denbrooke Pty Ltd	1,280,650	1.66%
6.	Mr Wayne Ronald Kennedy	1,200,000	1.56%
7.	Zero Nominees Pty Ltd	1,101,556	1.43%
8.	Golden Venture Pty Ltd	967,500	1.25%
9.	Mr Brendan Thomas Birthistle	832,000	1.08%
10.	Mr Trevor Redvers Bridle & Mrs Kathrin Ann Bridle	800,000	1.04%
11.	Mr Peter Mui & Mrs Linda Mui	735,000	0.95%
12,	Mr Antonio Positano	600,000	0.78%
13.	Connaught Consultants (Finance) Pty Ltd	558,220	0.72%
14.	Tristesse Pty Ltd	555,000	0.67%
15.	Cyncoed Holdings Pty Ltd	550,000	0.71%
16.	ANZ Nominees Limited	509,959	0.66%
17.	Mr Kevin Thomas Hencbery & Mrs Irene Margaret Henebery	502,850	0.65%
18.	Solution Concepts Pty Ltd	502,000	0.65%
19.	Mr Anthony John Brooke & Mrs Cheryl Lynette Brooke	495,000	0.64%
20.	Equitas Nominees Pty Limited	451,000	0.58%

UNLISTED OPTIONS FOR ORDINARY SHARES

Distribution of Securities

	Number of Holders	Number of Issued Options
Employee Share Plan
$0 - 100,000$ ٠	21	1,061,000
$100,001$ and over	14	2,895,000

Other
100,001 and over	3	1,913,750

$\omega_{\rm{max}}$ and $\omega_{\rm{max}}$ . The components are

AI assistant

ENVIRONMENTAL CLEAN TECHNOLOGIES LIMITED. — Annual Report 2004

64819_rns_2004-09-29_2a33edc3-3a7b-4026-8800-33cbfb907cd0.pdf

ENVIRONMENTAL SOLUTIONS INTERNATIONAL LTD(A.C.N. 009 120 405)

FINANCIAL REPORT

FOR THE YEAR ENDED

30 JUNE 2004

ENVIRONMENTAL SOLUTIONS INTERNATIONAL LTD A.C.N. 009 120 405

FINANCIAL REPORT

FOR THE YEAR ENDED

30 JUNE 2004

CONTENTS

CORPORATE PROFILE

Directors

Registered Office

CHAIRMAN'S REPORT

CHAIRMAN'S REPORT (cont)

ENVIRONMENTAL SOLUTIONS INTERNATIONAL LTD (A.C.N. 009 120 405)

DIRECTORS' REPORT

Directors

Retired

Principal Activities

Dividends

Review of Operations

Changes In State of Affairs

DIRECTORS' REPORT (cont)

Share Options

Share Options Granted to Directors and Executives

Executive and Employee Share Option Plan

Subsequent Events

Future Developments

Directors and Executives Remuneration

DIRECTORS' REPORT (cont)

Directors and Executives Remuneration (cont)

Directors' Shareholdings

Directors' Meeting

DIRECTORS' REPORT (Cont)

Environmental Regulations

Rounding off of Amounts

CORPORATE GOVERNANCE STATEMENT FOR THE YEAR ENDED 30 JUNE 2004

Board of Directors and Its Committees

Remuneration

CORPORATE GOVERNANCE STATEMENT (cont)

Business Risk Management

Composition of the Board

Board Audit Committee

CORPORATE GOVERNANCE STATEMENT (cont)

Board Performance

Conflict of Interest

Independent Professional Advice

Access to Management

Trading in Shares

Chief Executive

Code of Ethics

INDEPENDENT AUDIT REPORT TO THE MEMBERS OF ENVIRONMENTAL SOLUTIONS INTERNATIONAL LTD

Scope

The financial report and directors' responsibility

Audit approach

Independence

Audit Opinion

INDEPENDENT AUDIT REPORT (Cont)

Inherent Uncertainty Regarding Continuation as a Going Concern

DELOITTE TOUCHE TOHMATSU

DIRECTORS' DECLARATION FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

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

STATEMENT OF FINANCIAL POSITION as at 30 June 2004

STATEMENT OF CASH FLOWS For the year ended 30 June 2004

NOTES TO THE FINANCIAL STATEMENTS

Summary of Accounting Policies 1.

Significant Accounting Policies

Going Concern Policy

(A) PRINCIPLES OF CONSOLIDATION

NOTES TO THE FINANCIAL STATEMENTS

(B) CAPITAL GAINS TAX

(C) DEPRECIATION OF PLANT AND EQUIPMENT

(D) RECOVERABLE AMOUNT OF NON-CURRENT ASSETS

(E) INCOME TAX

(F) INTANGIBLES

LICENCES, PATENTS AND RIGHTS TO TECHNOLOGY ASSETS $(1)$

$(i)$ GOODWILL

ENVIRONMENTAL CLEAN TECHNOLOGIES LIMITED. Annual Report 2004

ENVIRONMENTAL SOLUTIONS INTERNATIONAL LTD
(A.C.N. 009 120 405)