LAKE RESOURCES N.L. — Annual Report 2004

Sep 22, 2004

ABN 49 079 471 980

FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2004

Lake Resources NL ABN 49 079 471 980

NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the ANNUAL GENERAL MEETING of Lake Resources NL will be held at the Registered Office of the Company, Level 2,183 North Quay, Brisbane Old, on Friday, 26 November 2004 at 4 p.m.

BUSINESS

• To receive, consider and adopt the financial report of the company and of the economic entity for the $\mathbb{L}$ year ended 30 June 2004 and the reports by directors and auditors thereon.
• To elect directors: $2.$

Ken Foots retires by rotation in accordance with the provisions of the constitution and, being eligible, offers himself for re-election.

General: To transact any business which may be lawfully brought forward. $3₁$

By Order of the Board

Peter Gilchrist Secretary 22 September, 2004

A member entitled to attend and vote is entitled to appoint a proxy to attend and vote in his/her stead. That person need not be a member of the company, but should be a natural person over the age of 18 years. Forms must be lodged at the registered office of the company not less than 48 hours before the timing of the meeting.

ABN 49 079 471 980

CORPORATE GOVERNANCE STATEMENT

This statement outlines the main corporate governance practices in place during the financial year, which comply with the ASX Corporate Governance Council recommendations, unless otherwise stated. The small size of the company and the specialised nature of the exploration industry has meant that some of the recommendations have needed to be modified in their application, while still trying to keep faith with the underlying principles of the recommendations.

Board of Directors

Responsibilities

The Board is responsible for the overall Corporate Governance of the company, including the strategic direction, establishing goals for management and monitoring the achievement of those goals.

Composition

The Board currently has four directors, comprising two non-executive directors and two executive directors. The Chairman is elected by the Board and is an independent director. The composition of the Board is reviewed on an annual basis by the Chairman to ensure that the Board has the appropriate mix of expertise and experience. The size of the company and the specialist nature of the exploration industry have generally led shareholders to place importance on increasing shareholder value by having a Board with strong industry experience. The nature of exploration funding has also led to shareholders preferring directors to be directly involved in the provision of seed capital.

Because of the size of the company, it is regarded generally as more efficient to have the whole Board acting as the various Board committees.

Nomination and Election of Directors

When a vacancy arises, or where it is considered that the Board would benefit from the services of a new director with particular skills, a Nominations Committee is formed to select a panel of suitable candidates. The Board will then appoint the most suitable candidate who must stand for election at the next general meeting of shareholders. This committee will then be disbanded. Previously, the Board has held the view that it was not necessary to establish a permanent Nomination Committee.

Independent Advice

The company has well-established procedures enabling any director or committee of the Board to seek external professional advice as considered necessary, at the company's expense. Prior written approval of the Chairman is required, but this will not be unreasonably withheld.

Risk Management

The Board sets the framework for the Company's long-term success, approving its annual budget, assessing business risks and providing overall policy guidance. The Board monitors safety and environmental performance on a continuing basis and has systems in place to review company controls and to ensure compliance with laws and ethical behaviour.

Ethical Standards

The company's policy regarding directors and employees trading in its securities is set by the Board collectively. The policy restricts directors and employees from acting on material information until it has been released to the market and adequate time has been given for this to be reflected in the security's price.

CORPORATE GOVERNANCE STATEMENT

Financial Reporting

The small size of the company with four directors and an accountant as the only persons handling company operations, other than specialist exploration contractors, mean that there is close and direct contact in all aspects of implementing and monitoring all financial systems and reporting.

Communication with Shareholders

As an exploration company there is regular reporting to shareholders through the ASX Periodic Disclosure requirements, which call for quarterly operational and cash flow reporting, and the Continuous Disclosure requirements, which require immediate reporting of material events, particularly in relation to exploration progress. This reporting is additional to more conventional reporting by all companies of half-yearly and annual financial results.

DIRECTORS' REPORT

Your directors present their report of the company for the year ended 30 June 2004.

Directors

The directors of the company at any time during or since the end of the year are:

During the year there were 7 meetings of the full board of directors. The meetings attended by each director were:- $\mathbf{v}$ and $\mathbf{v}$ and $\mathbf{v}$

	NEEDIRS
	Attended
K.J. Foots - (Chairman)
J.C. Clavarino - Exploration Director
P.J. Gilchrist - Managing Director
R. Johnston

Directors have been in office since the start of the financial year to the date of this report unless otherwise stated.

Activities

The principal activity of the company in the course of the year was mineral exploration

Review of Operations

The operating profit after applicable income tax was \$823,323 (2003: \$2,377,619 loss). Refer also to the Chairman's Report

Dividends

No dividend has been proposed or paid during the financial year.

Significant Changes in State of Affairs

The "seed" capital investments of the company matured during the year. They are now listed on the Australian Stock Exchange. These investments will be progressively liquidated to fund exploration activity as required. Exploration ativity in Pakistan was inhibited by the shortage of suitable drilling equipment available in the country for rent during the year.

Future Developments

Likely developments in the operation of the company and the expected results of those operations in future financial years have not been included in this report as the inclusion of such information is likely to result in unreasonable prejudice to the company.

Share Options

At the date of this report, there were no share options over unissued ordinary shares of the company, with the expiry of all options (4,610,364) on or before 30 June 2004.

DIRECTORS' REPORT

Directors and Auditors Indemnification

The company has not, during or since the financial year, in respect of any person who is or has been an officer or auditor of the company or a related body corporate.

• indemnified or made any relevant agreement for indemnifying against a liability incurred as an officer, including costs and expenses in successfully defending legal proceedings, or
• paid or agreed to pay a premium in respect of a contract insuring against a liability L. incurred as an officer for the costs or expenses to defend legal proceedings;

Directors' Emoluments

Details of remuneration provided to Directors are shown below:-

Directors	Director's
	Fee
	\$
K.J. Foots	3,000
I.C. Clavarino	3,000
P.J. Gilchrist	3,000
R. Johnston	3,000

Subsequent Events

No matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the company, the results of those operations, or the state of affairs of the company in future financial years.

Environmental Regulations

The company's operations are not regulated by any significant environmental regulation under the law of the Commonwealth or of a State or Territory.

Information on Directors

The Company's Directors have a strong background in mineral exploration, mining engineering, mine management, finance and accounting, with considerable international experience including Australia, USA, Canada, Philippines, Indonesia, Papua New Guinea, Pakistan, Myanmar and Sweden.

NAME

QUALIFICATIONS

Ken I. Foots Peter J. Gilchrist James G. Clavarino Ross Johnston

B.Eng (Mining), CPA B.Eng(Civil), M.Eng Sc, MBA. FRMIT (Geology) MAIMM, MMICA. B.Com, FCA

DIRECTORS' REPORT

Relevant interests of the Directors in the share or options of the Company and related bodies corporate are:-

	Ordinary Shares	Options
Ken J. Foots	561,000	٠
Peter J. Gilchrist	395,004	٠
James G. Clavarino	1.218.250	٠
Ross Johnston	450,010	٠

Messrs Foots, Gilchrist and Johnston have an interest in 550,960 ordinary shares held by Kemkay Pty Ltd, a subsidiary of 202 Ltd of which they are Directors and substantial shareholders.

Mr Foots also has an interest in 408,000 shares held by KJ & NA Foots as trustee for the Viken Super Fund.

Mr Gilchrist is also a Director of and a substantial shareholder in Trenlin Pty Ltd a company which held 1,061,611 shares in the company. Members of Mr Gilchrist's family held 152,875 shares in the company.

Mr Ross Johnston is a Director and substantial shareholder of Bushfly Air Charter Pty Ltd, a company which held 795,000 shares in the company.

All options held by directors at the beginning of the year expired on 30 June 2004.

Proceedings on Behalf of the Company

No person has applied for leave of Court to bring proceedings on behalf of the company or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or any part of those proceedings.

The company was not a party to any such proceedings during the year.

This report has been made in accordance with a resolution of Directors.

Pf Surt

P.J. Gilchrist Director

Ken Foots

K.J. Foots Director

Brisbane, Queensland 22 September 2004

LAKE RESOURCES N.L. ABN 49079471980

DIRECTORS' DECLARATION

The directors of the company declare that:

• $\mathbf{1}$ The attached financial statements and notes are in accordance with the Corporations Act 2001and:
• comply with Accounting Standards and the Corporations Regulations 2001; and $(a)$
• (b) give a true and fair view of the company's financial position as at 30 June 2004 and performance for the year ended on that date.
• In the directors' opinion there are reasonable grounds to believe that the company will be able to $\overline{2}$ pay its debts as and when they become due and payable.

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

Ken Foots

KJ Foots Director

PJ Sept

PJ Gilchrist Director

Dated this 22nd day of September 2004

STATEMENT OF FINANCIAL PERFORMANCE

for the year ended 30 June 2004

	Note	2004	2003
		\$	\$
Revenues from ordinary activities	2	1,067,276	84,169
Classification of Expenses by Function:	3
Write-off of deferred exploration costs			(1,133,055)
Write-off of exploration costs carried at valuation			(1,160,000)
Administrative costs		(90, 719)	(101,692)
Corporate costs		(55,950)	(51,253)
Occupancy costs		(20, 107)	(15,788)
Other expenses from ordinary activities		(77, 177)
Profit/(Loss) from ordinary activities before income tax expense		823,323	(2,377,619)
Income tax expense relating to ordinary activities	4
Net profit/(loss)		823,323	(2,377,619)
Net movement in asset revaluation reserve	16		(891, 802)
Transfer from accumulated losses	17		891,802
Total changes in equity other than those resulting from
transactions with owners as owners		823,323	(2,377,619)
Basic earnings per share (cents per share)	7	0.035	(0.108)
Diluted earnings per share (cents per share)	7	0.029	(0.090)

The accompanying notes form part of these financial statements.

STATEMENT OF FINANCIAL POSITION as at 30 June 2004

	Note	2004	2003
		\$	\$
CURRENT ASSETS
Cash assets	8	491,773	727,314
Receivables	9	17,459	28,963
Other	10	10,568	4,362
Total Current Assets		519,800	760,639
NON-CURRENT ASSETS
Other financial assets	11	2,262,698	324,373
Property, plant and equipment	12	7,809	14,029
Exploration and evaluation expenditure	13	2,123,322	1,957,568
Total Non-Current Assets		4,393,829	2,295,970
TOTAL ASSETS		4,913,629	3,056,609
CURRENT LIABILITIES
Payables	14	14,794	24,107
Total Current Liabilities		14,794	24,107
TOTAL LIABILITIES		14,794	24,107
NET ASSETS		4,898,835	3,032,502
EQUITY
Contributed equity	15	5,741,350	4,698,340
Reserves	16	1,051,609	1,051,609
Accumulated losses	17	(1,894,124)	(2,717,447)
TOTAL EQUITY		4,898,835	3,032,502

The accompanying notes form part of these financial statements.

STATEMENT OF CASH FLOWS

for the year ended 30 June 2004

	Note	2004	2003
		\$	\$
CASH FLOWS FROM OPERATING ACTIVITIES
Payments to suppliers		(313,379)	(325,957)
Interest received		26,238	25,169
Net cash provided by/ (used in) operating activities	18	(287, 141)	(300,788)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment			(1,501)
Proceeds on sale of investments		57,909
Purchase of investments Net cash provided by/ (used in) investing activities		(6,309) 51,600	(373) (1,874)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares			58,369
Net cash provided by/ (used in) financing activities			58,369
Net increase/(decrease) in cash held		(235,541)	(244, 293)
Cash at beginning of year		727,314	971,607
Cash at end of year	8	491,773	727,314

The accompanying notes form part of these financial statements.

Notes to the Financial Statements for the year ended 30 June 2004

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

The financial report has been prepared on an accruals basis and is based on historical costs and does not take into account changing money values or, except where stated, current valuations of non-current assets. Cost is based on the fair values of the consideration given in exchange for assets. The accounting policies have been consistently applied, unless otherwise stated.

The following is a summary of the material accounting policies adopted by the company in the preparation of the financial report.

(a) Exploration and Evaluation Expenditure

Exploration and evaluation expenditure incurred is accumulated in respect of each identifiable area of interest. These costs are written off as incurred, except that they may be carried forward, provided that rights to tenure of an area of interest are correct and the costs are expected to be recouped through the successful development of the area, or sale, or activities in the area have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves.

Accumulated costs in relation to an abandoned area are written off in full against profit in the year in which the decision to abandon the area is made.

A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest.

Restoration Costs:

The company has no obligations for any restoration costs in relation to discontinued operations, nor is it liable for any future restoration costs in relation to current areas of interest, as the evaluation activity undertaken results in minimal disturbance to the areas in question. Consequently, no provision for restoration has been deemed necessary.

(b) Income Tax

The company adopts the liability method of tax-effect accounting whereby the income tax expense shown is based on the profit from ordinary activities adjusted for any permanent differences.

Timing differences which arise due to the different accounting periods in which items of revenue and expense are included in the determination of accounting profit and taxable income are brought to account as either a provision for deferred income tax or an asset described as future income tax benefit at the rate of income tax applicable to the period in which the benefit will be received or the liability will become payable.

Future income tax benefits are not brought to account unless realisation of the asset is assured beyond reasonable doubt. Future income tax benefits in relation to tax losses are not brought to account unless there is virtual certainty of realisation of the benefit.

The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the company will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.

(c) Cash

For the purpose of the statement of cash flows, cash includes:

• cash on hand and at call deposits with banks or financial institutions, net of bank overdrafts; and $(i)$
• $(ii)$ investments in money market instruments with less than 14 days to maturity.

Notes to the Financial Statements for the year ended 30 June 2004

Note 1: Summary of Significant Accounting Policies (continued)

(d) Revenue

Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets.

Dividend revenue is recognised when the right to receive a dividend has been established. Dividends received from associates are accounted for in accordance with the equity method of accounting.

Revenue from the rendering of a service is recognised upon the delivery of the service to the customers. All revenue is stated net of the amount of goods and services tax (GST).

(e) Property Plant and Equipment

Each class of property, plant and equipment are carried at cost or fair value, less where applicable, any accumulated depreciation.

Plant and Equipment

Plant and equipment are measured on the cost basis. The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows which will be received from the assets employment and subsequent disposal. The expected net cash flows have not been discounted to their present values in determining recoverable amounts.

Depreciation

The depreciable amount of all fixed assets including building and capitalised lease assets, but excluding freehold land, is depreciated over their useful lives commencing from the time the asset is held ready for use. Properties held for investment purposes are not subject to a depreciation charge.

Depreciation is calculated on the straight line basis so as to write off the net cost of each depreciable non-current asset over its expected useful life.

The depreciation rates used for each class of depreciable asset are:-

CLASS OF FIXED ASSET DEPRECIATION RATE

Leasehold improvements are amortised over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements.

20%

(f) Investments (Non-Current)

Plant and Equipment

Non-current investments are measured on the cost basis. The carrying amount of non-current investments is reviewed annually by directors to ensure it is not in excess of the recoverable amount of these investments. The recoverable amount is assessed from the quoted market value for listed investments or the underlying net assets for other non-listed investments.

The expected net cash flows from investments have not been discounted to their present value in determining the recoverable amounts.

(g) Comparative Figures

Where required by Accounting Standards, comparative figures have been adjusted to conform with changes in presentation for the current year.

Notes to the Financial Statements for the year ended 30 June 2004

Note 1: Summary of Significant Accounting Policies (continued)

(h) Foreign Currency Transactions and Balances

Foreign currency transactions during the year are converted to Australian currency at the rates of exchange applicable at the date of the transactions. Amounts receivable and payable in foreign currencies at balance date are converted at the rates of exchange ruling at that date.

The gains and losses from conversion of short-term assets and liabilities, whether realised or unrealised, are included in profit from ordinary activities as they arise.

(i) Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST.

(j) Adoption of Australian Equivalents to International Financial Reporting Standards

Australia is currently preparing for the introduction of International Financial Reporting Standards (IFRS) effective for financial years commencing 1 January 2005. This requires the production of accounting data for future comparative purposes at the beginning of the next financial year.

The economic entity's management, along with its auditors, will assess the significance of these changes and prepare for their implementation, so as to ensure a smooth transition to IFRS. We will seek to keep stakeholders informed as to the impact of these new standards as they are finalised.

The directors are of the opinion that most of the economic entity's accounting policies will not be affected by the adoption of IFRS, and that the main Australian Accounting Standard affecting exploration (AASB 1022 - Accounting for Extractive Industries) is likely to remain applicable.

ABN 49 079 471 980

Notes to the Financial Statements for the year ended 30 June 2004

	2004	2003
	\$	\$
NOTE 2: REVENUE FROM ORDINARY ACTIVITIES
Operating activities:
Interest received from other persons	26,999	25,169
Consulting geological services to external parties		59,000
Dividends - other corporations	16,184
	43,183	84,169
Other Ordinary Activities:
Proceeds from sale of non-current assets	1,024,093 1,067,276
Total revenue		84,169
NOTE 3: PROFIT/(LOSS) FROM ORDINARY ACTIVITIES
Profit/(Loss) from ordinary activities before income tax has been determined after:
Expenses
Exploration expenditure
Write-down of investment in non-current asset	77,177
Depreciation of non-current assets:
- plant and equipment	6,220	6,030
Foreign currency translation (gains)/losses	3,718	(530)
Write-down of capitalised exploration expenditure to recoverable
amount		1,133,055
Write-down of exploration expenditure carried at valuation to recoverable amount		1,160,000
NOTE 4: INCOME TAX EXPENSE/(BENEFIT)
Prima facie tax payable/(benefit) on profit/(loss) from ordinary activities
before tax income tax at 30% (2003: 30%).	246,997	(713, 286)
Add tax effect of:
Non-assessable items	(4,855)
Non-allowable items Write-down in recoverable amount of investment		13
Write-down on exploration and evaluation cost carried at valuation	23,153	348,000
Future income tax benefit of tax losses not brought to account		73,791
Tax benefit from use of tax losses carried forward	(215,570)
Less tax effect of:
Timing differences between income tax and accounting treatment of
exploration and other expenditure	(49,725)	291,482
Income tax expense attributable to profit/(loss) from ordinary activities
before income tax

The company has unrecouped, unconfirmed carry forward tax losses of approximately \$ 1,420,000 (2003: \$2,134,372).

ABN 49 079 471 980

Notes to the Financial Statements for the year ended 30 June 2004

2004	2003
Ф	э

12,000

12.000

NOTE 4: INCOME TAX EXPENSE/(BENEFIT) (continued)

The future income tax benefit of these carry forward losses has not been brought to account as realisation is not virtually certain. The benefit will only be realised if:

(a) the company derives future assessable income of a nature and of an amount sufficient to enable the benefits from the deductions for the losses to be realised;

(b) the company continues to comply with the conditions for deductibility imposed by the law; and

(c) no changes in tax legislation adversely affect the company in realising the benefit from the losses.

NOTE 5: REMUNERATION AND RETIREMENT BENEFITS

The names of directors who have held office during the financial year are: Kenneth J. Foots James G. Clavarino Peter J. Gilchrist Ross Johnston (Directors' details are set out in the Directors' Report)

a. Directors' Remuneration

Income paid or payable to all directors of the company by the entity and any related parties - director's fee of \$3,000 paid to each director.

b. Retirement and Superannuation Payments
Amounts of a prescribed benefit given during year by the company or a related party to director or a prescribed superannuation fund in a connection with the retirement from a prescribed office. (Apart from Directors' fees referred to above and matters disclosed under note 19, no other form of remuneration was paid or due to be paid to directors or executives.)
c. Specified Executive Remuneration
d. Remuneration Practices
The company has no performance-based remuneration scheme. Directors fees are approved by shareholders at the Annual General Meeting.
NOTE 6: AUDITORS' REMUNERATION

Remuneration of the auditor of the company for: - auditing or reviewing the financial report 5,750 5.250

Notes to the Financial Statements for the year ended 30 June 2004

	2004 \$	2003 \$
NOTE 7: EARNINGS PER SHARE
(a) The earnings figure used in the calculation of both the basic EPS and the diluted EPS are the same.	823,323	(2,377,619)
(b) Weighted average number of ordinary shares outstanding during the year used in the calculation of basic EPS	23,567,953	22.059.014
Weighted average number of options outstanding	4,561,444	4,431,364
Weighted average number of ordinary shares outstanding during the year used in the calculation of dilutive EPS	28,129,397	26,490,378

(c) Classification of Securities

Options to acquire ordinary shares in the company have been classified as potential ordinary shares and included in determination of dilutive EPS, although all expired on 30 June 2004..

NOTE 8: CASH ASSETS

Cash at bank	491,773	597,792
Cash deposits on tenements		129,522
	491,773	727,314
NOTE 9: RECEIVABLES
Current:
Other debtors	15,553	14,340
Foreign currency receivables
- Current assets not effectively hedged - Swedish Krone	1,906	14,623
	17,459	28,963
NOTE 10: OTHER ASSETS
Current:
Prepayments	10,568	4,362
NOTE 11: OTHER FINANCIAL ASSETS
Non-Current:
Unlisted investments, at cost
$-$ shares in other entities		269,373
- shares in director-related entities		55,000
		324,373
Listed investments, at recoverable amount
- Listed investments, at cost	2,339,875
- Less: Provision for writedown to recoverable amount	(77, 177)
	2,262,698	w.
	2,262,698	324,373

ABN 49 079 471 980

Notes to the Financial Statements for the year ended 30 June 2004

	2004 \$	2003 \$
NOTE 12: PROPERTY, PLANT AND EQUIPMENT
Plant and equipment
At cost	31,097	31,097
Accumulated depreciation	(23, 288)	(17,068)
Total Property, Plant and Equipment	7,809	14,029
Movement in carrying amount
Movement in the carrying amounts for each class of property, plant and	Plant and
equipment are set out below:	Equipment
Balance at the beginning of year	14,029
Additions
Disposals
Depreciation expense	(6,220)
Carrying amount at the end of year	7,809
NOTE 13: EXPLORATION AND EVALUATION EXPENDITURE
Exploration and evaluation costs carried forward in respect of areas of interest are:
- at cost (a)	623,322	457,568
- at directors' valuation 2004 (b)	1,500,000
- at directors' valuation 2001 (c)	2,123,322	1,500,000
Movement during the year in exploration and evaluation expenditure:		1,957,568
(a) At cost:
Opening balance	457,568	1,427,134
Capitalised exploration and evaluation expenditure	165,753	163,489
Write down of discontinued exploration tenements		(1,133,055)
Carrying amount at the end of year	623,321	457,568
(b) At directors' valuation 2004 :
Opening balance
Write down of discontinued exploration tenements
2001 valuation balances subject to 2004 valuation	1,500,000
Carrying amount at the end of year	1,500,000
(The Directors' valuation was based on a review of the 2001 valuation, which was supported by the independent valuation by Minnelex Pty
Ltd)
(c) At directors' valuation 2001 :
Opening balance	1,500,000	2,660,000
Write down of discontinued exploration tenements		(1,160,000)
Balances subject to 2004 valuation	(1,500,000)
Carrying amount at the end of year		1,500,000

ABN 49 079 471 980

Notes to the Financial Statements for the year ended 30 June 2004

NOTE 14: PAYABLES Current: Unsecured creditors: Sundry creditors and accrued expenses 14,794 24,107 14,794 24,107 NOTE 15: CONTRIBUTED EQUITY 25,608,795 (2003: 22,374,045) fully paid ordinary shares 5,741,350 4,698,340 Fully paid ordinary shares Balance at the beginning of the reporting period 4,698,340 4,639,971 Shares issued during the year for cash: - 583,687 on 13 January 2003 58,369 Share buyback of 230,250 shares on 22 December 2003 (13, 815) Shares issued during the year for acquisition of shares: - 3,465,000 on 19 February 2004 1,056,825 Balance at reporting date 5,741,350 4,698,340 No. No. 22,374,045 21,790,358 Balance at the beginning of the reporting period Shares issued during the year: - 22 December 2003 (buyback) (230, 250) (a) - 19 February 2004 3,465,000 (b) - 13 January 2003 583,687 (c) 25,608,795 22,374,045 Balance at reporting date		2004 \$	2003 \$

(a) On 22 December 2003, the company completed a buyback of 230,250 shares and 117,623 options as part of the sale of a dormant subsidiary.

(b) On 19 February 2004, the company issued 3,465,000 shares at \$0.305 each, as part of the acquisition of 3,465,000 shares in Diamonex Limited.

(c) On 13 January 2003, the company issued 583,697 shares at \$0.10 each as payment to geological consultants for work performed.

Ordinary shares participate in dividends and the proceeds on winding up of the entity in proportion to the number of shares held.

At shareholders' meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands.

Options

The 4,610,364 (2003: 4,610,364) options over unissued shares were not exercised on or before 30 June 2004 and have expired.

Notes to the Financial Statements for the year ended 30 June 2004

	2004	2003
	\$	\$
NOTE 16: RESERVES
Capital profits	4,997	4,997
Asset revaluation	1,046,612	1,046,612
	1,051,609	1,051,609
Asset Revaluation Reserve:
Opening Balance	1,046,612	1,938,414
Transfer to accumulated losses		(891, 802)
Closing Balance	1,046,612	1,046,612
NOTE 17: ACCUMULATED LOSSES
Accumulated loss at the beginning of the financial year	2,717,447	1,231,630
Net (profit)/loss	(823, 323)	2,377,619
Transfer from asset revaluation reserve		(891, 802)
Accumulated loss at the end of the financial year	1,894,124	2,717,447
NOTE 18: CASH FLOW INFORMATION
Reconciliation of Cash Flow from Operations with Profit/(loss) from Ordinary Activities after Income Tax:
Profit/(loss) from ordinary activities after income tax Non-cash flows in profit from ordinary activities:	823,323	(2,377,619)
Gain on disposal of investments	(1,024,093)
Depreciation	6,220	6,030
Write-down of capitalised exploration & evaluation expenditure		1,133,055
Exploration and evaluation expenditure capitalised	(165,753)	(163, 488)
Write-down of exploration & evaluation carried at valuation		1,160,000
Diminution in value of investment	77,177
Consulting services revenue satisfied through issue of shares		(59,000)
Changes in operating assets and liabilities:
Decrease/(Increase) in receivables	11,504	31,898
Decrease/(Increase) in prepayments	(6,206)	4,604
(Decrease)/Increase in trade creditors and accruals	(9,313)	(36, 268)
Cash flows from operations	(287, 141)	(300,788)

ABN 49 079 471 980

Notes to the Financial Statements for the year ended 30 June 2004

2004	2003
£	\$

NOTE 19: RELATED PARTY TRANSACTIONS

Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated.

Directors' transactions with the Company

Directors' remuneration is detailed in Note 5.

The company paid Argent Resources Pty Ltd, a company of which Mr J.G.. Clavarino is a director, fees for professional services in relation to exploration work undertaken on behalf of the company.

The company paid Trenlin Pty Ltd, a company of which Mr P.J. Gilchrist is a director, fees for professional services undertaken on behalf of the company.

During the year the entity rented office space to Oroplata Limited, a company of which Mr K J Foots, a director of the company, was also a director until May 2003.

During the year the entity rented office space to Diamonex Limited, a company of which Mr P J Gilchrist, a director of the company, was also a director until February 2004.

During the year the entity rented office space to Little Digger Mining Limited, a company of which Mr K J Foots, a director of the company, is also a director.

During the year the entity rented office space to 202 Ltd, a company of which Mr K J Foots and Mr PJ Gilchrist, directors of the company, are also directors.

During the previous year the entity provided consulting services to Diamonex Limited, a company of which Mr P J Gilchrist, a director of the company, was also a director until February 2004.

Directors' transactions in shares and options

No options were issued to director related entities during the year (2003: nil). No options held by director related entities were exercised during the year (2003: nil).

63,750	64,575
27,000	36,045
5,000	5,500
7,000	12,000
12,000	12,000
9,600	8,800
	50,000

ABN 49 079 471 980

Notes to the Financial Statements for the vear ended 30 June 2004

	ንጥሰ 2009	2003

NOTE 19: RELATED PARTY TRANSACTIONS (continued)

Directors' holding of shares and options

Directors and director-related entities hold directly, indirectly or beneficially as at the reporting date, the following equity interests in the company:

	No.	No.
Ordinary shares	6,209,835	2,234,604
Options over ordinary shares	nil	972,051
No shares were issued to directors during the year on terms more
favourable than those which it is reasonable to expect the entity would
have adopted if dealing in an arm's length transaction with an
unrelated party.
All options held by directors at the beginning of the year expired on 30
June 2004.

NOTE 20: CAPITAL AND LEASING COMMITMENTS

Operating Lease Commitment

Non-cancellable operating leases contracted for but not capitalised in the financial statements

Payable
not later than 1 year	-59.704	57,408
later than 1 year but not later than 5 years	154.236	200.928
later than 5 years		$\overline{\phantom{a}}$

The property lease is a non-cancellable lease with a 6 year term, with rent payable monthly in advance. Contingent rental provisions within the lease agreement require the minimum lease payments shall be increased by the greater of CPI or 4% per annum. The lease allows for subletting of all lease areas.

NOTE 21: INTERESTS IN JOINT VENTURES

The company holds no interests in joint ventures.

Notes to the Financial Statements for the year ended 30 June 2004

	2004	2003
		\$
NOTE 22: CONTINGENT LIABILITIES
Estimate of the maximum amount of contingent liability that may become payable:
Guarantee
The company has provided a guarantee to third parties in relation to obligations under its property lease rental
agreement.	34,406	34.406
NOTE 23: FINANCIAL INSTRUMENTS
a. Credit Risk

The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognised financial assets is the carrying amount, net of any provisions for doubtful debts of those assets, as disclosed in the statement of financial position and notes to the financial statements.

The company does not have any material credit risk exposure to any single debtor or group of debtors under financial instruments entered into by the company.

b. Net Fair Values

No financial assets or liabilities are readily traded on organised markets in a standardised form. Financial assets where the carrying amount exceeds net fair values have not been written down, as the company intends to hold these assets to maturity.

The aggregate net fair values and carrying amounts of financial assets and habilities are disclosed in the balance sheet and notes to the financial statements.

c. Interest Rate Risk

The company's exposure to interest rate risk, which is the risk that a financial instrument's value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on classes of financial assets and financial liabilities, is as follows:

	Weighted Average Effective Interest Rate		Floating Interest Rate		Non-Interest Bearing		Total
	2004	2003	2004	2003	2004	2003	2004	2003
	$\frac{0}{4}$	%	\$.	\$	\$	\$	s	\$
Financial Assets:
Cash	5.00	4.70	491,773	597,792		129,522	491,773	727,314
Receivables					17,459	28,963	17,459	28,963
Total Financial Assets			491,773	597,792	17,459	158,485	509,232	756,277
Financial Liabilities:
Trade and sundry creditors					14,794	24,107	14,794	24,107
Total Financial Liabilities					14,794	24,107	14,794	24,107

Notes to the Financial Statements for the year ended 30 June 2004

NOTE 24: SEGMENT REPORTING

The Company operates internationally in the mineral exploration industry. At balance date the company has been granted mineral tenements in Pakistan and Sweden.

Primary Reporting: Geographical Segments

	Australia		Sweden		Pakistan		Economic Entity
	2004	2003	2004	2003	2004	2003	2004	2003
	\$	\$	\$	\$	\$	\$	\$	\$
REVENUE
Dividends from other corporations	16.184	٠					16,184
Interest	26,999	25,169					26,999	25,169
Consulting services		59,000						59,000
Sale of non-current assets	1,024,093						1,024,093	$\overline{\phantom{a}}$
Total revenue from ordinary activities
RESULT	1,067,276	84.169					1,067,276	84,169
Profit/(Loss) from ordinary activities
before income tax expense	823,323	(84,564)		(2,067,059)		(225, 996)	823,323	(2,377,619)
Income tax expense
Profit/(Loss) from ordinary activities after
income tax expense	823,323	(84,564)		(2,067,059)		(225, 996)	823,323	(2,377,619)
ASSETS
Segment assets	2,789,634	932,614	233,846	233,846	1,890,149	1,890,149	4,913,629	3,056,609
LIABILITIES
Segment liabilities	14,794	24,107					14,794	24,107
OTHER
Acquisitions of non current Segment assets		(1,873)	(101, 212)	(118, 817)	(64, 541)	(44, 672)	(165,753)	(165, 362)
Depreciation of Segment assets
	4.451	4,263	1,769	1,767			6,220	6,030
Non-cash items other than depreciation	(950, 931)			2,067,059		225,996	(950, 931)	2,293,055

There were no transfers between segments reflected in the revenues, expenses or result above. The pricing of any intersegment transactions is based on market values.

Secondary Reporting: Business Segments

Business Segments	Segment Revenues from External Customers		Carrying Amount of Segment Assets		Acquisition of Non-Current Segment Assets
	2004	2003	2004	2003 £	2004	2003
		£			5
Mineral Exploration	1,067,276	84.169	4,913,629	3,056,609	(165,753)	(165, 362)

NOTE 25: COMPANY DETAILS

The registered office and principal place of business of the company is:

Lake Resources NL $\,$ Level 2 183 North Quay Brisbane Qld $4000\,$

Independent audit report to members of Lake Resources NL

Scope

The financial report and directors' responsibility

The financial report comprises the statement of financial position, statement of financial performance, statement of cash flows, accompanying notes to the financial statements, and the directors' declaration for Lake Resources NL (the company), for the year ended 30 June 2004.

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 conducted an independent audit in order to express an opinion to the members of the company. Our audit was conducted in accordance with Australian Auditing Standards in order to provide reasonable assurance as to 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 control, 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 assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001, including compliance with Accounting Standards and other mandatory financial reporting requirements in Australia, a view which is consistent with our understanding of the company's financial position, and of its performance as represented by the results of its operations and cash flows.

We formed our audit opinion on the basis of these procedures, which included:

• examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the financial report, and
• assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant accounting estimates made by the directors.

When this audit report is included in an Annual Report, our procedures include reading the other information in the Annual Report to determine whether it contains any material inconsistencies with the financial report.

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.

Independent audit report to members of Lake Resources NL (continued)

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 Lake Resources NL is in accordance with:

• a) the Corporations Act 2001, including:
• i. giving a true and fair view of the company's financial position as at 30 June 2004 and of its 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 financial reporting requirements in Australia.

hitertoon

Robertsons Chartered Accountants

Mr. Thomas

A W Thomas Partner

Brisbane Date: 22September 2004

ABN 49 079 471 980

ADDITIONAL INFORMATION FOR LISTED PUBLIC COMPANIES

The shareholder information set out below was applicable as at 2 September 2004.

$\mathbf{1}$ . Twenty Largest Shareholders

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

Ordinary Shares

Name	No of Ordinary Shares Held	Percentage of Issued Shares
Billiton Development Far East BV	2,745,669	10.72%
James Clavarino	938,850	3.66%
Trenlin Pty Limited	846,111	3.30%
Bushfly Air Charter Pty Ltd	795,000	3.10%
Kenneth John Foots	561,000	2.19%
Alexandra Marie Clavarino	500,000	1.95%
Kemkay Pty Ltd	444,960	1.73%
KJ & NA Foots	408,000	1.59%
Lake Gold Pty Ltd	400.000	1.56%
Peter John Gilchrist	395,004	1.54%
Ross Johnston	336,894	1.31%
Batel Pty Ltd	300,000	1.17%
Bedel & Sowa Corp Pty Ltd	300,000	1.17%
Colvic Pty Ltd	300,000	1.17%
Herb McRae	292,500	1.14%
James Clavarino	279,400	1.09%
Norma Agnes Foots	270,000	1.05%
Followsea Pty Ltd	268,750	1.04%
Rodney Lawrence Dawney	253,274	0.98%
Clarence James Stevens	250,000	0.97%
Total Top 20	10,885,412	$42.50\%$
Others	14,723,383	57.50%
Total Ordinary Shares on Issue	25,608,795	100.00%

$2.$ Distribution of equity securities

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

	Number of holders	Number of Shares held
$1 - 1,000$	5	2,556
$1,001 - 5,000$	75	230,627
5,001 - 10,000	203	1,809,174
10,001 - 100,000	304	9,388,346
100,001 - and over	42	14,178,092
	629	25,608,795

$(b)$ The number of holders of unmarketable parcels is 57.

3. Substantial Shareholders

The following details of substantial shareholders listed in the company's register at 2 September 2004 are:

Shareholder	Number of Shares
Billiton Development Far East B.V.	2,745,669

$4.$ Voting Rights

Each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting has one vote on a show of hands.

• 1. The name of the Company Secretary is Mr Peter Gilchrist.
• The address of the principal registered office in Australia is Level 2, 183 North Quay, Brisbane Qld 6. 4000. Telephone (07) 3220-0282.
• 1. Registers of securities are held at the following address:

ASX Perpetual Registrars GPO Box 2537 Brisbane Qld 4001

1. Stock Exchange Listing

Quotation has been granted for all of the ordinary shares of the company on all Member Exchanges of the Australian Stock Exchange Limited.

1. Restricted Securities

There are no restricted securities.

$10.$ Use of Cash and convertible assets

During the period from admission to the official list of the Australian Stock Exchange to 30 June 2004, the company has used cash and assets readily convertible to cash in a manner consistent with its business activities. The company is involved in mineral exploration, principally in Sweden and Pakistan.

11. Schedule of Tenements as at 30 June 2004

Sweden Tenements

Tenement				Number Area (sq km) Lake Interest Date of Grant Date of Expiry
Moskosel Nr $1$ nr $71/2002$		42.	100%	31/07/2002	30/07/2005
Simas Nr 2	nr 31/2002	85.	100%	28/03/2002	27/03/2005

Pakistan Tenements

Tenement	Number	Area (sq km)	Lake Interest	Date of Grant	Date of Expiry
Amalaf	$(1)/1059-69$	63	100%	20/03/2000	19/03/2006
Dasht-i-Gauran	(4)/1048-58	59	100%	20/03/2000	19/03/2006
Koh-i-Sultan	$(3)/1037-47$	121	100%	20/03/2000	19/03/2006

Lake Resources NL A RN 49 079 471 980

PROXY FORM

Registered Office: Level 2,183 North Quay, Brisbane, 4000 1/We .................................... $Of$ ....................................... . . . . . . . . . . . . . . . . . . . . being a member/members of Lake Resources NL hereby appoint: ....................................... οf . . . . . . . . . . . . . . . . . . . . ....................................... or in his/her absence, .................................... οf . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

or in his/her absence, the Chairman of the Meeting as my/our general/special proxy to vote on my/our behalf at the Annual General Meeting of the company to be held on Friday, 26 November, 2004 or at any adjournment of that meeting.

Signed this: day of 2004

Signature of Shareholder

Unless otherwise instructed the proxy will vote as he or she thinks fit, or abstain from voting. If the chairman is appointed proxy, he will vote all undirected proxies in favour of the resolutions. Should the member wish to direct the proxy how to vote, the following should be completed.

Agenda item No.:	FOR	ACAINST	ARSTAIN
1. Adoption of Financial Report
2. Election and appointment of Director - Re-election of Mr K Foots