PHOSLOCK ENVIRONMENTAL TECHNOLOGIES LIMITED — Management Reports 2012

May 16, 2012

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UPDATE FROM THE CHAIRMAN

May 2012

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Dear Shareholder,

I am pleased to report that, over the past four months, Phoslock Water Solutions has made significant headway into the global market for safe water treatment solutions. Following the US and Canadian drinking water accreditation received in November last year, opportunities for business worldwide have increased and our pipeline is growing.

Notably, earlier this year Phoslock secured and subsequently completed, a major contract in the United Kingdom involving the treatment of several well-known lakes in Hyde Park and Kensington Gardens in Central London – an excellent opportunity for worldwide exposure and a strong platform to launch our full-scale global commercialisation strategy for 2012.

I would like to take this opportunity to elaborate on our major achievements over the past four months.

United States and Canadian drinking water certification

Phoslock has been awarded US and Canadian drinking water certification, officially confirming that the product is safe to use in reservoirs whose water is used for human consumption. This certification provides managers and custodians of recreational and other water bodies with confidence that they can use the product safely.

The certification is awarded by the Water Quality Association. It is recognised as the international standard for the treatment of drinking water, ticking the box for consumer health and safety requirements. The certification, a gold seal, is now allowed to be shown on Phoslock product labels.

This benchmark recognition consolidates a strong selling point for Phoslock, not only in our US and Canadian sales drive, but worldwide.

Phoslock used in London parks

Phoslock Europe has been contracted by The Royal Parks, UK, to apply Phoslock to three well known water bodies within the city of London.

Importantly, the project included treatment of The Serpentine Lake – one of the world’s most famous lakes which is visited by millions of people each year. The application of Phoslock was aimed at reducing phosphorus and algal levels in the lake. It is part of a program of measures undertaken by The Royal Parks to improve water quality. The Serpentine is a haven to wildlife and a popular venue year round for swimming and leisure boating activities.

www.phoslock.com.au

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May 2012

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UPDATE FROM THE CHAIRMAN

In what has been our largest UK project to date, Phoslock was also applied to Round Pond and The Long Water – water bodies situated in the adjacent Kensington Gardens. All three locations receive phosphorus inputs from a range of sources which have the potential to cause blue green algal blooms.

The Royal Parks project is a landmark contract for Phoslock, adding to our growing international portfolio and positioning Phoslock as a global market leader in water treatment solutions. Involvement in the treatment of such high profile lakes will deliver unparalleled exposure to potential customers and investors in the UK and beyond. This major UK project significantly accelerates our global commercialisation strategy.

New website substantially upgrades information

I am pleased to inform you that the ‘new-look’ Phoslock website was recently launched. It is fresh, clean-cut and simple to navigate. It balances written information with images, video clips and case studies, as well as corporate information for investors.

The goal is to provide a useful tool to effectively communicate information. The new site has a tiered approach that breaks down information on Phoslock and the water industry for three different audiences – General, Professional and Scientific. Depending on the level of knowledge, users have the choice to access information and data which is most suited to their needs.

Furthermore, the lack of geographical boundaries associated with digital media enables our new website to also act as an effective channel to increase our marketing worldwide.

I encourage you to explore the new Phoslock website, and I look forward to your feedback.

The year ahead for Phoslock

Phoslock currently has over 50 projects in the pipeline worldwide. The pipeline is growing due to our commercialisation strategy focused on North America, Europe, the UK and of course, Australia. These particular geographic locations possess the most promising commercial opportunities. Importantly, the US and Canadian drinking water accreditation gives Phoslock a competitive edge for penetrating all geographic locations.

On behalf of Rob Schuitema, our Managing Director, and all the team at Phoslock, I look forward to providing you with updates on the progress of our projects and global sales drive as they materialise.

We are updating our email communication list and have included an application form for you to fill in and return in order to receive Phoslock communication without postal delay. Yours faithfully,

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Laurence Freedman, AM

Chairman

www.phoslock.com.au

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