REACH RESOURCES LIMITED — Annual Report 2004

Oct 26, 2004

Cervantes Seafood Limited ABN 79 097 982 235

2004 Annual Report

CORPORATE DIRECTORY

Directors

Barry MacKinnon Robert Grover Chen Hao William McSharer

Company Secretary

Anthony Ho

Share Registry

Computershare Investor Services Pty Ltd Level 2, Reserve Bank Building 45 St George's Terrace Perth, Western Australia 6000

Telephone:	$(08)$ 9323 2000
Facsimile:	$(08)$ 9323 2033

Registered Office

Principal Place of Business

467 Scarborough Beach Road

219-221 York Street Subiaco, Western Australia 6008

Telephone:	$(08)$ 9382 1311
Facsimile:	$(08)$ 9382 1322

Telephone: (08) 9446 6499 Facsimile: $(08)$ 9445 2257

Osborne Park, Western Australia 6017

Auditor

Hall Chadwick Australian Stock Exchange Limited Level 40, BankWest Tower Level 8, Exchange Plaza 108 St George's Terrace 2 The Esplanade Perth, Western Australia 6000 Perth, Western Australia 6000

ASX Code: CVS

Stock Exchange

CONTENTS $\ldots$

	Page
Corporate Directory	Inside Cover
Directors' Report	2
Corporate Governance Statement	7
Financial Statements	11
Directors' Declaration	27
Independent Audit Report	28
Shareholder Information	30

DIRECTORS' REPORT

The directors present their report together with the financial report of Cervantes Seafood Limited (the "Company") for the year ended 30 lune 2004 and the auditors' report thereon.

Directors

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

Mr Barry MacKinnon, AM, BEcon, FCPA, JP Non-Executive & Independent Chairman - appointed 28 August 2001

Mr MacKinnon has a wide range of experience in corporate finance and business management. He is currently the principal of an independent consulting organisation in Western Australia, which provides political and business advice to a wide range of clients in the private and public sectors and is a Fellow of the Australian Society of Certified Practising Accountants.

Mr Robert Grover, FAICD, C.D. Managing Director - Appointed 19 May 2004

Mr Grover is a business consultant with more than 25 years corporate management experience. He has held Board positions with a range of Australian and 'international public companies. Mr Grover formerly practiced as an Accountant and Company Secretary and is a Fellow of the Australian Institute of Company Directors.

Mr Chen Hao

Non - Executive Director - Appointed 19 August 2002

Mr Chen has over 20 years experience as a civil and marine engineer. He is the principal of a leading structural and marine engineering consultancy in Singapore. He has over six years experience operating an international seafood trading business, responsible for finances, sales and marketing, with a key emphasis on markets in China and Japan. Mr Chen is fluent in Mandarin and a number of Chinese dialects and has strong relationships with Cervantes Seafood's major buyers. Mr Chen has broad experience and specialist knowledge in key Asian seafood and marine markets. He holds a Masters degree in Science and is a member of the professional engineering institutions in the United Kingdom, United States, Australia, Singapore and Malaysia.

Mr William McSharer

Non-Executive & Independent Director - Appointed 17 March 2004

Mr McSharer has an extensive background in both commercial fishing and business management. He has been actively involved in the West Coast Rock Lobster fishery for 27 years. During this period Mr McSharer has provided advice to Ministerial advisory groups for policy development in accordance with numerous provisions of the Fisheries Resources Management Act. Holding representative appointments with both wild capture and aquaculture sectors of the lobster fishery industry, he was also inaugural Chairman of the Central and Coastal Districts Business Enterprise Centre responsible for fostering business development within the Mid West region of Western Australia. In 1995 Mr McSharer diversified his business interests to include the provision of electronic security solutions to various State judicial and custodial authorities.

Mr Paul Rengel

Non-Executive Director - Appointed 16 October 2003, Resigned 19 May 2004

Mr Lawrence West

Executive Director - Appointed 19 August 2002, Resigned 5 February 2004

Company Secretary

Mr Anthony Ho, BCom, CA Company Secretary - Appointed 28 August 2001

Mr Ho graduated in 1980 with a Bachelor of Commerce from the University of Western Australia. He qualified as a Chartered Accountant in 1983. Mr Ho is presently the principal of a public practice, providing financial and administrative services to listed companies.

DIRECTORS' REPORT (CONT'D)

Directors' Meetings

The number of directors' meetings and the number of meetings attended by each of the directors of the Company during the year ended 30 June 2004 are:

	Board Meetings
Director	Hall while director	Attended
Mr B MacKinnon	23	73
Mr R Grover
Mr C Hao	23	73
Mr W McSharer
Mr P Rengel	15	14
Mr L West	19	16

Principal Activity

The principal activity of the Company during the year ended 30 lune 2004 was the processing, marketing and distribution of premium seafood products.

Results

The Company incurred a loss of $2,733,441 after income tax for the year ended 30 June 2004 (2003: loss of $4,260,494).

Review of Operations

The financial result for the full year is considered disappointing, but was dominated by extensive provisions for writedowns in asset values and doubtful debts. These provisions aside, the operating result of the Company was a significant improvement on the previous year, reflecting a change in management and the combined operation of two business entities. The year included the following major occurrences:

• In October 2003, and pursuant to shareholder approval granted on 16 October 2003, the Company acquired the operations and assets of the lobster trading business of INF Pty Ltd by the issue of 57,527,778 fully paid ordinary shares at a deemed issue price of 9 cents per share. The acquisition of the INF business more than doubled the Company's catch-base per season to over 900 tonnes. This expansion of the Company's business improved the costs and operational structure of the Company. The expanded catch base has also helped improve the use of the Company's processing facilities which have a capacity of over 1,500 tonnes. INF's established marketing focus in Japan, Taiwan and Europe combined with the Company's established marketing focus in China, Taiwan, Hong Kong and the USA assisted in enhancing the marketing and pricing strategies of the Company. The Board considers the INF acquisition to have been a key strategy for growth and consolidation within the lobster export business, with the expanded catch base and working capital resource improving the Company's ability to retain existing boats and fishermen and at the same time, enhancing its control over this important supply factor.
• The Company commenced the 2003/04 fishing season having to service a combined fleet of 75 vessels and handled a total of 1,362,630kg of product. The introduction of contract fleet processing to the Company's operations, which was not undertaken in the previous year, resulted in the significant increase in the Company's gross trading revenue. It is unlikely that contract fleet processing will be undertaken next season.
• Tarana Corporation Pty Ltd, a company which contracted to supply lobster to Cervantes Seafood Ltd, failed to provide the contracted services and is now in liquidation, resulting in provisions against amounts owed to the Company. The Company has reserved its rights in relation to the liquidation.
• The strength of the Australian dollar against the US dollar and Japanese Yen adversely affected profit margins.
• The directors wrote down the carrying values of the Company's property, plant and equipment by approximately $1.06 million as part of an overall review of the Company's present position.

Dividends

No dividend has been declared or paid by the Company to the date of this report.

DIRECTORS' REPORT (CONT'D)

State of Affairs

Significant changes in the state of affairs of the Company during the financial year were:

• In October 2003, the Company acquired the operations and assets of the lobster trading business of INF Pty Ltd by the issue of 57,527,778 fully paid ordinary shares at a deemed issue price of 9 cents per share.
• In accordance with the Company's accounting policies, the directors wrote down the carrying values of the Company's property, plant and equipment by approximately $1.06 million.
• In July and August 2004, the Company allotted 900,000 ordinary fully paid shares as a means of recognising the long-standing effort and commitment of the Company's fishing fleet, the shares going to each of the eighteen fishing boats that have continued to support the Company over an extended period of time
• In June 2004, the Board resolved to appoint an Audit Committee to oversee the preparation of the Company's financial reporting requirements and maintenance of accounting and financial systems.

Events Subsequent to Balance Date

Subsequent to balance date:

• In August 2004, Tarana Corporation Pty Ltd ("Tarana"), a company with whom Cervantes Seafood Ltd has $(a)$ had commercial associations, appointed an Administrator under Section 436A of the Corporations Act. Subsequent to the appointment of the Administrator, a receiver was appointed to Tarana by its secured lender. Cervantes' contractual arrangements with Tarana are in respect of the supply of lobster and the management and operation of the Cervantes processing facility. The Company has acted to protect its rights in accordance with the provisions of the agreements.
• $(b)$ On 20 July 2004, the Company issued 850,000 fully paid ordinary shares to interests associated with seventeen fishing boats who had continued to support the Company over an extended period of time. The shares were granted for nil consideration.
• Following shareholder approval on 26 August 2004, 50,000 fully paid ordinary shares were issued to a $(c)$ nominee of Mr McSharer, Director, as a means of recognising the continued support of his fishing boat to the Company. The shares were granted for nil consideration, and followed the similar issue of shares in July 2004.
• $(d)$ In August 2004, shareholders approved the appointment of Hall Chadwick as auditor of the Company.
• $(e)$ In August 2004, the Company commenced recovery action in respect of non-payment of contract processing fees.

Other than the matters described above, there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors to affect significantly the operations of the Company, the results of those operations, or the state of affairs of the Company in future financial years.

Likely Developments

The Company is currently reviewing a number of capital-raising strategies and additional business opportunities in the seafood industry.

Further information about likely developments in the operations of the Company and the expected results of those operations in future financial years have not been included in this report because disclosure of such information would likely result in unreasonable prejudice to the Company.

DIRECTORS' REPORT (CONT'D)

Directors' and Senior Executives' Remuneration

The Board as a whole is responsible for considering remuneration policies and packages applicable both to Board members and senior executives of the Company. Broadly, the Company's remuneration policy is to ensure that any remuneration package properly reflects the person's duties and responsibilities and that it is competitive in attracting, retaining and motivating people of the highest quality.

Details of the nature and amount of each major element of the remuneration of each Director of the Company for the year are:

	Base remuneration(salary & fees) (1)ь
Directors
Non-executive
Mr B MacKinnon.	30,083
Mr W McSharer, appointed 17 March 2004	10,500
Mr P Rengel, resigned 19 May 2004	18,500
Mr L West, resigned 5 February 2004
Mr C Hao	21,136
Executive
Mr R Grover, appointed 19 May 2004 (2)	20.000
Executive officers (excluding directors)
Former
Mr R Grover (2)	110.000

• 1. No further elements of remuneration were paid to directors and executive officers during the year.
• 1. Mr Grover was appointed Managing Director of the Company on 19 May 2004. Prior to that time his role was as an executive officer. Separate identification has been made of remuneration amounts attributable to the part of the year during which Mr Grover was an executive officer.

No securities were issued to directors or executives of the Company during or since the end of the year as remuneration. The Company currently has no executive officers concerned in, or who take part in, the management of the Company.

Options

At the date of this report, unissued ordinary shares of the Company under option are:

Expiry Date	Exercise Price	Number of Options
31 August 2005	20 cents	40.486.111

None of the options were exercised during the year and all remain outstanding at 30 June 2004.

These options do not entitle the holder to participate in any share issue of the Company or any other entity.

DIRECTORS' REPORT (CONT'D)

Directors' Interests

The relevant interest of each Director in the shares and options issued by the Company at the date of this report is as follows:

The contractors.Director	Ordinary shares	Arresthe companyOptions
Mr B MacKinnon (1)	250,000	125,000
Mr R Grover
$MrC$ Hao (2)	4,480,189	2.240.095
Mr W McSharer (3)	296.250

• 1. 250,000 shares and 125,000 options held indirectly by Yrrab Nominees Pty Ltd, of which Mr MacKinnon is a director.
• 1. 591.627 shares and 295.814 options held indirectly by CH & Associates (WA) Pty Ltd, of which Mr Chen is a director. 3,888,562 shares and 1,944,281 options held indirectly by Madam Kheng Sing Lim, who is the former spouse of Mr Chen.
• 1. 296,250 shares held indirectly by Daylien Pty Ltd as trustee for the WB & JE McSharer Superannuation Fund, of which Mr McSharer is a beneficiary.

Indemnification and Insurance of Officers

Indemnification

The Company has agreed to indemnify certain current and former directors of the Company against all liabilities to another person (other than the Company or a related body corporate) that may arise from their position as directors of the Company, except where the liability arises out of conduct involving a lack of good faith.

The agreement stipulates that the Company will meet to the maximum extent permitted by law, the full amount of any such liabilities, including costs and expenses.

Insurance Premiums

As at the date of this report no insurance premiums have been paid, or agreed to be paid, for insurance against a current or former officer's liability for legal costs.

Dated at Perth, Western Australia this 30th day of September 2004.

Signed in accordance with a resolution of the directors:

ffrover-

Robert Grover Managing Director

This statement summarises the corporate governance practices adopted by the Board. Cervantes Seafood's objective is to achieve best practice in corporate governance, and the Company's officers and employees are committed to achieving this objective.

ASX Best Practice Recommendations

The ASX Listing Rules require listed companies to include in their Annual Report a statement disclosing the extent to which they have complied with the ASX Best Practice Recommendations in the reporting period. The recommendations are not prescriptive and if a company considers that a recommendation is inappropriate having regard to its particular circumstances, the company has the flexibility not to adopt it. Where the Company considered it was not appropriate to presently comply with a particular recommendation the reasons are set out in the latter part of this statement.

Board of Directors

Role of the Board

The Board's primary responsibility is to oversee the Company's business activities and management for the benefit of shareholders by:

• setting objectives, goals and strategic direction with management with a view to maximising shareholder value; ٠
• overseeing the financial position and monitoring the business and affairs of the Company:
• establishing corporate governance, ethical, environmental and health and safety standards;
• ensuring significant business risks are identified and appropriately managed; and
• ensuring the composition of the Board is appropriate, selecting directors for appointment to the Board and reviewing the performance of the Board and the contributions of individual directors.

The Board has delegated responsibilities and authorities to management to enable management to conduct the Company's day to day activities. Matters which are not covered by these delegations, such as approvals which exceed certain limits, require Board approval.

Board composition

The Board comprises four Directors including one executive Director.

The Directors are subject to election by shareholders. All Directors, apart from the Managing Director, are subject to reelection by rotation within every three years. The Company's Constitution provides that one-third of the Directors retire by rotation at each AGM. Those Directors who are retiring may submit themselves for re-election by shareholders, including any Director appointed to fill a casual vacancy since the date of the previous AGM. The composition of the Board is reviewed at least annually to ensure the balance of skills and experience is appropriate. The Directors have a broad range of qualifications, experience and expertise in the seafood and finance industry. The skills, experience and expertise of Directors are set out in the Directors' Report.

The names of the Directors in office at the date of this Report, the year they were first appointed, and their status as nonexecutive or executive Directors are set out in the Directors' Report.

Independence of non-executive directors

The Board considers an independent director to be a non-executive director who meets the criteria for independence included in the ASX Best Practice Recommendations. A majority of the Board of directors is not comprised of independent directors under this definition. However, each member of the Board is satisfied that whilst the Company may not comply with the best practice recommendations in this regard, the Board acts with independence and in accordance with the Statement of Corporate Governance.

Independent professional advice

The Board has adopted a formal policy on access to independent professional advice which provides that Directors are entitled to seek independent professional advice for the purposes of the proper performance of their duties. The advice is at the Company's expense, subject to the prior approval of the Chairman. Advice so obtained is to be made available to all Directors.

CORPORATE GOVERNANCE STATEMENT (CONT'D)

Meetings

The Board held 23 scheduled meetings during the reporting year and no unscheduled meetings were held during the year. Senior management attended and made presentations at the Board Meetings as considered appropriate and were available for questioning by Directors.

Board committees

Audit Committee

The Audit Committee assists the Board in discharging its responsibilities to ensure that the Company complies with appropriate and effective accounting, auditing, internal control, business risk management, compliance and reporting practices.

The main objectives of the Audit Committee include:

• supervising the engagement of the external auditor and monitoring their performance;
• reviewing the effectiveness of management information and other systems of internal control;
• reviewing all areas of significant financial risk and the arrangements in place to contain those to acceptable levels;
• reviewing significant transactions that are not a normal part of the Company's business;
• reviewing the year-end and interim financial information and ASX reporting statements;
• monitoring the internal controls and accounting compliance with the Corporations Act, ASX Listing Rules, external audit reports and ensuring prompt remedial action where required; and
• reviewing the Company's financial statements and accounting procedures.

The Audit Committee comprises three members, a majority of whom shall be non-executive Directors. The current members of the Audit Committee are:

• Mr Barry MacKinnon Non-Executive Director
• Mr William McSharer Non-Executive Director
• Mr Anthony Ho - Company Secretary

The Audit Committee meets at least twice a year and at any other time requested by a Board member, Company Secretary or external auditor. The external auditors are requested to attend at least twice a year and on other occasions where circumstances warrant. The number of meetings of the Audit Committee during the reporting period and the names of the attendance record are set out in the table below:

		Meetings
Name	Held	Attended
Mr W McSharer
Mr B MacKinnon
Mr A Ho
Mr R Grover

The Company's auditor is invited to attend the Annual General Meeting and the Company supports the principle of the auditor being available to answer questions on the conduct of the audit and the content of the audit report.

The Board has not formally constituted a nomination committee or remuneration committee. The whole Board conducts the functions that would be performed by these committees.

Evaluation of Board performance

During the reporting period an evaluation of the Board and key executive was carried out on an informal basis. As the activities of the Company develop, it will establish more formal evaluation procedures, including quantitative measures of performance.

CORPORATE GOVERNANCE STATEMENT (CONT'D)

Remuneration policies

Executive Directors and key executives are remunerated by way of a salary or consultancy fees, commensurate with their required level of services. Non-executive Directors receive a fixed monthly fee for their services. Non-executive Directors' fees are presently capped at $150,000 per annum.

Attendance at Board and Committee meetings

The attendance of Directors at Board meetings during the financial year ended 30 June 2004 is detailed in the Directors' Report.

Managing business risks and internal control framework

The Board acknowledges that it is responsible for the overall internal control framework, but recognizes that no costeffective internal control system will preclude all errors and irregularities. To assist in discharging this responsibility the Board has instigated an internal control framework that includes the following:

• Financial reporting there is a comprehensive budgeting and forecasting system with updates provided to the Board at each Board meeting. Periodic reports are provided to the Board. Quarterly, half yearly and annual reports are prepared in accordance with the Corporations Act and ASX Listing Rules.
• The Managing Director is required to confirm in writing that the Company's financial reports present a true and fair view, in all material respects, of the Company's financial condition and operational results are in accordance with relevant accounting standards.
• The Company has written policies covering health, safety and the environment.

Ethical standards

The Board is committed to promoting the practice of high ethical standards. All directors and employees are expected to act with the utmost integrity and objectivity striving at all times to enhance the reputation and performance of the Company, in the following areas:

• professional conduct;
• dealings with suppliers, advisers and regulators;
• dealings with the community; and
• dealings with other employees.

Trading in the Company's securities by directors and employees

The Board has adopted a policy in relation to dealings in the securities of the Company which applies to all Directors and employees. Under the policy, Directors are prohibited from short term trading in the Company's securities whilst in possession of price sensitive information. The Chairman (or in the case of the Chairman, the Managing Director) must be notified of any proposed transaction and must give clearance for the transaction to proceed.

Privacy

The Company has resolved to comply with the National Privacy Principles contained in the Privacy Act 1988, to the extent required for a company the size and nature of Cervantes Seafood Limited.

Information disclosure

The Board is committed to the promotion of investor confidence by ensuring that trading in the Company's securities takes place in an efficient, competitive and informed market. In accordance with the continuous disclosure requirements under the ASX Listing Rules, the Company has procedures in place to ensure that all price sensitive information is identified, reviewed by management and disclosed to the ASX in a timely manner and that all information provided to the ASX becomes available to shareholders and the market on the Company's website.

From time to time, briefings with major shareholders are conducted in order to promote a better understanding of the Company. In conducting briefings, the Company takes care to ensure that any price sensitive information included in the content of briefings has already been made available to all shareholders and the market.

Shareholders

The Board aims to ensure that shareholders are kept informed of all major developments affecting the Company. Information will be communicated to shareholders through:

• continuous disclosure in the form of public announcements on ASX;
• annual and quarterly reports to shareholders;
• investor briefings;
• the Chairman's address delivered at the Annual General Meeting; and
• notices of all meetings of shareholders and explanatory notes of proposed resolutions.

In addition, information for shareholders is available on Cervantes Seafood's website; www. cervantesseafood.com.au. including recent announcements, presentations, past and current reports to shareholders, biographical information on Directors and information relating to operations.

Shareholders are encouraged at annual general meetings to ask questions of Directors and senior management and also the Company's external auditors, who are required to be in attendance.

Retirement benefits for non-executive directors

The Company does not have any scheme relating to retirement benefits for non-executive Directors.

ASX Guidelines on Corporate Governance

Pursuant to ASX Listing Rules the Company must provide a statement disclosing the extent to which the ASX best practice recommendations have not been followed in the reporting period. The Company sets out below an explanation of the areas where Cervantes Seafood does not presently comply with ASX best practice recommendations.

Composition of the Board

A majority of the Board of directors is not comprised of independent directors under the ASX definition of independent. The Company does not consider it appropriate nor cost effective to adopt this recommendation.

Each individual member of the Board is satisfied that whilst the Company may not comply with this particular best practice recommendation, the Board as a whole acts with independence and in accordance with the Statement of Corporate Governance.

Website

The ASX guidelines also prescribe that the Company should maintain a dedicated corporate governance information section on its website. Such a dedicated information section is not presently available on the Company's website, although the annual financial report will be posted to the website and the Statement of Corporate Governance can be viewed there.

Board committees

The Company does not presently have a separate nomination or remuneration committee. The Board considers that at this stage, no efficiencies or other benefits would be gained by establishing separate committees. The duties of such committees have been considered and adopted by the Board. Should it be considered beneficial, the Board will consult persons with relevant industry and financial experience when considering the requirements of such committees.

STATEMENT OF FINANCIAL PERFORMANCE

for the year ended 30 June 2004

	Note	2004$	2003$
Revenue from sale of goods		32,371,617	9,267,416
Other income		64,966	33,361
Total revenue	$\overline{c}$	32,436,583	9,300,777
Cost of goods sold		(28, 902, 350)	(10,698,805)
Operational and marketing expenses		(2,018,080)	(1,272,628)
Property, plant and equipment written off		(1,065,216)
Doubtful debts written off		(826, 291)
Administrative expenses		(1,730,786)	(692, 626)
Depreciation and amortisation expenses		(494, 797)	(305,026)
Borrowing costs		(126, 631)	(49, 188)
Goodwill written off		(5,873)	(542,998)
Loss from ordinary activities before related income tax benefit	3	(2,733,441)	(4,260,494)
Income tax benefit relating to ordinary activities	4
Loss from ordinary activities after related income tax benefit	16	(2,733,441)	(4,260,494)
Basic loss per share
Ordinary shares	21	$(2.73$ cents)	$(9.04 \text{ cents})$

The Company's potential ordinary shares are not considered dilutive and accordingly diluted earnings per share is not disclosed for this reason.

This statement of financial performance is to be read in conjunction with the accompanying notes.

---

STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2004

	Note	2004$	2003$
CURRENT ASSETS
Cash assetsReceivablesInventoriesOther	56711	410,108451,9271,096,51178,384	162,819270,952732,023291,630
Total Current Assets		2,036,930	1,457,424
NON CURRENT ASSETS
Property, plant & equipmentOther financial assetsIntangible assets	8910	3,094,2133,3961,101,447	1,457,577
Total Non Current Assets		4,199,056	1,457,577
TOTAL ASSETS		6,235,986	2,915,001
CURRENT LIABILITIES
PayablesInterest bearing liabilitiesProvisions	121314	1,329,661499,78468,306	756,797180,779
Total Current Liabilities		1,897,751	937,576
NON CURRENT LIABILITIES
Interest bearing liabilities	13	700,324	783,574
Total Non Current Liabilities		700,324	783,574
TOTAL LIABILITIES		2,598,075	1,721,150
NET ASSETS		3,637,911	1,193,851
EQUITY
Contributed equityAccumulated losses	1516	10,633,869(6,995,958)	5,456,368(4,262,517)
TOTAL EQUITY		3,637,911	1,193,851

This statement of financial position is to be read in conjunction with the accompanying notes.

		2004	2003
	Note	Š	$
Cash flows from operating activities
Cash receipts in the course of operations		31,545,010	9,232,882
Cash payments in the course of operations		(31,493,364)	(13, 158, 021)
Interest received		4,279	4,009
Interest paid		(126, 631)	(26,317)
Net cash used in operating activities	20	(70, 706)	(3,947,447)
Cash flows from investing activities
Payments for plant and equipment		(223, 392)	(1,178,801)
Payments for goodwill			(626, 800)
Payments for intangibles		(351,200)
Cash acquired through INF acquisition		658,332
Loans to other entities		(53,500)52,000
Loans repaid by other entities
Net cash used in investing activities		82,240	(1,805,601)
Cash flows from financing activities
Proceeds from issue of securities			5,751,817
Transaction costs from issue of securities			(755, 226)
Proceeds from borrowings		1,500,108	1,603,990
Repayment of borrowings		(1,264,353)	(808, 637)
Net cash provided by financing activities		235,755	5,791,944
NET INCREASE IN CASH HELD		247,289	38,896
Cash at the beginning of the financial year		162,819	123,923
Cash at the end of the financial year	20	410,108	162,819

This statement of cashflows is to be read in conjunction with the accompanying notes.

1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies which have been adopted in the preparation of this financial report are:

(a) Going Concern

These financial statements have been prepared on the going concern basis of accounting, which assumes that the Company will be able to meet its commitments, realize its assets and discharge its liabilities in the ordinary course of business.

The ability of the Company to continue as a going concern is dependent upon the availability of adequate funding for future activities. The Company is presently reviewing and preparing for a capital raising to augment its working capital. The directors consider that the preparation of financial statements on the going concern basis is appropriate and that there are reasonable grounds to believe that the Company will continue to source additional funding, if required, to meet its short to medium term funding requirements.

(b) Basis of Preparation

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

It has been prepared on the basis of historical costs and except where stated, does not take into account changing money values or fair values of non-current assets.

Cervantes Seafood Limited is a listed company, incorporated and domiciled in Australia.

(c) Revenue recognition

Sale of goods

Sales revenue comprises revenue earned (net of the amount of goods and services tax (GST), returns, discounts and allowances) from the provision of products to non-related entities. Sales revenue is recognised when the control of goods passes to the customer.

Interest income

Interest income is recognised as it accrues.

(d) Income tax

The Company adopts the income statement liability method of tax effect accounting.

Income tax expense is calculated on operating profit adjusted for permanent differences between taxable and accounting income. The tax effect of timing differences, which arise from items being brought to account in different periods for income tax and accounting purposes, is carried forward in the statement of financial position as a future income tax benefit or a provision for deferred income tax.

Future income tax benefits are not brought to account unless realisation of the asset is assured beyond reasonable doubt. Future income tax benefits relating to entities with tax losses are only brought to account when their realisation is virtually certain. The tax effect of capital losses is not recorded unless realisation is virtually certain.

(e) Plant and Equipment

Plant and equipment are carried at cost less accumulated depreciation. All assets are depreciated over their estimated useful lives using both prime cost and reducing balance methods.

The expected useful lives are as follows:

Computer equipment	$3 - 5$ years
Motor vehicles	$5 - 7$ years
Plant and equipment-	5 - 15 years

NOTES TO THE FINANCIAL STATEMENTS (CONT'D) for the year ended 30 June 2004

(f) Leases

Where assets are acquired by means of finance leases, the present value of minimum lease payments is estimated as an asset at the beginning of the lease term, and amortised on a straight-line basis over the expected economic life. A corresponding liability is also established and each lease payment is allocated between such liability and interest expense. Payments made in respect of operating leases are charged against profits in equal instalments over the accounting periods covered by the lease term.

(g) Receivables

Trade accounts receivable, amounts due from related parties and other receivables represent the principal amounts due at balance date plus accrued interest less, where applicable, any unearned income and provision for doubtful accounts.

(h) Inventories

Raw materials, stores and finished goods are carried at the lower of cost allocated and net realizable value. Cost includes direct materials, direct labour, other direct variable costs and an allocation of overheads necessary to bring inventories to their present location and condition.

(i) Goodwill

Purchased goodwill is capitalized to the extent it is expected beyond any reasonable doubt to be recoverable. Purchased goodwill is to be amortised from the commencement of commercial operations on a straight-line basis over a maximum period of five vears. The unamortized balance is reviewed at least annually and where the balance exceeds the value of expected benefits, the difference is to be charged to the statement of financial performance.

(j) Payables

Liabilities are recognised for amounts to be paid in the future for goods or services received, whether or not billed to the Company. Trade accounts payable are normally settled within 60 days.

(k) Recoverable Amount of Non Current Assets

The carrying amount of non-current assets are reviewed annually by Directors to ensure they are not in excess of the recoverable amounts from those assets. The recoverable amount is assessed on the basis of the market values or expected net cash flows which will be received from the assets employed and subsequent disposal. The expected net cash flows are not discounted to present values in determining recoverable amounts.

For discussion on the impact of adopting Australian equivalents to International Financial Reporting Standards, refer to Note 25.

		2004$	2003$
2.	REVENUE FROM ORDINARY ACTIVITIES
	Sale of goods revenue from operating activities	32,371,617	9,267,416
	Other revenues:
	Interest income	4.279	33.361
	Dividends	108
	Proceeds from government grant	60,579
	Total revenue from ordinary activities	32,436,583	9,300,777

NOTES TO THE FINANCIAL STATEMENTS (CONT'D) for the year ended 30 June 2004

3.	LOSSFROMORDINARYACTIVITIESBEFORE	2004$	2003£
	INCOME TAX BENEFIT
$\left( a\right)$	The operating loss before income tax has been determinedafter charging the following items:
	Depreciation of:Plant and equipmentAmortisation of:	445,044	221,224
	Goodwill$\overline{a}$	49,753	83,802
	Total depreciation and amortisation	494,797	305,026
	Goodwill written off	5,873	542,998
	Interest expense	126,631	40,688
	Provision for doubtful debts	826,291
	Write-down in value of property, plant and equipment	1,065,216
(b)	Auditors' remuneration
	Amounts received or due and receivable by the auditors for:Hall Chadwick
	Auditing the accountsOther services	30,000
		30,000
	Stanton Partners
	Auditing the accounts	17,329	20,100
	Other services	1,85919,188	13,87733,977
4.	TAXATION
	Income tax benefit
	Prima facie income tax benefit calculated at 30% on the operatingloss from ordinary activities	820,033	1,278,148
	Decrease in income tax benefit due to:
	- non deductible expenses- amortisation of goodwill- goodwill written off	(8,598)(14, 926)(1,762)	(10, 132)(25, 141)(162, 899)
	Future income tax benefit not brought to account	(794, 747)	(1,079,976)
	Income tax benefit attributable to loss

Estimated future income tax benefits attributable to tax losses carried forward net of timing differences (calculated at the rate of 30%) amounting to approximately $1.9 million (2003: $1.1 million) have not been brought to account at 30 June 2004 because the Directors do not regard realisation of the future income tax benefits as virtually certain. These benefits will only be obtained if:

• $(i)$ the Company derives future assessable income of a nature and an amount sufficient to enable the benefit to be realised;
• (ii) the Company complies with the conditions for deductibility imposed by law; and
• (iii) no changes in tax legislation adversely affect the Company in realising the benefit.

for the year ended 30 June 2004

		2004$	2003$
5.	CASH ASSETS
	Cash at bank and on hand	410.108	162,819
6.	RECEIVABLES
	Trade debtors	999,977	34,534
	Less: Provision for doubtful trade debtors	(556,180)
		443,797	34,534
	Other debtors (Note A)	278,241	236,418
	Provision for non-recovery	(270, 111)
		8,130	236,418
		451,927	270,952

Note A: Included in Other debtors is an amount of $270,111 (2003: $166,747) owing by Tarana Pty Ltd, the recovery of which has been fully provided for (refer Note 17 for further details).

$\overline{7}$ . INVENTORIES

Seafood inventories, at cost	826.717	631.743
Bait and other consumables, at cost	269.794	100.280
	1.096.511	732.023

PROPERTY, PLANT & EQUIPMENT 8.

Land and buildings, at costLess: Accumulated depreciation	1,887,336(17, 831)
	1,869,505
Plant and equipment, at costLess: Accumulated depreciation	2,409,106(1,520,112)	1,382,207(184, 143)
	888,994	1,198,064
Motor Vehicles, at costLess: Accumulated depreciation	462,387(172,973)	248,949(30,632)
	289,414	218,317
Office furniture and equipment, at costLess: Accumulated depreciation	66,868(20.568)	47,645(6.449)
	46,300	41.196
Total property, plant and equipment	3,094,213	1,457,577

NOTES TO THE FINANCIAL STATEMENTS (CONT'D)for the year ended 30 June 2004

8.PROPERTY, PLANT & EQUIPMENT (cont'd)	2004$	2003$
Reconciliations
Reconciliations of the carrying amounts for each class ofproperty, plant and equipment are set out below:
Land and buildings
Balance at beginning of yearAdditionsDepreciationRecoverable amount write-down	1,887,336(5,604)(12, 227)
Balance at end of year	1,869,505
Plant and equipment
Balance at beginning of yearAdditionsDepreciationRecoverable amount write-down	1,198,0641,026,899(352,980)(982, 989)	1,382,207(184, 143)
Balance at end of year	888,994	1,198,064
Motor Vehicles
Balance at beginning of yearAdditionsDepreciationRecoverable amount write-down	218,317213,438(72, 341)(70,000)	248,949(30,632)
Balance at end of year	289,414	218,317
Office furniture and equipment
Balance at beginning of yearAdditionsDepreciationTransfers from leased plant and equipment/leasehold improvementsBalance at end of year	19,223(14, 119)41,19646,300
Leasehold improvements
Balance at beginning of yearAdditionsAmortisationTransfer to office furniture and equipment	2,142(2, 142)	2,338(196)
Balance at end of year		2,142
Leased plant and equipment
Balance at beginning of yearAdditionsAmortisationTransfer to office furniture and equipment	39,054(39,054)	45,307(6,253)
Balance at end of year		39,054

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

000000000000000000

for the year ended 30 June 2004

	2004	2004£
-9.OTHER FINANCIAL ASSETS
Securities in listed entity – at cost [Note $9(a)$ ]	3.396	٠

Cervantes Seafood Ltd currently holds 1,957 [2003: nil] ordinary fully paid shares in AXA Note $9(a)$ : Asia Pacific Holdings Limited (ABN 78 069 123 011). The investment is carried at cost, which was less than the market value of the securities as at 30 June 2004.

INTANGIBLE ASSETS 10.

800.000
440.876	626,800
(139, 429)	(83, 802)
	(542,998)
1.101.447

OTHER CURRENT ASSETS 11.

Prepayments	78.384	291.630

12. PAYABLES

Trade creditors	912.782	340.438
Other creditors and accruals	416.879	416.359
	1,329,661	756.797

INTEREST BEARING LIABILITIES $13.$

Current
Bank loans – secured (Note $13(a)$ )Lease liabilities	499,784	174,3206,459
	499.784	180.779
Non-current
Bank loans – secured (Note $13(a)$ )Lease liabilities	700.324	770,55813,016
	700.324	783.574

Note 13(a):

The interest-bearing loans are secured by way of a registered goods mortgage over the financed assets, as well as a registered mortgage debenture over the whole of the assets and undertakings of the Company, a registered mortgage over the Company's Osborne Park property and a general mortgage over eight craypots.

The liability comprises two loans: a five-year equipment loan at a fixed interest rate of 7.75%, of which $900,108 remains owing at balance date, and a bill acceptance facility of $300,000 at the bank's Lending Indicator Rate plus a 2% margin per annum. The bill acceptance facility was repaid in July 2004.

PROVISIONS 14.

Employee entitlements	68.306
Number of employees	Number	Number
Number of employees at the end of the year

15.CONTRIBUTED EQUITY	2004$		2003$
Issued and paid-up capital
121,111,112 [2003: 63,583,334] fully paid ordinary shares	10,633,869		5,456,368
The following movements in contributed equity occurred during the year:
	Number of OrdinaryFully Paid Shares		Issued Capital$
	2004	2004	2003
Balance at beginning of year	63.583.334	5,456,368
• Issue of shares to acquire INF assets at deemedvalue of 9 cents each on 11 November 2003	57.527,7	5,177,501
· Issue of promoter shares for cash at 0.01 centseach on 15 August 2002	18.166.666		1,817
$\bullet$ Issue of shares for cash at 15 cents each on 20September 2002	7.950.000		1,192,500
• Issue of shares for cash at 15 cents each on 30October 2002	18,716,667		2,807,500
• Issue of shares to acquire assets at 5 cents eachon 31 October 2002	10.000.000		500,000
• Issue of shares for cash at 20 cents each on 31October 2002	8.750.000		1,750,000
• Transaction costs arising from issues of shares			(795,449)
Balance at end of year	121,111,11263,583,334	10,633,869	5,456,368

Terms and conditions

Holders of ordinary shares are entitled to one vote per share at shareholders' meetings. In the event of winding up of the Company, ordinary shareholders rank after creditors and are entitled to any proceeds of liquidation.

Options

The following options to subscribe for ordinary fully paid shares are outstanding at balance date:

• 40,486,111 quoted options exercisable at 20 cents each on or before 31 August 2005.

No options were granted or exercised in the financial year and no options expired during the year.

	2004s	2003$
16.ACCUMULATED LOSSES
Accumulated losses at the beginning of the year	(4,262,517)	(2,023)
Loss for the year	(2,733,441)	(4,260,494)
Accumulated losses at the end of the year	(6.995.958)	(4,262,517)

17. DIRECTOR AND EXECUTIVE DISCLOSURES

Remuneration of specified directors and specified executives by the Company

Executive directors and key executives are remunerated by way of a salary or consultancy fees, commensurate with their required level of services. Non-executive directors receive a fixed monthly fee for their services. Total remuneration for all non-executive directors, last voted upon by shareholders at the general meeting of members held on 26 August 2004, is not to exceed $150,000 per annum.

The Board has not formally constituted a nomination committee or remuneration committee. The whole Board conducts the functions of a nomination committee and remuneration committee.

The Company does not have any scheme relating to retirement benefits for non-executive Directors.

NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

for the year ended 30 June 2004

17. DIRECTOR AND EXECUTIVE DISCLOSURES (CONT'D)

The following table provides the details of all directors of the Company ("specified directors") and the executives with the greatest authority ("specified executives") and the nature and amount of the elements of their remuneration for the vear ended 30 June 2004.

				Primary benefits
			Salary and fees
		Note	$2004$ . The set of $\sim$	2003
Specified directors
Non-executive
Mr B MacKinnon	(Chairman – appointed 28/08/01)	(a)	30,083	15 A H
Mr W McSharer	(appointed 17/03/04)	(b)	- 10.500
Mr P Rengel	(appointed 16/10/03; resigned 19/05/04)	$\left( c\right)$	I8.50
Mr L West	(appointed 19/08/02; resigned 05/02/04)
Mr C Hao	(appointed 19/08/02)	(e)
Executive
Mr R Grover (1)	(appointed $19/05/04$ )	(d)	20,000
Total			100.219	15.000
Specified executives
Mr R Grover (1)		(d)	110,000
Total			110,000

(a) Fees for Mr MacKinnon's services are paid to a director-related entity, Yrrab Nominees Pty Ltd;

(b) Fees for Mr McSharer's services are paid to a director-related entity, Daylien Pty Ltd;

(c) Fees for Mr Rengel's services were paid to a director-related entity, Moore Stephens BG;

(d) Fees for Mr Grover's services are paid to a director-related entity, Pacific Finance & Securities Pty Ltd. Mr Grover was appointed Managing Director of the Company on 19 May 2004. Prior to that date, his role was as an executive officer. Separate identification is made of remuneration amounts attributable to the part of the year during which Mr Grover was an executive officer.

(e) Fees for Mr Hao's services are paid to a director-related entity, Engineers 2002 (PTE).

Security holdings and transactions

The movement during the reporting period in the number of securities held, directly, indirectly or beneficially by each specified director and specified executive, including their personally-related entities, is as follows:

Ordinary fully paid shares

	Held at	Held at dateοt	The Magnesia of the Chinese and		Held atdate of	Held at
	1 July 2003	appointment	Purchases	Sales	resignation	30 June 2004
Specified directors
Mr B MacKinnon	250,000	N/A			- N/A	250,000
Mr R Grover	$\sim N/A$				$\equiv$ N/A
Mr C Hao	4,480,189	N/A			$\mathbb{N}/A$ .	4,480,189
Mr W McSharer	$\sim$ - N/A $\sim$		246.250		– N/A	246,250
Mr P Rengel	$\sim$ $\sim$ N/A					N/A
Mr L West	-3,967,388	n/a			- 3,967,388	N/A

Options exercisable at $0.20 on or before 31 August 2005

	- Held at1 July 2003	Held at dateοtappointment	Exercised	Otherchanges	Held at$\therefore$ date of $\therefore$resignation	Held at30 June 2004
Specified directors
Mr B MacKinnon	$-125,000$	N/A			$\sim$ N/A $_{\odot}$	125,000
Mr R Grover	N/A				$\sim$ N/A $\sim$
Mr C Hao	2,240,095	N/A			$\sim$ N/A	2,240,095
Mr W McSharer	$\sim$ N/A $\sim$
Mr P Rengel	N/A					N/A
Mr L West	2,576,749	N/A			2,576,749	N/A

NOTES TO THE FINANCIAL STATEMENTS (CONT'D) for the year ended 30 June 2004

17. DIRECTOR AND EXECUTIVE DISCLOSURES (cont'd)

Other transactions with the Company

Other transactions between specified directors and executives and the Company during the year were as follows:

• By an agreement dated 20 September 2002, Tarana Corporation Pty Ltd ("Tarana"), a company associated with (i) Messrs Hao and West, was engaged as the exclusive operator and manager of the Company's processing facility at Cervantes. At 30 June 2003, $77,950 had been paid as prepaid fees under the agreement with an 18% discount to the gross fees amount. The services for which the prepayment was made were not provided during the financial year, resulting in amounts owed to the Company by Tarana.
• $(ii)$ At 30 June 2003, $202,950 had been paid as prepaid lease rentals for a lobster processing plant and certain other premises required for operations pursuant to a lease agreement entered into with Tarana. The amount represented an 18% discount to the gross lease rental amount. The services for which the prepayment was made were not fully provided during the financial year, resulting in amounts owed to the Company by Tarana.
• Mr Hao conducted trading activities on behalf of the Company in the previous financial year in relation to $(iii)$ quantities of ribbon fish and cuttle fish through a foreign entity. Amounts owing in relation to the trading floats for those commodities totalling $96,136 were offset in the current financial year against other expenses incurred on the Company's behalf by Mr Hao.
• $(iv)$ Accounting services totalling $57,450 were provided by Moore Stephens BG, an entity associated with Mr Rengel. The terms and conditions of the transactions were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to unrelated entities on an arm's length basis.
• Mr West was provided with rent-free accommodation during the year in premises leased by the Company from a $(v)$ third party. The total lease payments applicable during Mr West's residency amounted to $14,300.
• Mr West negotiated discounted pot leases for boats fishing for the Company in which he had an interest. The $(vi)$ discounted amounts relating to these pot leases totalled approximately $20,000.
• A provision of $84,103 has been made against amounts owed by Messrs Hao and West from the 2002/03 year $(vii)$ arising from arrangements entered into in respect of two fishing boats of which they were part owners.
• A security company associated with Mr McSharer provided services to the Company during the year totalling (viii) $3,850. The terms and conditions of the transactions were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to unrelated entities on an arm's length basis.
• Mr McSharer has an interest in a boat that fished for the Company during the year. The arrangements were entered $(ix)$ into prior to Mr McSharer's appointment as a director, and were on terms and conditions comparable with all other boats in the fleet.

2004	2003
	m۰P

COMMITMENTS 18.

(a) Operating lease commitments

Future operating lease rentals not provided for in the financial statements and payable:

Not later than one year	2.695	292.620
Later than one vear but not later than five vears	$\overline{\phantom{a}}$	930.055
	2.695	1.222.675

The Company had agreements with Tarana Corporation Pty Ltd ("Tarana") involving the operation and management of the Company's processing facility at Cervantes and the supply of lobster, together with the leasing of certain premises. Following the appointment of a receiver to Tarana, the Company has sought legal advice and has reserved its rights in relation to those agreements. See Note 23.

(b) Finance lease payment commitments
Finance lease commitments are payable as follows:
Within one year	-	8,157
Later than one year but not later than five years		14,275
		22,432
Less future finance charges		(2,957)
		19,475
Lease liabilities provided for in the financial statements:
Current (refer Note 13)		6.459
Non-current (refer Note 13)		13,016
Total lease liability		19,475

NOTES TO THE FINANCIAL STATEMENTS (CONT'D) for the year ended 30 June 2004

SEGMENT REPORTING $\mathbf{a}$

Segment revenues and results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. The Company operates as an exporter of lobster and other seafood.

Geographical Segments

	Australia$A'000		$A'000Asia		United States$A'000		Europe$A'000		Consolidated$A'000
?rimary reportingGeographicalegments		2003	2004	2003	2004	2003	2004	2003	2004	2003
segment revenueRevenue	20,801,798	958,503	9.142.981	7,591,597	1,756,418	717,316	670.420		32,371,617	9,267,416
Inallocated revenue									64,966	33,361
egment resultResult	058,265)	1,356,490)	465.137	(2,683,780)	89,355)	253,585)	34,107		32,436,583(1, 646, 864)	9,300,777(4,293,855)
Inallocated revenueind expenses									(1,086,577)	33,361
									(2733,441)	(4,260,494)
Depreciation andmortisation	494,797)	(305,026)		I					(494,797)	(305,026)
egment assetsAssets	5.516.345	2,161,330	309.533	285,370		305,482			5,825,878	2,752,182
Jnallocated cash									410,108	162,819
Total assets									6,235,986	2,915,001
segment liabilitiesiabilities	(2,148,403)	(4.37, 1.49)		(259, 483)	(449,672)	(24,518)			(2,598,075)	(1,721,150)

Secondary reportingBusiness segmentsThe principal activity of the Company is the distribution and marketing of lobster and other seafood products.

NOTES TO THE FINANCIAL STATEMENTS (CONT'D) for the year ended 30 June 2004

20.NOTES TO THE STATEMENT OF CASH FLOWS	2004$	2003$
Reconciliation of cash(a)
For the purposes of the statement of cash flows, cash includes cash onhand and at bank and short term deposits at call, net of outstandingbank overdrafts. Cash at the end of the financial year as shown in thestatement of cash flows is reconciled to the related items in thestatement of financial position as follows:
Cash assets (refer Note 5)	410,108	162,819
Reconciliation of(b)net cashflowsfromoperatingactivities to loss after income tax
Loss after income tax	(2,733,441)	(4,260,494)
Add non-cash items:
Amortisation	49,753	83,802
Depreciation	445,044	221,224
Amounts set aside to provisions	45,112
Property, plant and equipment written off	1,065,216
Doubtful debts	826.291
Goodwill written off	5,873	542,998
Net cash provided by operating activities before changes in assets and
liabilities	(296, 152)	(3,412,470)
Changes in assets and liabilities during the financial year:
Decrease/(increase) in receivables	(681,056)	(265,761)
Decrease/(increase) in inventories	104,560	(732,023)
Decrease/(increase) in prepayments	287,607	(291, 630)
Increase in payables	514,335	754,437
Net cash used in operating activities	(70, 706)	(3,947,447)

Non-cash financing and investing activities $(c)$

During the financial year the Company issued 57,527,778 shares at a deemed issue price of 9 cents per share ($5,177,500), in consideration for the acquisition of the business and assets of INF Pty Ltd. This acquisition is not reflected in the Statement of Cash Flows.

21. EARNINGS PER SHARE

	2004No.	2003No.
Weighted average number of ordinary shares used as thedenominator in the calculation of basic loss per share	100.206.209	47.107.534

The Company's potential ordinary shares are not considered dilutive and accordingly basic loss per share is the same as diluted loss per share.

NOTES TO THE FINANCIAL STATEMENTS (CONT'D) for the year ended 30 June 2004

22. ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURE

Interest rate risk exposure

$\Gamma$ ach

Cash includes cash at bank of $410,108 (2003: $162,819) in a non-interest bearing accounts.

Interest bearing liabilities

Interest bearing liabilities are comprised of a secured bank Ioan of $900,108 as disclosed in Note 13 at an interest rate of 7.75% per annum, and a bank bill facility of $300,000 at the bank's Lending Indicator Rate plus a 2% margin per annum.

Other than the above, all of the Company's financial liabilities are non-interest bearing.

Net fair values of financial assets and liabilities

Recognised financial instruments

The carrying amounts of financial assets and liabilities as at the reporting date approximate the net fair values of those assets and liabilities and are as follows:

	Net fair value2004	Net fair value2003
	$	$
Financial assets
Cash assets	410.108	162,819
Receivables
Trade debtors	396,115	34,534
Other receivables	55,812	236,418
Securities in listed entity	3.396
Financial liabilities
Payables	(1,329,661)	(756,797).
Lease liabilities and interest bearing liabilities	(1,200,108)	(964,353)

Credit risk exposures

Credit risk represents the loss that would be recognised if counterparties fail to perform as contracted.

The credit risk on financial assets and liabilities of the Company which have been recognised on the statement of financial position, is the carrying amount, net of any provision for doubtful debts.

The Company is not materially exposed to any individual overseas country or individual customer.

23. CONTINGENT LIABILITIES

The Company had agreements with Tarana Corporation Pty Ltd ("Tarana") involving the operation and management of the Company's processing facility at Cervantes and the supply of lobster, together with the leasing of certain premises. Following the appointment of a receiver to Tarana, the Company has sought legal advice and has reserved its rights in relation to those agreements. Dependent on the legal interpretation, the Company may have a liability.

24. SUBSEQUENT EVENTS

Subsequent to balance date:

• In August 2004, Tarana Corporation Pty Ltd ("Tarana"), a company with whom Cervantes Seafood $(a)$ Ltd has had commercial associations, appointed an Administrator under Section 436A of the Corporations Act. Subsequent to the appointment of the Administrator, a receiver was appointed to Tarana by its secured lender. Cervantes' contractual arrangements with Tarana are in respect of the supply of lobster and the management and operation of the Cervantes processing facility. The Company has acted to protect its rights in accordance with the provisions of the agreements.
• On 20 July 2004, the Company issued 850,000 fully paid ordinary shares to interests associated with $(b)$ seventeen fishing boats who had continued to support the Company over an extended period of time. The shares were granted for nil consideration.

NOTES TO THE FINANCIAL STATEMENTS (CONT'D) for the year ended 30 June 2004

24. SUBSEQUENT EVENTS (cont'd)

• Following shareholder approval on 26 August 2004, 50,000 fully paid ordinary shares were issued to a $(c)$ nominee of Mr McSharer as a means of recognising the continued support of his fishing boat to the Company. The shares were granted for nil consideration, and followed the similar issue of shares in July 2004.
• (d) In August 2004, shareholders approved the appointment of Hall Chadwick as auditor of the Company.

The financial effects of the above transactions have not been brought to account in the financial statements for the year.

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

For reporting periods beginning on or after 1 January 2005, the Company must comply with International Financial Reporting Standards (IFRS) as issued by the Australian Accounting Standards Board (AASB).

This financial report has been prepared in accordance with Australian accounting standards and other financial reporting requirements (Australian GAAP). AASB 1047 'Disclosing the Impacts of Adopting Australian Equivalents to International Financial Reporting Standards' requires financial reports to disclose information about the impact of any changes in accounting policies in the transition period leading up to the adoption date. This standard applies to interim and annual reporting periods from 30 June 2004 and ceasing to operate on the first-time adoption of Australian equivalents to IFRS.

The Company, in conjunction with its auditors, is assessing those accounting policies and key areas that are likely to be impacted by the transition to IFRS.

Pursuant to AASB 1047 the Company must provide a statement disclosing the key potential implications of the conversion to IFRS for reporting periods from 1 January 2005. The Company sets out below an explanation of the significant accounting policies which will change and which may impact on future financial reports prepared in accordance with IFRS. These changes in accounting policies will be recognised by restating comparatives rather than making current year adjustments with note disclosure of prior year effects.

Taxation

Under the Australian equivalent to IAS 12 "Income Taxes", a "balance sheet approach" will be adopted for calculating taxation, replacing the "statement of financial performance approach". This method recognizes deferred tax balances for all temporary differences arising between the carrying value of an asset or liability and its tax base. Whilst there will be enhanced disclosure of the composition of the deferred tax assets and liabilities it is not expected that there will be any significant impact in terms of the statements of financial position or performance.

Financial Instruments

Under AASB 139 "Financial Instruments: Recognition and Measurement" financial instruments will be required to be classified into five categories and to be measured based on the nature of the classification. This will result in a change in the current accounting policy that does not classify financial instruments.

Share based Payments

The Company currently does not recognize an expense for options issued to directors and employees. Under AASB 2 "Share Based Payments", the Company will be required to recognize an expense for all share based remuneration, including options, and will amortise those expenses over the relevant vesting periods.

Intangible Assets

Under the Australian equivalent to IAS 38 "Intangible Assets", intangibles acquired in a business combination and which have finite useful lives must be amortised over their useful lives. Internally generated goodwill, brands and costs related to research activities and item similar in substance may not be recognized as assets. All expenditure on research must be expensed when it is incurred. The de-recognition of intangibles that do not qualify for recognition is not expected to impact significantly on the Company's equity.

Impairment of Assets

Under the Australian equivalent to IAS 36 "Impairment of Assets", the recoverable amount of an asset is determined as the higher of net selling price and value in use. This will result in a change in the Company's current accounting policy which determines recoverable amount of an asset on the basis of the market values or expected net cash flows which will be received from the assets employed and subsequent disposal. The expected net cash flows are not discounted to present values in determining recoverable amounts.

DIRECTORS' DECLARATION

In the opinion of the directors of Cervantes Seafood Limited:

• the financial statements and notes, set out on pages 11 to 26, are in accordance with the Corporations $(i)$ Act 2001, including:
  • (i) giving a true and fair view of the financial position of the Company as at 30 June 2004 and its performance, as represented by the results of its operations and its cashflows, for the year ended on that date; and
  • (ii) complying with Accounting Standards and the Corporations Act 2001; and
• $(ii)$ there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

Dated at Perth, Western Australia this 30th day of September 2004.

Signed in accordance with a resolution of the directors:

ffwerer-

Robert Grover Managing Director

INDEPENDENT AUDIT REPORT TO THE MEMBERS OF CERVANTES SEAFOOD LIMITED

SCOPE

The financial report and directors' responsibility.

The financial report comprises the statement of financial position, statement of financial performance, statement of cash flows, accompanying notes to the financial statements, and the directors' declaration for Cervantes Seafood Limited (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 judgment, 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 their performance as represented by the results of their 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.

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.

INDEPENDENCE

In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001.

Head Office:

Level 40 BankWest Tower 108 St George's Terrace Perth 6000 Western Australia GPO Box W2106 PERTH WA 6846

Telephone: (08) 9320 2888 Focsimile: (08) 9320 2999

Our Regional Offices:

Bunits inv Suite 1. 9A Wittennom Street BUNBURY WA 6230

Telephone: (08) 9791 6466

Busselton Suite 2, Geographe Business .Centre, 58 Bussell Highway BUSSELTON WA 6280

Telephone: (08) 9751 3895

Kalaporlie Suite 1, Kalgoorlie Business Centre 47 Brookman Street KALGOORLIE WA 6430

Telephone: (08) 9021 7066

Email: hoperinfo@hoperth.com.au

Other firms in:

Sydnev sselborme Adeicide

Hall Chadwick Perth Services

• Taxation Pfanning and Business Advice
• Asrefit $\bullet$
• $\ddot{\phantom{a}}$ Business Valuation and Expert's Reports
• Business Improvement $\ddot{\bullet}$ Planning
• Superannuation Fund .Planning and Administration
• Management Accounting
• Corporate Finance and Restructuring
• Properfy Industry Advice
• $\ddot{\phantom{0}}$ Information Technoloav Advice
• Business Recovery and insolvency

NATIONAL ASSOCIATION Hall Chadwick

INTERNATIONAL ASSOCIATION AGN International

Associations of Independent Firms

AUDIT OPINION

In our opinion, the financial report of Cervantes Seafood Limited is in accordance with:

$(a)$ the Corporations Act 2001, including:

• giving a true and fair view of the company's financial position as at 30 $(i)$ 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.

INHERENT UNCERTAINTY REGARDING CONTINUATION AS A GOING CONCERN

Without qualification to the audit opinion expressed as above, attention is drawn to the following matters.

The company incurred a loss from ordinary activities of $2,733,441 for the year ended 30 June 2004. Note 1 (a) states that the financial statements have been drawn up on the going concern basis, which assumes that the company can continue operating and pay its debts as and when they become due and payable as the company expects to source additional funding.

The ability of the company to continue as a going concern is dependent upon the company returning to profitable operations and on the availability of adequate funding for existing commitments and ongoing business activities.

Hull Chadrile

HALL CHADWICK CHARTERED ACCOUNTANTS

A Mul

MAURICE L ANGHIE PARTNER

Dated at PERTH this 30th day of September 2004

Substantial shareholders

The number of shares held by substantial shareholders and their associates are set out below:

Substantial shareholder	Number of Shares
Chunagon Co Limited	23,627,778
J Maldives Trading Pvt Ltd	23,600,000
Gavi Trading Pty Ltd	9.300.000

Distribution Schedules

Distribution of each class of Security as at 30 September 2004:

Fully paid ordinary shares

Options exercisable at $0.20 on or before 31 August 2005

93,611,309

76.70

	Range		Holders	Units	%		Range		Holders	Units	$\frac{40}{10}$
	-	1.000	6	2.285	0.00.		$\overline{\phantom{a}}$	1.000	-
1.001	-	5.000	44	176,856	0.14	1.001	$\overline{\phantom{a}}$	5.000	199	987.500	2.44
5.001	$\overline{\phantom{a}}$	10.000	212	2.071.425	1.70	5.001	$\overline{\phantom{0}}$	10,000	119	976.700	-2.41
10.001	-	100.000	299	11.382.492	9.33	10,001	$\overline{\phantom{0}}$	100.000	134	4.938.964	12.20
100,001	-	Over	70	108.378.054	88.83	100.001	$\overline{\phantom{0}}$	Over	46	33,582,947	82.95
Total			631	122,011,112	100.00	Total			498	40,486,111	100.00

Unmarketable Parcels

Holdings less than a marketable parcel of ordinary shares (being 19,231 as at 30 September 2004).

Holders	Units
352.	3,589,025

Top holders

The 20 largest registered holders of each class of security as at 30 September 2004 were:

Fully paid ordinary shares

	Name	No. of Shares	%
1.	Chunagon Co Limited	23,627,778	19.37
2.	J Maldives Trading Pvt Ltd	23,600,000	19.34
З.	Gavi Trading Pty Ltd	9,300,000	7.62
4.	Mr San Tiong Ng	4,376,557	3.59
5.	Mr Lawrence Alexander West	3,967,388	3.25
6.	Kheng Sing Lim	3,888,562	3.19
7.	Mdm Tee Lian	3,736,350	3.06
8.	Chen Hoong	3,736,349	3.06
9.	Dr Chin Vie Yap	3.115.000	2.55
10.	Nai Holdings Pty Ltd	2,800,117	2.29
11.	Sac Nominees Pty Ltd	2,079,500	1.70
12.	Eng Hong Tan	1,750,000	1.43
13.	Hoong Chen	1,483,000	1.22
14.	Aurisch Investments Pty Ltd	1,150,000	0.94
15.	Mr Dheljit Singh Puran	1,000,000	0.82
16.	Mr Giuseppe La Macchia	950.000	0.78
17.	Mr Andrew Paul James	797,705	0.65
18.	Rod Investments (VIC) Pty Ltd	796,000	0.65
19.	Hung Wai Lee	750,000	0.61
20.	Mr Neil Warren & Mrs Anna Siok Liew Warren	707.003	0.58

SHAREHOLDER INFORMATION (cont'd)

Top holders (cont'd)

Options exercisable at $0.20 on or before 31 August 2005

	Name	No. ofOptions	$\frac{9}{6}$
1.	Mortimer & Chua Corporate Pty Ltd	4,000,000	9.88
2.	Mr San Tiong Ng	3,670,917	9.07
3.	Mdm Tee Lian	3,054,286	7.54
4.	Chen Hoong	3,054,285	7.54
5.	Mr Lawrence Alexander West	2,576,750	6.36
6.	Kheng Sing Lim	1,944,281	4.80
7.	Nai Holdings Pty Ltd	1,400,058	3.46
8.	Mr Lewis Benjamin Bloch	1,000,000	2.47
9.	Dr Chin Vie Yap	976,250	2.41
10.	Eng Hong Tan	875,000	2.16
11.	Hoong Chen	741,500	1.83
12.	Mr Neil Warren & Mrs Anna Siok Liew Warren	650,031	1.61
13.	Mr Paul Jonathan Wright	537,500	1.33
14.	Tashma Pty Ltd	510,000	1.26
15.	Aurisch Invesments Pty Ltd	500,000	1.23
16.	Mr Danny Shayne Brady & Mrs Patricia Gail Brady	500,000	1.23
17.	Mr Dheljit Singh Puran	500,000	1.23
18.	Sac Nominees Pty Ltd	498,500	1.23
19.	Mrs Helen Mary Hawke	444,333	1.10
20.	Chen Hoong	400,000	0.99
		27,833,691	68.73

Restricted Securities

Fully paid ordinary shares

Number of Shares	Escrow Period
30.730.416	Restricted securities until 6 November 2004

Options exercisable at $0.20 on or before 31 August 2005

Number of Options	Escrow Period
24.059.653	Restricted securities until 6 November 2004

Voting Rights

The voting rights attaching to ordinary shares are:

On a show of hands every member present in person or by proxy shall have one vote and upon a poll each share shall have one vote.

Options do not carry any voting rights.

On-Market Buy Back

There is no current on-market buy-back.

ASX Admission Statement

During the year, the Company has applied its cash in a way consistent with its business objectives.