TETRA Technologies, Inc. Annual Report 2005

FY2005 Annual Report · TETRA Technologies, Inc.

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Traffic Technologies Ltd

During 2005 Traffic Technologies has continued
the development, marketing and sale of its Smart
Traffic Light which uses LED technology rather than
incandescent or halogen globes. This provides
significantly improved performance when compared
with existing
the power
consumption, maintenance and operating costs
for road traffic authorities. Traffic Technologies has
entered into discussions with a number of road
authorities in Australia and internationally regarding
the supply of its Smart Traffic Light.

lights, reducing

traffic

A number of Australian states and territories are
now introducing or conducting trials into the use of
LED traffic light systems. While the take up of LED
technology for traffic lights has been slow to date,
road traffic authorities throughout Australia are now
implementing more rapid rollout programmes. The
Directors anticipate that most major intersections
throughout Australia will be converted to LED traffic
light systems over time.

Since the re-quotation of the Company’s Shares on
ASX in January 2005, the Company has announced
traffic
a number of strategic acquisitions of
management and related businesses,
including
Traffic Management Solutions Pty Ltd (Geelong), Ace
Traffic Management Pty Ltd (Adelaide), Able Traffic
Management Pty Ltd (Melbourne) and traffic signs
manufacturer, De Neefe Pty Ltd. The company has
also acquired a 10% strategic stake in Perth-based
traffic management company Warp Pty Ltd.

In July 2005 Traffic Technologies entered into an
agreement to acquire traffic sign company De
Neefe.

A manufacturer of traffic signs, De Neefe has been
operating for over 30 years and has operations in
every State of Australia except Queensland.

Traffic Technologies views De Neefe as an ideal fit with
its traffic management business and consistent with
its strategy of offering traffic management services
and equipment. Combined with Traffic Technologies’
existing locations across Australia the enlarged group
will offer combined signage and traffic services to
traffic management customers.

Traffic Technologies plans to expand its product
offering to include electronic road signage including
variable message signs and signs using LED
technology. Traffic Technologies has an existing
suite of LED traffic lights and this expertise will be
of assistance in marketing and selling De Neefe’s
product range.

TRAFFIC TECHNOLOGIES LIMITED
ABN 21 080 415 407
AND CONTROLLED ENTITIES

FINANCIAL REPORT

FOR THE FINANCIAL YEAR ENDED

30 JUNE 2005

TRAFFIC TECHNOLOGIES LIMITED
CHAIRMAN’S LETTER

Dear Shareholder,

I have pleasure in enclosing the Annual Report for Traffic Technologies Limited for the financial year ended 30
June 2005.

The company has gone through an exciting period since re-listing in January 2005 that has resulted in the
creation of the first fully integrated traffic services company in Australia.

Through the acquisitions of Traffic Services Australia in August 2004 and the subsequent acquisition of Traffic
Management Services in Geelong, Ace in Adelaide, Able in Melbourne and a 10% stake in Warp Group in
Western Australia we now have a national traffic management business with annualised revenue of
approximately $30m.

At the time of this report the company has also announced the acquisition of De Neefe Signs, the largest traffic
sign manufacturer in Australia. These new acquisitions, coupled with the Company’s LED traffic light and the
BarrierGuard 800 barrier system for which the Company has been appointed the distributor in Australia, have
created a group with annualised revenues estimated to be approximately $60m per annum.

As outlined previously our strategy is to consolidate a fragmented traffic management services industry in
Australia. Traffic Technologies Limited expects to make further strategic acquisitions in the year ahead. The
Company has also recently announced an $8m capital raising via a placement to Institutional Investor, Equity
Partners, which is subject to shareholder approval, a $1.4m placement to sophisticated investors and a share
purchase plan to existing eligible shareholders.

I, along with my fellow Directors, thank you for your support over the past year and look forward to creating
shareholder value for you as we develop the Company’s business in what we believe will be an exciting year
ahead.

Yours faithfully,

Samuel Kavourakis
Chairman

Melbourne
2 September 2005

TRAFFIC TECHNOLOGIES LIMITED
CORPORATE DIRECTORY

DIRECTORS

Mr. Sam Kavourakis BSc. (Queensland) AIA
Mr. Constantine Scrinis
Mr. Constantinos Liosatos
Mr. Alan Brown FAICD
Mr. Cary Peter Stynes LL.B (Melb), MAICD

COMPANY SECRETARY

Mr. Peter Kenneth Crafter LL.B, MBA, FCA, CA, MCT, FAICD

REGISTERED OFFICE

110 Stephenson Street
RICHMOND VIC 3121

LAWYERS

Middletons
Level 29
200 Queen Street
MELBOURNE VIC 3000

AUDITORS

Pitcher Partners
Level 19
15 William Street
MELBOURNE VIC 3000

SHARE REGISTRY

Computershare Registry Services
452 Johnston Street
ABBOTSFORD VIC 3067
Tel: 1300 137 328

STOCK EXCHANGE LISTING

Traffic Technologies Limited’s ordinary shares are listed on the Australian Stock Exchange Limited.
(Stock Code: TTI).

STATE OF INCORPORATION

Victoria

TRAFFIC TECHNOLOGIES LIMITED
FINANCIAL REPORT
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2005
CONTENTS

Directors’ Report

Auditor’s Independence Declaration

Corporate Governance Statement

Consolidated Statements of Financial Performance

Consolidated Statements of Financial Position

Consolidated Statements of Cash Flows

Notes to the Financial Statements

Directors’ Declaration

ASX Additional Information

Independent Audit Report

Page No

TRAFFIC TECHNOLOGIES LIMITED
DIRECTORS’ REPORT

The Directors present their report together with the financial report of the consolidated entity, consisting of Traffic
Technologies Limited and the entities it controlled, for the financial year ended 30 June 2005 and independent audit report
thereon. Traffic Technologies Limited is a publicly listed company.

Directors

The names and details of the Company’s Directors in office during the financial year and until the date of this report are as
follows. Directors were in office for this entire period unless otherwise stated.

Name

Mr. Samuel
Kavourakis
BSc. (Queensland)
AIA

Qualifications, Experience and Special Responsibilities

(Age 60) Non-Executive Chairman. Appointed January 2004.
Mr. Kavourakis has had a distinguished career spanning 30 years with National Mutual, including
eight years as Managing Director of National Mutual Funds Management. Mr. Kavourakis has an
in-depth understanding of what institutional investors require of listed companies. Since 1998, Mr.
Kavourakis has been a Director of various companies and associations. Current Directorships
include Ticor Limited, Collins House Financial Services, Australand Wholesale Investments Ltd,
Centro Properties Ltd and the Rio Tinto Staff Superannuation Fund. Mr. Kavourakis is an
Associate of the Institute of Actuaries and a graduate of the Harvard Business School Advanced
Management Program. Mr. Kavourakis was appointed Non Executive Chairman of Traffic
Technologies Limited in January 2004. During the past three years Mr. Kavourakis has also
served as a Director of the following other listed companies:

Mr. Constantine A
Scrinis

Mr. Constantinos L
Liosatos

Mr. Alan J Brown
FAICD

Ticor Limited*

•
• Centro Properties Ltd*

* denotes current Directorship

(Age 42) Joint Managing Director. Appointed April 2003.
Mr. Scrinis has over 20 years experience in the lighting industry. After spending several years
with Sunlighting and three years as owner and operator of various retail businesses, he along with
Mr. Liosatos established Moonlighting in 1991. Since 1991, he and Mr. Liosatos built a
manufacturing and distribution business in industrial and commercial lighting employing
approximately 140 people. Mr. Scrinis and Mr. Liosatos have been involved in the development of
the Smart Traffic Light since 1997 and achieved the first commercial sales of the Company’s
Smart Traffic Light product into Malaysia in 2000. Mr. Scrinis is the Joint Managing Director of
Traffic Technologies Limited. Mr. Scrinis was appointed as a Director of Traffic Technologies in
April 2003. Mr. Scrinis has not served as a Director of any other listed companies during the three
years prior to June 2005. Mr. Scrinis was appointed a Director of Labtam Limited, a company
currently suspended from trading on ASX, in November 2003.

(Age 42) Joint Managing Director. Appointed April 2003.
Mr. Liosatos has over 20 years experience in the lighting industry. After spending 10 years with
Sunlighting, he and Mr. Scrinis established Moonlighting in 1991. Since 1991, he and Mr. Scrinis
built a manufacturing and distribution business in industrial and commercial lighting employing
approximately 140 people. Mr. Liosatos has been involved in the development of the Smart
Traffic Light since 1997 and achieved the first commercial sales of the Smart Traffic Light into
Malaysia in 2000. Mr. Liosatos has qualifications in Mechanical Design and Lighting Engineering.
Mr. Liosatos is the Joint Managing Director of Traffic Technologies Limited. Mr. Liosatos was
appointed as a Director of Traffic Technologies Limited in April 2003. Mr. Liosatos has not served
as a Director of any other listed companies during the three years prior to June 2005. Mr.
Liosatos was a Director of Labtam Limited, a company currently suspended from trading on ASX,
between November 2003 and March 2004.

(Age 59) Non-Executive Director. Appointed January 2004.
Mr. Brown has extensive experience in both the private and public sectors. He is a Director of a
range of private companies and has established several over a thirty-year period. He has wide
ranging public sector involvement including state and local government, co-operative societies
and statutory authorities. He was a Member of the Victorian Parliament from 1979-97 and is a
former Leader of the Victorian Liberal Party. As Minister for Transport he implemented major
reforms to Victoria’s transport infrastructure. He has international business experience and as
Agent General for Victoria in London from 1997-2000 had key responsibility for identification,
negotiation and attraction of overseas investment to Victoria. Mr. Brown also had responsibility
for facilitation of exports for Victorian goods and services to overseas markets. He is Chairman of
Apprenticeships Plus and the Bass Coast Community Foundation. Mr. Brown was appointed a
non-executive Director of Traffic Technologies Limited in January 2004. Mr. Brown has not
served as a Director of any other listed companies during the three years prior to June 2005.

TRAFFIC TECHNOLOGIES LIMITED
DIRECTORS’ REPORT
(Continued)

Mr. Cary P Stynes
LL.B (Melb) MAICD

(Age 41) Non-Executive Director. Appointed January 2004.
Mr. Stynes spent six years in a range of senior finance and management roles for a number of
international companies. He spent five years as a commercial lawyer with law firm Minter Ellison
specialising in commercial litigation, insolvency, media, mergers and acquisitions and corporate
advisory work. He is admitted to practice in the Supreme Court of Victoria and the High Court of
Australia. In 1993 he co-founded Point of Sale Media Pty Ltd, which was acquired in 1995 by
ASX-listed Media Entertainment Group Limited. He was a Director of Media Entertainment Group
Limited from September 1995 and was Managing Director from July 1997 until June 1999. He
was Managing Director and Chief Executive Officer of ASX-listed Software Communication Group
Limited from January 2000 to July 2001. He was Managing Director of ASX-listed CBD Energy
Limited from June 2002 to June 2003 and has been Managing Director of ASX-listed The Swish
Group Limited since January 2003. He is principal of Stynes Consulting and Stynes and
Associates which are commercial and legal consulting practices. He is also a Director of a range
of private companies. Mr. Stynes was appointed a non-executive Director of Traffic Technologies
Limited in January 2004. During the past three years Mr. Stynes has also served as a Director of
the following other listed companies:

• CBD Energy Limited
•

The Swish Group Limited*

* denotes current Directorship

Company Secretary

Mr. Peter K Crafter
LL.B (Hons), MBA, FCA,
CA, MCT, FAICD

(Age 48) Chief Financial Officer and Company Secretary. Appointed March 2004.
Mr. Crafter is a Chartered Accountant in both Australia and the UK and qualified Corporate
Treasurer with extensive experience in financial management including several years with KPMG
and Touche Ross in the United Kingdom. He holds an honours degree in Law from the University of
London and an MBA from Heriot-Watt University, Scotland. He migrated to Australia in February
1999 and joined Software Communication Group Limited as Chief Financial Officer in May 1999. He
was subsequently promoted to the position of Acting Chief Executive Officer of that Company in July
2001. He was Chief Financial Officer of ASX-listed CBD Energy Limited from July 2002 to July 2003
and was appointed Finance Director of The Swish Group Limited in January 2003. He was
appointed Chief Financial Officer and Company Secretary of Traffic Technologies Limited in March
2004.

Directors’ interests in the shares and options of the Company and related bodies corporate

As at the date of this report, the interests of the Directors in the shares and options of the Company were:

Director
Mr. Samuel Kavourakis
Mr. Constantine A Scrinis
Mr. Constantinos L Liosatos
Mr. Alan J Brown
Mr. Cary P Stynes

Directly
40,601
-
-
40,601
-

Indirectly
770,500
3,543,945
3,643,945
956,500
375,000

Options
500,000
300,000
300,000
300,000
300,000

Ordinary Shares

For more information relating to interests of Directors refer to Note 22 of the Financial Statements

EARNINGS PER SHARE

Basic earnings per share

Diluted earnings per share

DIVIDENDS

Cents

(3.7)

(3.4)

The Directors do not recommend the payment of a dividend for the financial year ended 30 June 2005.

TRAFFIC TECHNOLOGIES LIMITED
DIRECTORS’ REPORT
(Continued)

CORPORATE INFORMATION

Corporate structure

Traffic Technologies Limited is a Company limited by shares that is incorporated and domiciled in Australia. Traffic
Technologies Limited has prepared a consolidated financial report incorporating the entities that it controlled during the
financial year. The Company’s subsidiary entities are set out in Note 7 to the financial statements.

Employees

The consolidated entity employed 521 employees as at 30 June 2005 (2004: 8 employees).

Nature of operations and principal activities

The consolidated entity’s principal activity is the provision of traffic management services. Since re-listing on ASX in
January 2005 the Company has entered into a number of acquisitions in the traffic management area as detailed below.

REVIEW AND RESULTS OF OPERATIONS

Results

The consolidated loss after income tax attributable to the members of Traffic Technologies Limited was $0.9m (2004:
$0.4m).

Review of operations

A review of the operations of the consolidated entity during the financial year and the results of those operations are as
follows:

Traffic lights

Traffic Technologies, through its subsidiary Traffic Technology International Pty Ltd, is involved in the development,
marketing and sale of a new type of traffic light that utilises LED technology (Smart Traffic Light). The Smart Traffic Light
delivers significantly improved performance when compared with existing traffic lights reducing the traffic lights' power
consumption, maintenance and operating costs for road traffic authorities.

Traffic management

In August 2004 the Company acquired Traffic Services Australia Holdings Pty Ltd (TSA). TSA is one of Australia's largest
traffic management companies, providing temporary traffic management services to road traffic authorities and construction
companies. TSA’s core business is the provision of traffic management services for the effective flow of traffic through, or
around, road and other construction projects. This includes the provision of traffic management control plans, traffic
controllers and the vehicles and equipment necessary for the installation of temporary traffic guidance systems. TSA is
based in Brisbane and has operations in Sydney, Cairns and on the Sunshine and Gold Coasts.

Re-quotation of securities on ASX

In November 2004 the Company issued a Prospectus offering for subscription 30,000,000 Shares at an issue price of $0.20
each, payable in full on Application, to raise $6,000,000. The capital raising was undertaken to complete the acquisition of
TSA, further develop the Company's traffic management business, enable strategic and complementary acquisitions as and
when opportunities arise, provide working capital and pay the costs of the capital raising. On 12 January 2005 quotation of
the Company’s securities was reinstated on the Australian Stock Exchange Limited (ASX).

Acquisitions

Since relisting on ASX the Company has focused on building its traffic management businesses across Australia, including
Smart Traffic Lights, traffic control, roadside crash barriers and traffic signs. Since January 2005, the Company has
announced a number of acquisitions of traffic management businesses, including Traffic Management Solutions Pty Ltd
(Geelong) in April 2005 and Ace Traffic Management Pty Ltd (Adelaide) in July 2005. In June 2005 the Company
announced that it had acquired a 10% strategic investment in Perth-based Warp Pty Ltd. In July 2005 the Company also
announced the acquisitions of Able Traffic Management Pty Ltd (Melbourne) and traffic signs manufacturer, De Neefe Pty
Ltd.

TRAFFIC TECHNOLOGIES LIMITED
DIRECTORS’ REPORT
(Continued)

Review and results of operations (continued)

Financial performance

The results for the financial year ended 30 June 2005 are not comparable with the previous financial year. Total revenue for
the financial year ended 30 June 2005 was $19.3m, compared to $0.1m in the financial year ended 30 June 2004.

Following re-quotation of the Company’s securities on ASX in January 2005, the Company acquired Traffic Management
Solutions Pty Ltd (TMS) in April 2005. TMS is the dominant traffic management business in the Geelong area.

Total costs for the financial year ended 30 June 2005 were $20.2m, including direct costs of $14.3m. Costs incurred in the
financial year ended 30 June 2004 of $0.5m largely comprised administrative costs incurred in connection with restructuring
the Company as a provider of traffic management systems and ensuring that the Company complied with ASX and ASIC
requirements in the period prior to re-quotation of its securities on ASX in January 2005.

Costs of developing the Company’s Smart Traffic Light system have been capitalised and amortised where future benefits
are expected, beyond any reasonable doubt, to exceed those costs.

Financial position

Consolidated net assets as at 30 June 2005 was $5.4m, compared to net assets of $30,677 as at 30 June 2004. Net assets
included $4.2m of receivables, $3.3m of plant and equipment and $5.2m of intangible assets, comprising goodwill and
capitalised research and development expenditure. The Company had $5.4m of interest-bearing liabilities at 30 June 2005
(2004: $Nil).

Cash flows

During the year ended 30 June 2005 the Company had net operating cash outflows of $0.2m. Consolidated cash as at 30
June 2005 was $1.0m.

The Company has a bank facility, hire purchase arrangements and access to $3.6m of debtor factoring facilities of which
$2.9m had been drawn as at 30 June 2005. The Company has also drawn down a $1.0m third-party loan to finance
acquisitions.

Since relisting on the ASX in January 2005 the Company has focused on building its traffic management businesses across
Australia, including Smart Traffic Lights, traffic control, roadside crash barriers and traffic signs. During the March quarter,
the Company paid the final instalment of $0.3m due under the share sale agreement for Traffic Services Australia Holdings
Pty Ltd (TSA), the final instalment of $1.85m due under the administrator agreement for TSA and certain acquisition costs
associated with TSA. During the March quarter the Company also paid capital raising costs in connection with the relisting
of its shares on ASX and certain related party debt to entities associated with Directors, Mr. Con Scrinis and Mr. Con
Liosatos, and accrued Directors’ fees.

Outlook for the next twelve months

The Company is currently in the process of completing and integrating a number of acquisitions that it expects will
significantly enhance the Company’s operations. However, the Board is not yet in a position to give an accurate forecast of
revenue and profitability for the financial year ending 30 June 2006. Through the acquisition of Traffic Services Australia in
August 2004 and the subsequent acquisition of Traffic Management Services in Geelong, Ace in Adelaide, Able in
Melbourne and 10% of the Warp Group in WA, the Company now has a national traffic management business with
annualised revenue of approximately $30m. This coupled with the acquisition of De Neefe Signs, the largest traffic sign
manufacturer in Australia, the company’s LED traffic light and the BarrierGuard 800 barrier system, is expected to create a
group with revenues of approximately $60m and with further acquisitions currently being contemplated we expect
annualised revenues to exceed $100m by late 2006.

TRAFFIC TECHNOLOGIES LIMITED
DIRECTORS’ REPORT
(Continued)

RISK MANAGEMENT

The Company believes that it is crucial for all Board members to be a part of this process and, as such, the Board has not
established a separate risk management committee.

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

The Company acquired control over the following entity during the year ended 30 June 2005:

Date

Subsidiary entity

%
Interest

Description

Contribution to
Consolidated
Profit/(loss)

6 August 2004

Traffic Services
Australia Holdings Pty
Ltd

100%

Traffic management

$(662,697)

On 7 January 2005, the Company issued 30,000,000 shares as a result of the Prospectus capital that raised $6,000,000. In
January 2005 the Company also issued 5,000,000 fully paid ordinary shares on conversion of debt, including 1,250,000 fully
paid ordinary shares to each of Astra Glen Pty Ltd (associated with Director Mr. Con Scrinis) and Contelite Pty Ltd (associated
with Director Mr. Con Liosatos), and 375,000 fully paid ordinary shares to CPS Holdings Pty Ltd (associated with Director Mr.
Cary Stynes) in consideration of professional services.

On 12 January 2005 quotation of the Company’s securities was reinstated on the Australian Stock Exchange Limited (ASX). At
the date of this report, the Company has a total of 44,431,916 fully paid ordinary shares on issue, of which 39,387,824 are
quoted on ASX and 5,044,092 are subject to escrow restrictions until 12 January 2007.

On 8 April 2005 the Company issued 800,000 fully paid ordinary shares at $0.25 (25 cents) per share as part consideration
for the acquisition of the business and assets of Traffic Management Solutions Pty Ltd.

The Company did not lose control over any entities during the year ended 30 June 2005.

SUBSEQUENT EVENTS AFTER THE BALANCE DATE

On 5 July 2005 the Company announced that the acquisition of ACE Traffic Management, a traffic management business
based in South Australia, would be completed for a consideration of $1.5m in cash and shares.

On 7 July 2005 the Company announced the acquisition of Able Traffic Management, a traffic management business based in
Melbourne, for a consideration of $450,000 in cash and shares.

On 19 July 2005 the Company announced the acquisition of De Neefe, a traffic sign manufacturer based in Melbourne, for a
consideration of $2.1m in cash and shares.

On 23 August 2005 the Company announced that it had entered into an agreement to raise $6m in equity and $2m via
convertible notes to fund continuing acquisitions and that it would also implement a share purchase plan to allow existing
eligible shareholders to access new shares at 25 cents each.

On 30 August 2005 the Company announced a placement to sophisticated investors of 5,744,000 fully paid ordinary shares at
$0.25 (25 cents) per share to raise $1,436,000 for acquisitions.

ENVIRONMENTAL REGULATION AND PERFORMANCE

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

TRAFFIC TECHNOLOGIES LIMITED
DIRECTORS’ REPORT
(Continued)

SHARE OPTIONS

At the date of this report there are 3,200,000 unissued ordinary shares in respect of which options are outstanding.

There are 1,700,000 options held by the Directors exercisable at $0.20 (20 cents) per share, that were issued on 30 January
2004 and expire on 30 January 2009.

There are 500,000 options held by third party financiers in part consideration of convertible loans made to the Company.
These options are exercisable at $0.20 (20 cents) per share, were issued on 7 January 2005 and expire on 12 January
2006.

There are 600,000 options held by executives of the Company to purchase shares that were issued on 22 April 2005 and
expire on 30 January 2009, of which 500,000 options are exercisable at $0.20 (20 cents) per share and 100,000 options are
exercisable at $0.25 (25 cents) per share.

There are 400,000 options held by executives and staff of the Company, exercisable at $0.25 (25 cents) per share that were
issued on 8 August 2005 expiring on 8 August 2010.

INDEMNIFICATION OF DIRECTORS, OFFICERS AND AUDITORS

During the financial year ended 30 June 2005, the consolidated entity has paid premiums of $12,750 in respect of a
Directors’ and Officers’ insurance policy insuring Directors and Officers in respect of claims which may be brought against
them.

REMUNERATION REPORT

This report outlines the remuneration arrangements in place for Directors and executives of the Company.

Remuneration objective

The performance of the Company depends upon the quality of its Directors and executives. To be successful, the Company
must attract, motivate and retain highly skilled Directors and executives. To this end, the Company seeks to provide
competitive rewards to attract high calibre executives.

Remuneration committee

The Remuneration Committee is responsible for determining and reviewing remuneration arrangements for the Directors,
the Joint Managing Directors and the executive team. The Remuneration Committee comprises all Board members, which
includes a majority of independent Directors, and is chaired by Mr. Samuel Kavourakis, who is an independent Director.
The Remuneration Committee assesses the appropriateness of the nature and amount of remuneration of such officers on a
periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum
stakeholder benefit from the retention of a high quality Board and executive team.

Remuneration structure

In accordance with best practice corporate governance, the structure of non-executive Director and executive remuneration
is separate and distinct.

Non-executive Director remuneration

The Company’s constitution provides that the Directors are paid for their services as Directors such fees as the Directors
determine not exceeding in aggregate a maximum sum that is from time to time approved by the Members in a general
meeting. The notice convening a general meeting at which it is proposed to seek approval to increase that maximum
aggregate sum must specify the proposed new maximum aggregate sum and the amount of the proposed increase.
Aggregate non-executive Directors’ remuneration is currently $124,500. In addition, shareholders approved the issue of a
total of 1,700,000 options to the non-executive Directors on 30 January 2004. These options, which vested immediately and
have a five year term, are exercisable at 20 cents per share. The issue of these options was not based on Company
performance.

TRAFFIC TECHNOLOGIES LIMITED
DIRECTORS’ REPORT
(Continued)

REMUNERATION REPORT (Continued)

Senior manager and executive Director remuneration

Objective

The Company aims to reward executives with a level and mix of remuneration commensurate with their position and
responsibilities within the Company so as to:

• Reward executives for Company and individual performance;
• Align the interests of executives with those of shareholders;
•
• Ensure total remuneration is competitive by market standards.

Link reward with the strategic goals and performance of the Company; and

Structure

Currently remuneration is paid in the form of cash remuneration, superannuation contributions and share options where
applicable. The Company paid no bonuses during the financial year ended 30 June 2005. Further details of the
remuneration of Directors and executives are provided in Note 22 to the financial statements.

Share options

All Directors and executives have the opportunity to qualify for participation in the Company Share Option Plan. The issue
of options under this plan is at the discretion of the Board and is not currently based on Company performance. Options are
used by the Company as a non-cash form of remuneration and have the objective of aligning employee interests with the
objective of increasing shareholder wealth. Any issue of options under the plan to Directors is subject to shareholder
approval. Details regarding the issue of share options under the Company Share Option Plan during the year are provided
in Note 22 to the financial statements.

Non-executive Director agreements

The non-executive Directors have entered into non-executive Director agreements with the Company. The non-executive
Director agreements entrench a Director's rights to be indemnified by the Company to the maximum extent permitted by law;
require the Company to take out an appropriate Directors' and officers' insurance policy to protect the Director from liability
(to the extent permitted by law); and access the books and records of the Company, which relate to the period the Director
acted as a Director of the Company. After resignation as a Director, the Director can only use this information for the
purposes of defending a claim.

Executive Service and Management Agreements

Traffic Technologies has entered into executive service agreements with Mr. Constantine Scrinis and Mr. Constantinos
Liosatos. Under the agreements, Mr. Scrinis agreed to act as Joint Managing Director of Traffic Technologies and Mr.
Liosatos agreed to act as Joint Managing Director of Traffic Technologies for a total remuneration of $75,000 per annum
each increasing to $200,000 per annum from 1 January 2005, with a review in June 2006. Under the agreements there is
no additional obligation of the Company to pay superannuation contributions. On 30 January 2004 shareholders approved
the issue of 300,000 options each to Mr. Scrinis and Mr. Liosatos. The agreements are for a term of two years from 1
November 2004. Each executive has an employment or contractor agreement with notice periods varying between seven
days and one month.

TRAFFIC TECHNOLOGIES LIMITED
DIRECTORS’ REPORT
(Continued)

REMUNERATION REPORT (Continued)

Emoluments of Directors of the Company

Details of the nature and amount of each element of the emoluments of each Director of the Company for the financial year
ended 30 June 2005 are as follows:

Name

2005

Mr. Sam Kavourakis

Non-Exec Chairman

Mr. Con Scrinis

Joint Managing Director

Mr. Con Liosatos

Joint Managing Director

Mr. Alan Brown

Non Executive

Mr. Cary Stynes

Non Executive

Total

2004

Primary
Emoluments
Base
Salary
$

50,000

137,500

35,000

4,500

395,000

4,500

Superannuation
Contributions
$

Equity
Number of
Options Granted
No.

Value of Options
Granted
$

Total
$

54,500

137,500

35,000

399,500

Mr. Sam Kavourakis

Non-Exec Chairman

Mr. Con Scrinis

Joint Managing Director

Mr. Con Liosatos

Joint Managing Director

Mr. Alan Brown

Non Executive

Mr. Cary Stynes

Non Executive

Mr. Peter Stedwell Non Executive

Total

20,833

31,250

14,583

5,000

117,499

500,000

300,000

19,500 48%

40,333

11,700 27%

42,950

11,700 27%

42,950

11,700 45%

26,283

11,700 45%

26,283

- -

5,000

1,700,000

66,300 37%

183,799

Of total Directors’ remuneration, $260,000 (2004: $112,499) was not paid to the Directors during the financial year ended 30
June 2005 and has been accrued.

The percentage value of each person’s remuneration that consists of options is shown in italics.

Emoluments of the most highly paid executive officers of the Company and the consolidated entity

Details of the nature and amount of each element of the emoluments of the officers of the consolidated entity for the
financial year ended 30 June 2005 are as follows:

Name

2005

Mr. Geoff Burke

Fmr TSA General Manager

Mr. James Hopping

TSA General Manager

Mr. Peter Crafter

Company Secretary

Total

2004

Mr. Peter Crafter

Company Secretary

Total

Primary
Emoluments
Base
Salary
$

Superannuation
Contributions
$

Number of
Options Granted
No.

Value of Options
Granted
$

Total
$

Equity

81,524

87,445

35,000

203,969

10,740

7,337

88,861

200,000

18,927 18%

106,372

300,000

28,391 45%

63,391

7,337

500,000

47,318 18%

258,624

10,740

The percentage value of each person’s remuneration that consists of options is shown in italics.

For more information relating to interests of Directors and executives refer to Note 22 of the Financial Statements.

TRAFFIC TECHNOLOGIES LIMITED
DIRECTORS’ REPORT
(Continued)

REMUNERATION REPORT (Continued)

Options

In the financial year ended 30 June 2005 the Company granted a total of 600,000 options to executives of the Company to
purchase shares expiring on 30 January 2009, of which 500,000 options have an exercise price at $0.20 (20 cents) per
share and 100,000 options have an exercise price at $0.25 (25 cents) per share. Options granted as remuneration are
valued at grant date in accordance with AASB 2 Share-based Payments. No options previously granted as remuneration
have lapsed or been exercised during the year.

In addition, 500,000 options were issued to third party financiers on 7 January 2005 in part consideration of convertible
loans made to the Company. These options have an exercise price at $0.20 (20 cents) per share and expire on 12 January
2006.

Fair value of options

The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions used:

Dividend yield
Expected volatility
Historical volatility
Risk-free interest rate
Expected life of options – 500,000 (third party financiers)
Expected life of options – 600,000 (executives)

2005
$Nil
78%
78%
5.50%
0.5 years
3.75 years

2004
$Nil
45%
45%
5.715%
5.0 years
5.0 years

The dividend yield reflects the assumption that no dividends will be paid by the Company for the foreseeable future. The
expected life of the options is based on the term of the options and is not necessarily indicative of exercise patterns that
may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which
may not necessarily be the actual outcome.

All options issued to date have vested. Currently the fair values of options are not recognised as expenses in the financial
statements. On first time adoption of the Australian equivalents of International Financial Reporting Standards, the Company
will be required to recognise the fair value of options issued as remuneration as an expense in the Statement of Financial
Performance.

DIRECTORS’ MEETINGS

The number of meetings of Directors (including meetings of committees of Directors) held during the financial year and the
number of meetings attended by each Director was as follows:

Number of meetings held:

Number of meetings attended:
Mr. Samuel Kavourakis
Mr. Constantine A Scrinis
Mr. Constantinos L Liosatos
Mr. Alan J Brown
Mr. Cary P Stynes

TAX CONSOLIDATION

Directors’
Meetings

Audit
Committee

Remuneration
Committee

Corporate
Governance
Committee

14
14
13
12
10

2
2
2
2
2

1
1
-
1
1

2
2
2
1
1

The Company and its subsidiaries have not, as at the date of this report, elected to form a tax consolidated group.

TRAFFIC TECHNOLOGIES LIMITED
DIRECTORS’ REPORT
(Continued)

AUDITOR INDEPENDENCE AND NON-AUDIT SERVICES

A copy of an auditor’s independence declaration from the Company’s auditor, Pitcher Partners, in relation to the audit for the
financial year is provided with this report. The Directors are satisfied that the provision of non-audit services is compatible
with the general standard of independence for auditors imposed by the Corporations Act. 2001. The nature and scope of
each type of non-audit service provided means that auditor independence was not compromised. The following non-audit
services were provided by the Company’s auditor during the financial year ended 30 June 2005.

Amounts paid or payable to the auditor for non-audit
services provided during the year by the auditor to any
entity that is part of the consolidated entity for:

Taxation compliance services
Due diligence and related services
Investigating accountant’s report, for the prospectus

2005
$
27,390
169,740
25,520

2004
$

-
-
15,000

Signed in accordance with a resolution of the Directors

Samuel Kavourakis
Chairman

2 September 2005

Melbourne

AUDITOR’S INDEPENDENCE DECLARATION

To the Directors of Traffic Technologies Limited

In relation to the independent audit for the financial year ended 30 June 2005, to the best of my knowledge and belief there
have been:

(i)

(ii)

No contraventions of the auditor independence requirements of the Corporations Act 2001; and

No contraventions of any applicable code of professional conduct.

PITCHER PARTNERS

Dated on 2 September 2005
Melbourne

S P CATLIN
Partner

TRAFFIC TECHNOLOGIES LIMITED
CORPORATE GOVERNANCE STATEMENT

The Board of Directors of Traffic Technologies Limited is responsible for the corporate governance of the consolidated
entity.

The Board of Directors has implemented the Best Practice Recommendations of the ASX Corporate Governance Council to
the extent appropriate for the size and nature of the Company’s business as described below. The format of the Corporate
Governance Statement now follows the ASX Corporate Governance Council’s “Principles of Good Corporate Governance
and Best Practice Recommendations”. The Corporate Governance Statement must now contain specific information and
also report on the Company’s adoption of the Council’s best practice recommendations on an exception basis, whereby
disclosure is required of any recommendations that have not been adopted by the Company, together with the reasons why
they have not been adopted.

The Board has established a Corporate Governance Committee, which is responsible for reviewing the Company’s
compliance with best practice corporate governance requirements, including compliance with the ASX Corporate
Governance Council’s “Principles of Good Corporate Governance and Best Practice Recommendations”. The Corporate
Governance Committee comprises all Board members and is chaired by Mr. Samuel Kavourakis. For details of meetings of
the Corporate Governance Committee held during the year and the attendees at those meetings, refer to the Directors’
report. The Company’s corporate governance practices were in place throughout the year ended 30 June 2005.

Principle 1: Lay solid foundations for management and oversight

The Board has been structured to ensure that an appropriate mix of experience and expertise is available to provide
strategic guidance for the Company and effective oversight of management.

Since re-listing on ASX in January 2005 the Company has announced a number of acquisitions that it is currently in the
process of completing and integrating. Whilst the Company has laid down a system of corporate governance to comply with
ASX Recommendations, the Company expects to develop its corporate governance procedures and internal control
systems further as its business develops.

The Board guides and monitors the business and affairs of the Company on behalf of the shareholders by whom they are
elected and to whom they are accountable. The Board acts on behalf of and is accountable to shareholders. The Board
seeks to identify the expectations of shareholders, as well as other regulatory and ethical expectations and obligations. In
addition, the Board is responsible for identifying areas of significant business risk and ensuring arrangements are in place to
adequately manage those risks. The Board guides and monitors and fulfils its responsibility to protect shareholder interests
and enhance shareholder value by:

• Approving and periodically reviewing the business and financial objectives and strategies and plans of the consolidated

entity;

• Monitoring the financial performance of the consolidated entity, including approval of the consolidated entity’s financial

statements;

• Ensuring that adequate internal control systems and procedures exist and that compliance with these systems and

•

procedures is maintained;
Identifying areas of significant business or financial risk to the consolidated entity and ensuring management takes
appropriate action to manage those risks;

• Reviewing the performance and remuneration of Board members and key members of staff;
• Monitoring the operations of the consolidated entity and the performance of management;
• Establishing and maintaining appropriate ethical standards; and
• Reporting to the shareholders, the Australian Securities and Investments Commission and the Australian Stock

Exchange as required.

The Board delegates to the Joint Managing Directors and the executive team responsibility for the operation and
administration of the consolidated entity.

Principle 2:

Structure the Board to add value

It is the intention of the Company that the composition of the Board will be determined having regard to the following
concepts:

•
•

That the Board will comprise a majority of Non-Executive Directors;
That the Board will comprise a minimum of five Directors and the actual number may be higher where additional
expertise is required in specific areas and an outstanding candidate is located;
That the Chairman of the Board will be a Non-Executive Director; and
That the Board members should represent a broad range of expertise and experience.

TRAFFIC TECHNOLOGIES LIMITED
CORPORATE GOVERNANCE STATEMENT
(Continued)

Principle 2:

Structure the Board to add value (Continued)

The Directors in office and the term in office of each Director at the date of this report are as follows:

Name

Position

Mr. Samuel Kavourakis
Mr. Constantine Scrinis
Mr. Constantinos Liosatos
Mr. Alan Brown
Mr. Cary Stynes

Independent Non-Executive Chairman
Joint Managing Director
Joint Managing Director
Independent Non-Executive Director
Independent Non-Executive Director

Term in office

1 year 7 months
2 years 3 months
2 years 3 months
1 year 7 months
1 year 7 months

The skills, experience and expertise relevant to the position held by each Director in office at the date of the annual report is
included in the Directors’ Report. Directors are considered to be independent when they are independent of management,
are not a substantial shareholder and are free from any business or other relationship that could materially interfere with, or
could reasonably be perceived to materially interfere with, the exercise of their unfettered and independent judgement.

In the context of Director independence, “materiality” is considered from both the company and individual Director
perspective. The determination of materiality requires consideration of both quantitative and qualitative elements. An item
is presumed to be quantitatively immaterial if it is equal or less than 5% of the appropriate base amount. It is presumed to
be material (unless there is qualitative to the contrary) if it is equal to or greater than 10% of the appropriate base amount.
Qualitative factors considered include where a relationship is strategically important, the competitive landscape, the nature
of the relationship and the contractual or other arrangements governing it and other factors which point to the actual ability
of the Director in question to shape the direction of the company’s loyalty.

In accordance with the definition of independence above, three of the five Directors of the Company, as set out above, were
independent during the year ended 30 June 2005 and as at the date of this report, as required by Recommendation 2.1.
The Company had an independent chairman throughout the year ended 30 June 2005, as required by Recommendation
2.2, and the roles of Chairman and the Joint Managing Directors were split in accordance with Recommendation 2.3.

The Company’s constitution provides that a Director other than the Managing Director may not retain office for more than
three calendar years or beyond the third annual general meeting following his or her election, whichever is longer, without
submitting for re-election. One third of the Directors retire each year and are eligible for re-election. The Directors who
retire by rotation at each annual general meeting are those with the longest length of time in office since their appointment
or last election. All Directors must be elected by the members. It is not a requirement for a person who is a Director to own
shares in the Company.

Recommendation 2.4 requires listed entities to establish a Nomination Committee. During the year ended 30 June 2005,
the Company did not have a separately established Nomination Committee. However, the duties and responsibilities
typically delegated to such a committee are expressly included in the Board’s own charter as being the responsibility of the
full Board. The Board does not believe that any marked efficiencies or enhancements would be achieved by the creation of
a separate Nomination Committee.

The Company provides the capacity for any Director to obtain separate professional advice on any matter being discussed
by the Board and for the consolidated entity to pay the cost incurred. Before the engagement is made, the Director is
required to obtain the Chairman of the Board's approval. Approval will not be unreasonably denied and the Director will be
expected to provide the Board with a copy of that advice.

Principle 3:

Promote ethical and responsible decision-making

All Directors and officers of the Company are required to discharge their responsibilities ethically and with integrity.

The Board has drawn up a code of conduct to guide Board members, executives and employees in carrying out their duties
and responsibilities, to guide compliance with legal and other obligations and to maintain confidence in the Company’s
integrity, as required by Recommendations 3.1 and 10.1. Executives and employees are encouraged to report to Board
members any concerns regarding potentially unethical practices.

TRAFFIC TECHNOLOGIES LIMITED
CORPORATE GOVERNANCE STATEMENT
(Continued)

Principle 3:

Promote ethical and responsible decision-making (Continued)

Dealings are not permitted in the Company’s securities at any time when Directors, officers or employees are in the
possession of price sensitive information not already available to the market, as required by Recommendation 3.2. In
addition, the Corporations Act 2001 prohibits the purchase or sale of securities whilst a person is in possession of inside
information and the ASX Listing Rules require disclosure of any trading undertaken by Directors or their related entities in
the Company’s securities. The company secretary must be notified of any intended trading and must also be provided with
confirmation that the trading has occurred.

Principle 4:

Safeguard integrity in financial reporting

It is the Board’s responsibility to ensure that an effective internal control framework exists within the entity. This includes
internal controls to deal with both the effectiveness and efficiency of significant business processes, the safeguarding of
assets, the maintenance of proper accounting records and the reliability of financial information. The Board has delegated
the responsibility for the establishment and maintenance of a framework of internal control to the Audit Committee.

With effect from the financial year ended 30 June 2005 Mr. Constantine Scrinis, the Joint Managing Director, and the Chief
Financial Officer have provided a written statement to the Board that the company’s financial reports present a true and fair
view of the company’s financial condition and operational results and are in accordance with relevant accounting standards
and that the company’s risk management and internal compliance and control systems are operating efficiently and
effectively, as required by Recommendations 4.1 and 7.2.

The Board has established an Audit Committee as recommended by Recommendation 4.2, which operates under a charter
approved by the Board, as required by Recommendation 4.1. The Audit Committee also provides the Board with additional
assurance regarding the reliability of financial information for inclusion in the financial reports. Corporate Governance
Council Recommendation 4.3 requires that the Audit Committee consists of only non-executive Directors and that a majority
be independent Directors. All members of the Board are members of the Audit Committee. The Audit Committee is chaired
by Mr. Alan Brown, who is an independent chairman and who is not chairman of the Board, in accordance with
Recommendation 4.3. Although none of the Audit Committee members have formal accountancy qualifications, all have
extensive business experience at Board level and in senior management positions. Audit Committee meetings are attended
by the partner responsible for the Company’s audit. For details of meetings of the Audit Committee held during the year and
the attendees at those meetings, refer to the Directors’ report

Principle 5:

Make timely and balanced disclosure

The Company has established written policies and procedures to ensure compliance with ASX Listing Rule disclosure
requirements and to ensure accountability at a senior management level for that compliance, as required by
Recommendation 5.1. All ASX announcements are handled by Mr. Constantine Scrinis, the Joint Managing Director, and
there are requirements within the Company to ensure that the ASX’s continuous disclosure requirements are strictly
followed and that unauthorised disclosure of price sensitive information is not made other than through the ASX’s Company
Announcements Office.

Principle 6:

Respect the rights of shareholders

The Board recognises its duty to ensure that its shareholders are informed of all major developments affecting the
Company’s state of affairs, as required by Recommendation 6.1. Information is communicated to shareholders and the
market through:

The Annual Report which is distributed to shareholders;
The Annual General Meeting and other shareholder meetings called to obtain approval for Board action as appropriate;
The Half-Yearly Financial report; and

(cid:131)
(cid:131)
(cid:131)
(cid:131) Other announcements made in accordance with ASX Listing Rules.

The Company’s reports and ASX announcements may be viewed and downloaded from the ASX website: www.asx.com.au
(stock code: TTI).

It is the Company’s policy that the external auditor attends the Annual General Meeting of the Company and is available to
answer shareholder questions about the conduct of the audit and the preparation and content of the auditor’s report, as
required by Recommendation 6.2.

TRAFFIC TECHNOLOGIES LIMITED
CORPORATE GOVERNANCE STATEMENT
(Continued)

Principle 7:

Recognise and manage risk

The Board has adopted a proactive approach to risk management. The Board is responsible for ensuring that risks, and
also opportunities, are identified on a timely basis and that the Company’s objectives and activities are aligned with the risks
and opportunities identified by the Board. The Company believes that it is crucial for all Board members to be a part of this
process and, as such, the Board has not established a separate risk management committee.

The Board has established policies on risk oversight and management, as required by Recommendation 7.1. The Board
has drawn up a risk profile for the consolidated entity, which is regularly reviewed. The executive Directors are closely
involved in the day-to-day management of the Company’s operations and, given the current size of the operations of the
consolidated entity, are in a position to continually monitor risk with the assistance of the executive team.

Principle 8:

Encourage enhanced performance

The performance of the Board and key executives is reviewed regularly by the Board against their contribution to the
performance of the Company, in accordance with Recommendation 8.1. Directors whose performance is consistently
unsatisfactory may be asked to retire.

Principle 9:

Remunerate fairly and responsibly

It is the Company’s objective to provide maximum stakeholder benefit from the retention of a high quality Board and
executive team by remunerating Directors and key executives fairly and appropriately with reference to relevant employment
market conditions. To assist in achieving this objective, the Remuneration Committee takes account of the Company’s
financial and operating performance in setting the nature and amount of executive Directors’ and executives’ remuneration.
In relation to the payment of bonuses, options or other incentive payments, discretion is exercised by the Remuneration
Committee, having regard to the overall performance of the Company and the performance of the individual during the
period.

The Board has established a Remuneration Committee in accordance with Recommendation 9.2. The Remuneration
Committee is responsible for determining and reviewing remuneration arrangements for the Directors, the Joint Managing
Directors and the executive team. The Remuneration Committee assesses the appropriateness of the nature and amount
of remuneration of such officers on a periodic basis by reference to relevant employment market conditions with the overall
objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and executive team. The
Remuneration Committee comprises all Board members, which includes a majority of independent Directors, and is chaired
by Mr. Samuel Kavourakis, who is an independent Director. For details of meetings of the Remuneration Committee held
during the year and the attendees at those meetings, refer to the Directors’ report.

Non-executive directors are paid Directors’ fees. However, all Directors and executives have the opportunity to qualify for
participation in the Company Share Option Plan, including non-executive Directors, which represents a departure from
Recommendation 9.3, which recommends that non-executive Directors should not receive options. The payment of part of
the remuneration of non-executive Directors in a non-cash form preserves cash for use in the business. In common with
other smaller-cap listed companies the Company believes that it must pay its non-executive Directors adequate
remuneration in the form of cash and options in order to attract and retain non-executive Directors of appropriate
qualifications and experience.

The expected outcomes of the remuneration structure are:

• Retention and motivation of key executives.
• Attraction of quality management to the Company.
• Performance incentives that allow executives to share the rewards of the success of the Company.

Further details of the Company’s remuneration policy, including details of the amount of remuneration and all monetary and
non-monetary components for each of the highest paid (non-Director) executives during the year and for all Directors, are
set out in the Remuneration Report forming part of the Directors’ Report, in accordance with Recommendation 9.1. There is
no scheme to provide retirement benefits, other than statutory superannuation, to non-executive Directors. Shareholder
approval is required for all equity-based remuneration payable to Board members, in accordance with Recommendation 9.4.

Principle 10:

Recognise the legitimate interests of stakeholders

The Board recognises that the Company has wide ranging obligations to a broad range of stakeholders and must comply
with legal requirements such as trade practices, equal opportunity and occupational health and safety issues.

The Company’s corporate governance practices have been in place throughout the year ended 30 June 2005. With the
exception of the departures from the Corporate Governance Council recommendations detailed above, the corporate
governance practices of the Company are compliant with the Council’s best practice recommendations.

TRAFFIC TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF FINANCIAL PERFORMANCE
FOR THE YEAR ENDED 30 JUNE 2005

Note

Consolidated
2005
$

Consolidated
2004
$

Company
2005
$

Company
2004
$

Revenues from ordinary activities

19,300,742

114,866

1,019,358

Cost of sales

Gross profit

(14,316,538)

(52,343)

4,984,204

62,523

1,019,358

139

Salaries and employee benefits (indirect)

(2,915,044)

(228,056)

(359,123)

(69,989)

Occupancy expenses

(305,544)

(23,793)

Advertising and marketing expenses

(55,003)

(450)

Insurance expense

Professional costs

Administrative costs

Equipment rental

Other costs

Depreciation and amortisation expenses

Borrowing costs expense

Profit/(loss) from ordinary activities
before income tax expense
Income tax expense relating to ordinary
activities
Profit/(loss) from ordinary activities
after income tax expense
Total changes in equity other than
those resulting from transactions with
owner as owners

Basic earnings per share
Diluted earnings per share

21
21

(245,802)

(217,455)

(564,432)

(102,247)

(15,938)

(210,481)

(26,620)

(157,567)

(168,809)

(172,277)

(133,989)

(939,916)

(33,031)

(418,196)

(147)

(1,062)

(1)

(937,002)

(391,763)

233,857

(203,840)

(937,002)

(391,763)

233,857

(203,840)

(937,002)

(391,763)

233,857

(203,840)

(0.037)
(0.034)

(0.073)
(0.065)

The above Statement of Financial Performance is to be read in conjunction with the attached notes.

TRAFFIC TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS AT 30 JUNE 2005

Current Assets
Cash assets
Receivables
Inventory

Total current assets

Non-current assets
Plant and equipment
Intangible assets
Investments

Note

17b
5
6

Consolidated
2005
$

Consolidated
2004
$

1,040,550
4,224,415
91,471

40,221
132,682
112,051

Company
2005
$

102,343
6,675,865
-

Company
2004
$

7,382
11,976
-

5,356,436

284,954

6,778,208

19,358

8
9
7

3,281,473
5,205,193
529,581

39,833
630,152
-

-
-
1,992,238

-
-
500,000

Total non-current assets

9,016,247

669,985

1,992,238

500,000

Total assets

Current liabilities
Payables
Interest-bearing liabilities
Provisions

Total current liabilities

Non-current liabilities
Provisions
Interest-bearing liabilities

Total non-current liabilities

Total liabilities

Net assets

Equity
Contributed equity
Accumulated losses

14,372,683

954,939

8,770,446

519,358

10
11
12

12
13

3,028,385
4,590,542
458,527

8,077,454

27,134
819,706

846,840

922,559
-
1,703

924,262

963,275
1,000,000
-

1,963,275

-
-

300,758
-
-

300,758

-
-

8,924,294

924,262

1,963,275

300,758

5,448,389

30,677

6,807,171

218,600

14
15

41,679,189
(36,230,800)

35,324,475
(35,293,798)

41,679,189
(34,872,018)

35,324,475
(35,105,875)

Total equity

5,448,389

30,677

6,807,171

218,600

The above Statement of Financial Position is to be read in conjunction with the attached notes.

TRAFFIC TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2005

Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Other income

Note

Consolidated
2005
$

Consolidated
2004
$

Company
2005
$

18,442,912
(18,272,273)
40,324
(418,196)
37,897

19,354
(384,065)
36
(147)
-

-
(217,765)
40,087
(1,062)
400

Company
2004
$

100
(197,712)
1
(1)
-

Net cash used in operating activities

17a

(169,336)

(364,822)

(178,340)

(197,612)

Cash flows from investing activities
Purchase of businesses
Acquisition cost of Unlisted Investment
Purchase of plant and equipment
Proceeds on disposal of P & Equipm.
Purchase of R&D
Payment to TSA administrators

(2,477,261)
(4,581)
(159,053)
228,672
(4,023)
(3,700,000)

-
-
(11,791)
-
-
-

(962,657)
(4,581)
-
-
-
-

Net cash used in investing activities

(6,116,246)

(11,791)

(967,238)

-
-
-
-
-
-

Cash flows from financing activities
Proceeds from share issues
Proceeds from borrowings
Repayment of borrowings
Capital raising costs
Advances to controlled entities

6,000,000
3,561,678
(1,430,481)
(845,286)
-

-
416,834
-
-
-

6,000,000
2,015,000
(229,994)
(845,286)
(5,699,181)

-
214,994
-
-
(10,000)

Net cash used in financing activities

7,285,911

416,834

1,240,539

204,994

Net increase in cash held

1,000,329

40,221

Opening cash brought forward

40,221

94,961

7,382

Closing cash carried forward

17b

1,040,550

40,221

102,343

7,382

The above Statement of Cash Flows is to be read in conjunction with the attached notes.

TRAFFIC TECHNOLOGIES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2005

1. SUMMARY OF ACCOUNTING POLICIES

(a) Basis of accounting

The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of
the Corporations Act 2001 including applicable Accounting Standards. Other mandatory professional reporting
requirements (Urgent Issues Group Consensus Views) have also been complied with.

The financial report covers the consolidated entity of Traffic Technologies Limited and controlled entities, and Traffic
Technologies Limited as an individual parent entity. Traffic Technologies Limited is a public company, incorporated and
domiciled in Australia, whose securities are listed on the Australian Stock Exchange.

The financial report has been prepared in accordance with the historical cost convention and, except where stated, does not
take into account changing money values or current valuations of non-current assets. Cost is based on the fair values of the
consideration given in exchange for assets.

(b)

Significant accounting policies

The following significant accounting policies have been adopted in the preparation and presentation of the financial report.
The accounting policies have been consistently applied with those of the previous year.

(c)

Going concern basis of accounting

The financial statements have been prepared on a going concern basis. The consolidated entity incurred a loss for the year
ended 30 June 2005. The operations of the consolidated entity for the year ended 30 June 2005 were funded out of
revenues, the proceeds of share issues and Hire Purchase and loan facilities provided by third parties. Since relisting on
ASX in January 2005, the Company has announced a number of acquisitions of traffic management and related businesses.
The Company has also recently announced an $8m capital raising via a placement to Institutional Investor, Equity Partners,
which is subject to shareholder approval, a $1.4m placement to sophisticated investors and a share purchase plan to
existing eligible shareholders. In view of the circumstances outlined above, the Directors are of the opinion that the
consolidated entity will have sufficient funding and that it is appropriate to prepare the accounts on a going concern basis.

(d)

Principles of consolidation

The consolidated financial statements are those of the consolidated entity, comprising Traffic Technologies Limited (the
parent entity) and all entities that Traffic Technologies Limited controlled from time to time during the year and at balance
date.

Information from the financial statements of subsidiaries is included from the date the parent company obtains control until
such time as control ceases. Where there is loss of control of a subsidiary, the consolidated financial statements include the
results for the part of the reporting period during which the parent company has control.

The financial statements are prepared for the same reporting period as the parent entity using consistent accounting
policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist.

All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been
eliminated in full.

TRAFFIC TECHNOLOGIES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2005

1. SUMMARY OF ACCOUNTING POLICIES (Continued)

(e)

Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the consolidated entity and the
revenue can be reliably measured. The following specific criteria must also be met before revenue is recognised:

Sale of Goods

Revenue from the sale of goods is recognised upon the delivery of goods to customers.

Sale of services

Revenue from a contract to provide services is recognised by reference to the stage of completion of the contract.

Interest revenue

Interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the financial asset.

(f)

Taxes

Income Tax

The consolidated entity adopts the liability method of tax-effect accounting whereby the income tax expense 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 as a 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 any 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 tax legislation and the anticipation that the consolidated entity will derive sufficient
future assessable income and comply with the conditions of deductibility imposed by the law.

Under AASB 112 Income Taxes, the consolidated entity will be required to use a balance sheet liability method that focuses on
the tax effects of transactions and other events that affect amounts recognised in either the Statement of Financial Position or a
tax-based balance sheet. It is not expected that there will be a material impact as a result of adoption of this standard.

Goods and Services Tax

All revenue and expenses are stated net of the amount of Goods and Services Tax (GST).

TRAFFIC TECHNOLOGIES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2005

1. SUMMARY OF ACCOUNTING POLICIES (Continued)

(g) Recoverable amounts

The carrying amounts of non-current assets do not exceed the net amounts that are expected to be recovered through the
cash inflows and outflows arising from continued use and subsequent disposal of the asset. The expected net cash flows
included in determining the recoverable amounts have not been discounted to their present value.

Where a group of assets work together to generate net cash inflows the recoverable amount test is applied to that group of
assets.

Under AASB 136 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 group’s current accounting policy under which non-current assets are
written down to recoverable amount where the carrying value of any non-current asset exceeds the recoverable amount.
Under the new policy it is likely that impairment of assets will be recognised sooner and that the amount of write-downs will
be greater. This policy will be impacted on first time adoption of Australian equivalents of International Financial Reporting
Standards (IFRS). Refer to Note 26.

(h)

Inventories

Inventories are measured at the lower of cost and net realisable value. Costs are assigned on a first-in first-out basis and
include direct materials and direct labour.

(i)

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 provisions for doubtful accounts.

(j)

Plant and equipment

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

(k)

Depreciation

The depreciable amount of all fixed assets is depreciated on a straight-line basis over the useful lives to the economic entity
commencing from the time the assets are held ready for use.

The depreciation rates used for each class of depreciable assets are:

Class of Fixed Asset

Depreciation Rate

Office furniture and fittings
Motor vehicles
Plant and equipment, including signage

10-25%
12.5%
10-30%

TRAFFIC TECHNOLOGIES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2005

1. SUMMARY OF ACCOUNTING POLICIES (Continued)

(l)

Intangibles

Goodwill

Goodwill on consolidation is initially recorded at the amount by which the purchase price for a business or for an ownership
interest in a controlled entity exceeds the fair value attributed to its net assets at date of acquisition. Goodwill on
consolidation is amortised on a straight-line basis over a period of 10 years. Balances are reviewed annually and any
balances representing future benefits for which realisation is considered to be no longer probable are written off.

Under AASB 3 Business Combinations goodwill will no longer be able to be amortised but instead will be subject to annual
impairment testing. This will result in a change in the group’s current accounting policy under which goodwill is amortised on
a straight-line basis over 10 years. Under the new policy, amortisation will no longer be charged, but goodwill will be written
down to the extent it is impaired. This policy will be impacted on first time adoption of Australian equivalents of International
Financial Reporting Standards (IFRS). Refer to Note 26.

Patents and trademarks

Patents and trademarks are initially recorded at cost. Patents and trademarks are amortised on a straight-line basis over a
period of 10 years. Balances are reviewed annually and any balances representing future benefits for which realisation is
considered to be no longer probable are written off.

Research and development costs

Research and development costs are expensed as incurred, except where future benefits are expected, beyond any
reasonable doubt, to exceed those costs. Where research and development costs are deferred such costs are amortised
over a period of 10 years. Unamortised costs are reviewed at each balance date to determine the amount, if any, that is no
longer recoverable and any amounts identified are written off.

(m)

Foreign currency transactions and balances

Foreign currency transactions during the period are converted to Australian currency at the rates of exchange applicable at
the dates of the transactions. Amounts receivable and payable in foreign currencies at balance date are converted to 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/loss from ordinary activities as they arise.

(n)

Accounts payable

Accounts payable represent the principal amounts outstanding at balance date plus, where applicable, any accrued interest.

(o)

Employee benefits

The following liabilities arising in respect of employee benefits are measured at their nominal amounts:

• Wages and salaries and annual leave regardless of whether they are expected to be settled within twelve months of

balance date.

• Other employee benefits that are expected to be settled within twelve months of balance date.

All other employee benefits, including long service leave, are measured at the present value of the estimated future cash
outflows in respect of services provided up to balance date. Liabilities are determined after taking into consideration
estimated future increase in wages and salaries and past experience regarding staff departures. Related on-costs are
included.

Under AASB 2 Share Based Payments, the Company will be required to determine the fair value of options issued to
employees as remuneration and recognise an expense in the Statement of Financial Performance. Effects of this change in
accounting policy are set out in Note 26 below.

TRAFFIC TECHNOLOGIES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2005

1. SUMMARY OF ACCOUNTING POLICIES (Continued)

(p)

Leases

Leases are classified at their inception as either finance or operating leases based on the economic substance of the
agreement so as to reflect the risks and benefits incidental to ownership.

Operating leases

Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as
expenses in the periods in which they are incurred.

(q)

Earnings per share

Basic earnings per share is calculated as net profit/loss attributable to members divided by the weighted average number of
ordinary shares. Diluted earnings per share is calculated as net profit/loss attributable to members divided by the weighted
average number of ordinary shares and dilutive potential ordinary shares, adjusted for any non-discretionary changes in
revenues during the period that would result from the dilution of potential ordinary shares.

(r)

Comparative figures

Where necessary, comparatives have been reclassified and repositioned to conform to changes in presentation for the
current financial year.

(s)

Financial instruments

Debt and equity instruments

Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the
contractual arrangement.

Interest and dividends

Interest and dividends are classified as expenses or as distributions of profit consistent with the classification of the related
debt or equity instruments in the statement of financial position.

TRAFFIC TECHNOLOGIES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2005

2. REVENUE FROM ORDINARY ACTIVITIES

Consolidated Consolidated

2005
$

2004
$

Company
2005
$

Company
2004
$

Revenues from operating activities
Revenue from sale of goods
Revenue from sale of services

Revenues from non-operating activities
Other revenue
Profit on disposal of fixed assets
Interest revenue from:
Financial institutions

179,904
18,659,586

18,839,490

315,489
105,439

40,324

114,692
-

114,692

-
-

138

979,271

40,087

Total revenues from ordinary activities

19,300,742

114,866

1,019,358

3. EXPENSES AND LOSSES/(GAINS)

Profit/(loss) from ordinary activities before income
tax has been determined after:

Expenses
Depreciation of non-current assets:
Plant and equipment, including signage
Office furniture and fittings
Motor vehicles

Total depreciation of non-current assets

Amortisation of non-current assets:
Patents and trademarks
Research and development
Goodwill

Total amortisation of non-current assets

Total depreciation and amortisation expenses

Borrowing costs
Interest and facility fee:
Other entities

Total borrowing costs expense

Operating lease rentals
Employee entitlements
Doubtful debts
Bad debts expense

Auditors remuneration

Amounts received or due and receivable by Pitcher
Partners for:

Auditing or reviewing the financial report
Other services

-
-

138

139

-
-
-
-

222,607
59,795
250,049

532,451

655
55,956
350,854

407,465

939,916

418,196

102,247
678,027
122,597
70,191

5,934
-
-

5,934

222
23,024
3,851

27,097

33,031

147

23,933
1,801
-
-

-
-
-
-

1,062

-
-
-
-

112,745
222,650

335,395

10,000
15,000

25,000

112,745
222,650

335,395

4,000
15,000

19,000

TRAFFIC TECHNOLOGIES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2005

4. INCOME TAX

Consolidated Consolidated

2005
$

2004
$

Company
2005
$

Company
2004
$

The amount provided in respect of income tax differs
from the amount prima facie attributable to the operating
profit/loss. The difference is reconciled as follows:

Prima facie tax payable on profit/(loss) from ordinary
activities before income tax at 30% (2004 – 30%)

(281,101)

(117,529)

70,157

(61,152)

Tax effect of permanent differences

Amortisation of intangibles
Capital raising costs
Taxable capital profits
Other
Tax losses utilised

122,240
(55,217)
232,146
(44,580)
-
(26,512)

8,129
-
-
-
-
(109,400)

-
(55,217
-)
3,576
(34,866)
(16,350)

-
-
-
-
-
(61,152)

Timing differences and tax losses not brought to account
as future income tax benefits

26,512

109,400

16,350

61,152

Future income tax benefits not brought to account as
assets:
Tax losses – revenue
Timing differences

The future income tax benefit will only be obtained if:

303,887
15,288

313,333
-

22,391
17,550

57,257
1,200

(a)

future assessable income is derived of a nature and of amount sufficient to enable the benefit from the deductions to be
realised;
the conditions for deductibility imposed by the law are complied with; and

(b)
(c) no changes in tax legislation adversely affect the realisation of the benefit from the deductions.

The Company and its subsidiaries have not, as at the date of this report, elected to form a tax consolidated group.

5. RECEIVABLES (CURRENT)

Trade receivables
Provision for doubtful debts

4,150,403
(122,597)
4,027,806

113,469
-
113,469

-
-
-

Other receivables and prepaid expenses

196,609

19,213

10,090

1,976

Amounts receivable from related entities
Subsidiary entities

6,665,775

Total receivables

4,224,415

132,682

6,675,865

10,000

11,976

Related party receivables – subsidiary entities

6,665,775

10,000

Terms and conditions

Terms and conditions relating to the above financial instruments

(i)
(ii)

Trade receivables are non-interest bearing and are generally on 30-day terms.
Other receivables are non-interest bearing and have repayment terms between 30 and 90 days.

TRAFFIC TECHNOLOGIES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2005

6. INVENTORIES (CURRENT)

Components

Sub assemblies and finished goods

7. NON CURRENT INVESTMENTS

Unlisted investments

Interests in subsidiaries

Investments at cost comprise

Unlisted shares

Consolidated
2005
$

Consolidated
2004
$

Company
2005
$

Company
2004
$

52,780

38,691

91,471

53,504

58,547

112,051

Consolidated
2005
$

Consolidated
2004
$

529,581

Consolidated
2005
$

Consolidated
2004
$

529,581

Company
2005
$

529,581

1,462,657

1,992,238

Company
2005
$

529,581

Company
2004
$

500,000

Company
2004
$

The consolidated entity holds a 10% ownership interest in Warp Pty Ltd, an unlisted traffic management company based in
Western Australia.

Interests in subsidiaries

Name of Entity

Country of
Incorporation

Percentage of equity interest
held by the consolidated entity

Investment

Traffic Technology International Pty Ltd
Traffic Services Australia Holdings Pty Ltd

Australia
Australia

Total

2005
%

100
100

2004
%

100
-

2005
$

500,000
962,657

1,462,657

2004
$

500,000
-

500,000

The parent entity acquired its interest in Traffic Technology International Pty Ltd in January 2004 for a consideration of
$500,000. Traffic Technology International Pty Ltd is engaged in the development and commercialisation of a Smart Traffic
Light product based on LED (light emitting diode) technology.

The parent entity acquired its interest in Traffic Services Australia Holdings Pty Ltd (TSA) in August 2004. TSA is one of
Australia's largest traffic management companies, providing temporary traffic management services to road traffic
authorities and construction companies. TSA is based in Brisbane and has operations in Sydney, Cairns and on the
Sunshine and Gold Coasts.

The Directors review the carrying value of the parent entity's investment in its subsidiary entities on an ongoing basis. As at
the date of this report the Directors have determined that the carrying values should be maintained at cost.

Consolidated
2005
$

Consolidated
2004
$

Company
2005
$

Company
2004
$

TRAFFIC TECHNOLOGIES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2005

8. PLANT AND EQUIPMENT

(a)

Carrying values

Plant and equipment, including signage:
At cost
Accumulated depreciation

Total plant and equipment

Office furniture and fittings
At cost
Accumulated depreciation

Total office furniture and fittings

Motor vehicles
At cost
Accumulated depreciation

Total motor vehicles

Motor vehicles under lease
At cost
Accumulated depreciation

Total motor vehicles under lease

Total plant and equipment
At cost
Accumulated depreciation

1,496,254
(725,778)

770,476

597,541
(299,417)

298,124

1,571,700
(250,049)

1,321,651

891,222
-

891,222

73,345
(33,512)

39,833

-
-

4,556,717
(1,275,244)

73,345
(33,512)

-
-

Total written down value

3,281,473

39,833

(b)

Reconciliations

Consolidated entity

Plant and
Equipment
$

Office furniture
& fittings
$

Balance at the beginning of the year
Acquisition of subsidiary entity
Acquisition of business
Additions

Disposals
Depreciation expense

39,833
722,550
150,000
97,501

(16,801)
(222,607)

-
296,367
-
61,552

-
(59,795)

Motor vehicles

-
1,533,571
250,000
-

(211,871)
(250,049)

Motor vehicles
under lease
$

TOTAL

-
-
-
891,222

-
-

39,833
2,552,488
400,000
1,050,275

(228,672)
(532,451)

Balance at the end of the year

770,476

298,124

1,321,651

891,222

3,281,473

Parent entity

The parent entity did not own any plant and equipment.

9. INTANGIBLE ASSETS

Patents and trademarks:
At cost
Accumulated amortisation

Research and development:
At cost
Accumulated amortisation

Goodwill:
At cost
Accumulated amortisation

TRAFFIC TECHNOLOGIES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2005

Consolidated Consolidated

2005
$

2004
$

Company
2005
$

Company
2004
$

6,545
(877)

6,545
(222)

5,668

6,323

562,299
(78,980)

558,276
(23,024)

483,319

535,252

5,070,910
(354,704)

92,428
(3,851)

4,716,206

88,577

-
-

Total intangible assets

5,205,193

630,152

10. PAYABLES (CURRENT)

Trade creditors
Payroll liabilities
Sundry creditors and accruals
Deferred consideration (shares)
Due to related parties

Aggregate amounts payable to related parties

Payable to Directors and Director-related entities

Deferred consideration (shares)

702,559
536,268
1,054,558
475,000
260,000

3,028,385

86,494
-
39,964
-
796,101

922,559

180,575
11,055
36,645
475,000
260,000

963,275

16,764
-
19,000
-
264,994

300,758

260,000

796,101

260,000

264,994

Relates to acquisitions during the year with retention clauses including $250,000 for the TMS acquisition (being 1,000,000
shares in the Company at 25 cents) and $225,000 for the 10% Warp investment (being the aggregate of 660,000 shares in
the Company at 25 cents and 240,000 shares in the Company at 25 cents each to selected employees).

Terms and conditions relating to the above financial instruments:

(i) Trade payables are non-interest bearing and are normally settled on 30-day terms.
(ii) Other creditors are non-interest-bearing and are normally payable within 30 and 90 days
(iii) Details of the terms and conditions of related party payables are set out in Notes 22 and 23.

TRAFFIC TECHNOLOGIES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2005

11. INTEREST-BEARING LIABILITIES (CURRENT)

Secured:
Bank loan
Lease liabilities
Hire purchase liabilities
Loan
Debtor factoring

Consolidated Consolidated

2005
$

235,000
147,201
341,338
1,000,000
2,867,003

4,590,542

2004
$

-
-
-
-
-

Company
2005
$

-
-
-
1,000,000
-

1,000,000

Company
2004
$

-
-
-
-
-

Terms and conditions relating to the above financial instruments:

(i)

(ii)

(iii)

(iv)

Bank loan - TSA is a party to a guarantee, by way of providing third party security to the Westpac Banking
Corporation, in respect of an asset leased by a related entity of a former Director of TSA. TSA is fourth in line in
relation to this guarantee, behind the asset and other related entities of the former Director. The confirmed balance of
the contingent liability provided by the Westpac Banking Corporation is $589,755. The terms of the share sale
agreement of TSA provide for the Company to be released as a guarantor to the Westpac Banking Corporation, upon
TSA accepting liability for a bank loan for $235,000.
Hire Purchase liabilities are secured by the assets financed, being motor vehicles. Hire Purchase facilities bear
interest at rates between 6.9% and 9.3% and are repayable by June 2009.
Loan – The Company has a loan from Continental Venture Capital Limited for $1,000,000. This loan was taken out
on 6 April 2005 and is repayable on 6 October 2005. Interest of 15% is due and payable upon repayment of the
loan. The liability is secured by a fixed and floating charge over the assets of the Company.
Debtor factoring – The Company has a $3,600,000 debtor factoring facility with Oxford Funding Pty Ltd that attracts
an interest rate of 11.1%. The liability is secured by way of the factored debtors.

12. PROVISIONS

The aggregate employee entitlement liability recognised and included in the financial statements is as follows:
Provision for employee entitlements:

Consolidated Consolidated

2005
$

2004
$

Company
2005
$

Company
2004
$

Current

Provision for annual leave

Non-Current

458,527

1,703

Provision for long service leave

27,134

13. INTEREST-BEARING LIABILITIES (NON CURRENT)

Secured:
Lease liabilities

485,661

1,703

819,706

Terms and conditions relating to the above financial instruments:

Hire Purchase liabilities are secured by the assets financed, being plant and equipment. Hire Purchase facilities bear interest
at rates between 6.9% and 9.3% and are repayable by June 2009.

TRAFFIC TECHNOLOGIES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2005

14. CONTRIBUTED EQUITY

(a)

Issued and paid up capital

Ordinary shares fully paid

(b) Movements in shares on issue

Consolidated Consolidated
2004
$

2005
$

Company
2005
$

Company
2004
$

41,679,189

35,324,475

41,679,189

35,324,475

2005

2004

Number of
shares

Number of
Shares

Beginning of the financial year

8,256,916

35,324,475

260,492,611

34,824,475

Shares issued during the year

1. Consolidation of shares on 30 January 2004
2. Issue of shares on 30 January 2004
3. Prospectus capital raising on 7 January 2005
4. Issue of shares on 7 January 2005
5. Issue of shares on 7 January 2005
6. Issue of shares on 8 April 2005
7. Capital raising costs

-
-
30,000,000
5,000,000
375,000
800,000
-

-
-
6,000,000
1,000,000
75,000
200,000
(920,286)

(257,235,695)
5,000,000
-
-
-
-
-

-
500,000
-
-
-
-
-

As at 30 June 2005

44,431,916

41,679,189

8,256,916

35,324,475

1. On 30 January 2004 shareholders approved the consolidation of the Company’s share capital on the basis of one fully
paid ordinary share for every 80 shares previously held.

2. On 30 January 2004 shareholders approved the issue of 5,000,000 shares at $0.10 (10 cents) per share to the vendors of
Traffic Technologies International Pty Ltd (associated with Director Mr. Con Scrinis, Mr. Con Liosatos, Mr. Samuel
Kavourakis and Mr. Alan Brown) as consideration for the acquisition of that company.

3. On 7 January 2005 the Company issued 30,000,000 shares as a result of the Prospectus capital raising which raised
$6,000,000.

4. On 7 January 2005 the Company issued 5,000,000 fully paid ordinary shares on conversion of debt (including 1,250,000 fully
paid ordinary shares to each of Astra Glen Pty Ltd (associated with Director Mr. Con Scrinis) and Contelite Pty Ltd (associated
with Director Mr. Con Liosatos).

5. On 7 January 2005 the Company issued 375,000 fully paid ordinary shares to CPS Holdings Pty Ltd (associated with
Director Mr. Cary Stynes) in consideration of professional services.

6. On 8 April 2005 the Company issued 800,000 fully paid ordinary shares at $0.25 (25 cents) per share as part
consideration for the acquisition of the business and assets of Traffic Management Solutions Pty Ltd.

7. The Company incurred capital raising costs of $920,286 during the financial year ended 30 June 2005.

(c)

Share options

At the date of this report there are 3,200,000 unissued ordinary shares in respect of which options are outstanding.

There are 1,700,000 options held by the Directors exercisable at $0.20 (20 cents) per share that were issued on 30 January
2004 and expiring on 30 January 2009.

There are 500,000 options held by third party financiers in part consideration of convertible loans made to the Company.
These options are exercisable at $0.20 (20 cents) per share that were issued on 7 January 2005 and expiring on 12 January
2006.

TRAFFIC TECHNOLOGIES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2005

14. CONTRIBUTED EQUITY (Continued)

(c)

Share options (Continued)

There are 600,000 options held by executives of the Company to purchase shares that were issued on 22 April 2005 and
expiring on 30 January 2009, of which 500,000 options are exercisable at $0.20 (20 cents) per share and 100,000 options
are exercisable at $0.25 (25 cents) per share.

Subsequent to year end there are 400,000 options held by executives and staff of the Company exercisable at $0.25 (25
cents) per share that were issued on 8 August 2005 expiring on 8 August 2010.

(d)

Terms and conditions of contributed equity

Ordinary shares have the right to receive dividends as declared and, in the event of winding up the Company, to participate in
the proceeds from the sale of all surplus assets in proportion to the number and amounts paid up on shares held. Ordinary
shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company.

On 12 January 2005 quotation of the Company’s securities was reinstated on the Australian Stock Exchange Limited (ASX).

At the date of this report, the Company has a total of 44,431,916 fully paid ordinary shares on issue, of which 39,387,824 are
quoted on ASX and 5,044,092 are subject to escrow restrictions until 12 January 2007.

15. ACCUMULATED LOSSES

Accumulated losses at the beginning of the financial
year

Total changes in equity other than those resulting from
transactions with owner as owners

Consolidated Consolidated

2005
$

2004
$

Company
2005
$

Company
2004
$

(35,293,798)

(34,902,035)

(35,105,875)

(34,902,035)

(937,002)

(391,763)

233,857

(203,840)

Accumulated losses at the end of the
financial year

(36,230,800)

(35,293,798)

(34,872,018)

(35,105,875)

16. EXPENDITURE COMMITMENTS

(a)

Operating lease commitments

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

Premises
No later than one year
Later than one year and not later than five years

250,566
546,538

797,104

28,122
-

28,122

28,836
-

28,836

-
-

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

Operating lease payments are recorded as expense payments.

(b)

Capital expenditure commitments

There were no capital expenditure commitments at the reporting date.

TRAFFIC TECHNOLOGIES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2005

Consolidated Consolidated

2005
$

2004
$

Company
2005
$

Company
2004
$

17. STATEMENT OF CASH FLOWS

(a)

Reconciliation of operating profit/(loss) after
income tax to net cash flows from operating
activities:

Operating profit/(loss) after income tax

(937,002)

(391,763)

233,857

(203,840)

Non-cash items:
Depreciation and amortisation of non-current assets
Profit on sale of fixed assets
Gain from licence fee

Changes in assets and liabilities:
(Increase)/decrease in trade receivables
(Increase)/decrease in inventories
Increase/(decrease) in payables
Increase/(decrease) in provisions

939,916
(105,439)
(300,000)

(468,536)
20,580
467,052
214,093

33,031
-
-

(132,682)
(112,051)
236,940
1,703

-
-
-

(8,114)
-
(404,083)
-

(11,976)
-
18,204
-

Net cash generated by/(used in) operating activities

(169,336)

(364,822)

(178,340)

(197,612)

(b) Reconciliation of cash

For the purpose of the statement of cash flows, cash
includes cash on hand and in banks and investments in
money market instruments, net of outstanding bank
overdrafts. Cash at the end of the financial year as shown
in the statement of cash flows is reconciled to the related
items in the statement of financial position as follows:

Cash at bank and in hand
Security deposit

Financing facilities available:
Debtor factoring facility
Loan facility
Bank facility
Convertible Note facility – related party

1,035,394
5,156

1,040,550

35,065
5,156

40,221

102,343
-

102,343

7,382
-

7,382

3,600,000
1,000,000
235,000
-

-
-
-
1,000,000

-
1,000,000
-
-

-
-
-
1,000,000

Total facilities available

4,835,000

1,000,000

Facilities used
Debtor factoring facility
Loan facility
Bank facility

Total facilities used

2,867,003
1,000,000
235,000

4,102,003

-
-
-

-
1,000,000
-

1,000,000

-
-
-

Facilities unused
Debtor factoring facility
Convertible Note facility – related party

Total facilities unused

732,997
-

732,997

-
1,000,000

1,000,000

-
-

-
1,000,000

1,000,000

TRAFFIC TECHNOLOGIES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2005

17. STATEMENT OF CASH FLOWS (Continued)

(d)

Businesses acquired

During the 2005 financial year the consolidated entity
acquired the share capital of Traffic Services Australia
Holdings Pty Ltd as follows:

Consideration:

Cash paid under share sale agreement
Professional fees
Total consideration

Fair value of net assets acquired:

Assets
Cash
Receivables
Plant and equipment

Total assets acquired

Liabilities
Trade creditors and accruals
Interest-bearing liabilities
Provision for employee entitlements

Total liabilities acquired

Fair value of net liabilities acquired

Goodwill on acquisition

During the 2005 financial year the consolidated entity
acquired the business and assets of Traffic Management
Solutions Pty Ltd as follows:

Consideration:

Cash paid under share sale agreement
Professional fees
Total cash paid
Shares issued as consideration
Deferred consideration:
Shares

Total acquisition cost

700,000
262,657
962,657

912,113
3,574,001
2,552,488

7,038,602

(6,521,987)
(2,575,374)
(392,462)

(9,489,823)

(2,451,221)

3,413,878

1,458,118
56,486
1,514,604
200,000

250,000

1,964,604

TRAFFIC TECHNOLOGIES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2005

17. STATEMENT OF CASH FLOWS (Continued)

(d) Businesses acquired (continued)

Fair value of net assets acquired:

Assets
Plant and equipment
Fair value of net assets acquired

Goodwill on acquisition

During the 2004 financial year the consolidated entity
acquired the share capital of Traffic Technology
International Pty Ltd as follows:

Consideration:

Fully paid ordinary shares

Fair value of net assets acquired:

Assets
Cash
Receivables
Inventory
Plant and equipment
Intangible assets

Total assets acquired

Liabilities

Trade creditors and accruals
Payable to Director-related entity
Provision for employee entitlements

Total liabilities acquired

Fair value of net assets acquired

Goodwill on acquisition

(e) Use of proceeds

400,000
400,000

1,564,604

500,000

16,969
21,628
101,830
33,975
552,426

726,828

(173,617)
(143,416)
(2,223)

(319,256)

407,572

92,428

The consolidated entity has to date used the proceeds of the Prospectus capital raising completed on 12 January 2005 as
follows:

1. Fund the final instalment due under the Share Sale Agreement for TSA
2. Fund the final instalment due under the Administrator Agreement for TSA
3. Repay debt due to Moonlighting Australasia Pty Ltd
4. Fund the commercialisation of the Company's LED traffic light product
5. Enable strategic and complementary acquisitions in the traffic management area
6. Provide working capital
7. Fund the costs of the Issue
8. Fund the costs of the acquisition of TSA

Total

Prospectus
$
300,000
1,850,000
583,600
250,000
1,000,000
1,165,400
722,000
129,000

Actual
$
300,000
1,850,000
658,600
4,024
1,458,118
621,315
845,286
262,657

6,000,000

TRAFFIC TECHNOLOGIES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2005

17. STATEMENT OF CASH FLOWS (Continued)

(e) Use of proceeds (Continued)

Debt repaid to Moonlighting Australasia Pty Ltd (associated with Mr. Con Scrinis & Mr. Con Liosatos) $658,600 included
$75,000 advanced since 30 June 2004.

Part of the cost of the acquisition of Traffic Management Solutions Pty Ltd was paid for out of a loan taken out by the Company
in April 2005.

Part of the cost of the acquisition of TSA was funded out of loans subsequently converted to equity in January 2005.

(f) Non-cash Financing and Investing Activities
During the year the economic entity acquired plant and equipment with an aggregate value of $891,222 by means of finance
leases. These acquisitions are not reflected in the statement of cash flows.

18. EMPLOYEE ENTITLEMENTS

On 30 January 2004 shareholders approved a new Company Share Option Plan for Directors, employees and contractors of
the Company under which the Board can issue options at no cash consideration to purchase fully paid ordinary shares in
the Company on the basis of one option for one share at an exercise price to be determined by the Board at the time the
options are issued. Options will be exercisable from the time of issue and will lapse on the fifth anniversary of the date of
grant if they have not been exercised before that time. Options can be issued up to a maximum of 10% of the issued share
capital of the Company. The options cannot be transferred and will not be quoted on the ASX.

Eligible persons under the Company Share Option Plan are Directors, employees and contractors of the Company. If the
Directorship, employment or contract of the participant terminates, the participant may, within 28 days after the date of
termination, exercise all or part of those of the participant’s options, which the participant is then entitled to exercise. Any
option not exercised within that 28-day period will lapse.

Options outstanding

Balance at beginning of year

Granted

Expired

Balance at end of year

Exercisable at end of year

Options granted

2005
Number of
Options

2005
Weighted
Average
Exercise
Price

2004
Number of
Options

2004
Weighted
Average
Exercise
Price

1,700,000

1,100,000

$0.20

12,600,000

$0.20

1,700,000

(12,600,000)

2,800,000

$0.20

1,700,000

$0.20

1,700,000

$0.20

Options granted during
the financial year ended
30 June 2005

Number of
Options

Grant Date

Vesting Date

Expiry Date

Lenders

Employees

500,000

7 Jan 2005

12 Jan 2005

12 Jan 2006

500,000

22 Apr 2005

30 Jan 2009

100,000

22 Apr 2005

30 Jan 2009

Weighted
Average
Exercise Price

$0.20

$0.25

There are 400,000 options held by executives and staff of the Company exercisable at $0.25 (25 cents) per share that were
issued on 8 August 2005 expiring on 8 August 2010.

No options were exercised during the financial year or until the date of this report.

TRAFFIC TECHNOLOGIES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2005

18. EMPLOYEE ENTITLEMENTS (Continued)

Options expired

No options expired during the financial year.

(b)

Superannuation commitments

The consolidated entity contributes 9% of employees’ wages and salaries to superannuation plans that provides various
benefits on retirement, disability or death. Such contributions at the rate of 9% are legally enforceable in Australia.

(c)

Employee entitlements

The provision for aggregate employee entitlement liability recognised and included in the financial statements is set out in
Note 12.

(d) Employee Numbers

Number of employees at year end

521

Consolidated Consolidated

2005
$

2004
$

Company
2005
$

Company
2004
$

19. CONTINGENT LIABILITIES

TSA is a party to a guarantee, by way of providing third party security to the Westpac Banking Corporation, in respect of an
asset leased by a related entity of a former Director of TSA. TSA is fourth in line in relation to this guarantee, behind the asset
and other related entities of the former Director. The confirmed balance of the contingent liability provided by the Westpac
Banking Corporation is $589,755. The terms of the share sale agreement of TSA provide for the Company to be released as a
guarantor to the Westpac Banking Corporation, upon TSA accepting liability for a bank loan for $235,000. Liability for this loan
has been provided for in the consolidated accounts.

20. SUBSEQUENT EVENTS

On 5 July 2005 the Company announced that the acquisition of ACE Traffic Management Pty Ltd, a traffic management
business based in South Australia, would be completed for a consideration of $1.5m in cash and shares.

On 7 July 2005 the Company announced the acquisition of Able Traffic Management Pty Ltd, a traffic management business
based in Melbourne, for a consideration of $450,000 in cash and shares.

On 19 July 2005 the Company announced the acquisition of De Neefe Pty Ltd, a traffic sign manufacturer based in Melbourne,
for a consideration of $2.1m in cash and shares.

On 30 August 2005 the Company announced a placement to sophisticated investors of 5,744,000 fully paid ordinary shares at
$0.25 (25 cents) per share to raise $1,436,000 for acquisitions.

TRAFFIC TECHNOLOGIES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2005

21. EARNINGS PER SHARE

Basic earnings per share
Diluted earnings per share

Consolidated
2005

Consolidated
2004

Dollars per share

$(0.037)
$(0.034)

$(0.073)
$(0.065)

Earnings used in calculating basic and diluted earnings
per share

$(937,002)

$(391,763)

Weighted average number of ordinary shares used
In calculating basic earnings per share
Dilutive potential ordinary shares
Share options

Adjusted weighted average number of ordinary shares
used in calculating diluted earnings per share

22. DIRECTORS’ AND SPECIFIED EXECUTIVES REMUNERATION

(a)

Details of Specified Directors and Specified Executives

Number of shares
2005

Number of shares
2004

25,302,532

2,051,781

5,333,418

706,011

27,354,313

6,039,429

(i) Specified Directors

Mr. Samuel Kavourakis
Mr. Constantine Scrinis
Mr. Constantinos Liosatos
Mr. Alan Brown
Mr. Cary Stynes

(ii) Specified Executives

Mr. Peter Crafter
Mr. James Hopping
Mr. Geoff Burke

Non-Executive Chairman
Joint Managing Director
Joint Managing Director
Non-Executive Director
Non-Executive Director

Chief Financial Officer and Company Secretary
TSA General Manager
Fmr. TSA General Manager

(b)

Remuneration of Specified Directors and Specified Executives

(i) Remuneration Policy

The Remuneration Committee is responsible for determining and reviewing remuneration arrangements for the Directors,
the Joint Managing Directors and the executive team. The Remuneration Committee assesses the appropriateness of the
nature and amount of remuneration of such officers on a periodic basis by reference to relevant employment market
conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and
executive team. Currently remuneration is paid in the form of cash remuneration, superannuation contributions and share
options where applicable. The Company paid no bonuses during the financial year ended 30 June 2005.

All Directors and executives have the opportunity to qualify for participation in the Company Share Option Plan. The issue of
options under this plan is at the discretion of the Board and is not currently based on Company performance. Options are
used by the Company as a non-cash form of remuneration and have the objective of aligning employee interests with the
objective of increasing shareholder wealth. Any issue of options under the plan to Directors would be subject to shareholder
approval.

TRAFFIC TECHNOLOGIES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2005

22. DIRECTORS’ AND SPECIFIED EXECUTIVES REMUNERATION (Continued)

The Company has entered into executive service agreements with Mr. Constantine Scrinis and Mr. Constantinos Liosatos.
Under the agreements, Mr. Scrinis agreed to act as Joint Managing Director of Traffic Technologies and Mr. Liosatos
agreed to act as Joint Managing Director of Traffic Technologies for a total remuneration of $75,000 per annum each
increasing to $200,000 per annum from 1 January 2005, with a review in June 2006. Under the agreements there is no
additional obligation of the Company to pay superannuation contributions. On 30 January 2004 shareholders approved the
issue of 300,000 options each to Mr. Scrinis and Mr. Liosatos. The agreements are for a term of two years from 1
November 2004.

The Company has accrued Director’s fees in respect of each of the Non-Executive Directors (see below), which were not
however paid during the financial year ended 30 June 2005. On 30 January 2004 shareholders approved the issue of a
total of 1,100,000 options to the Non-Executive Directors (see below).

Each executive has an employment or contractor agreement with notice periods varying between seven days and one
month.

(ii) Remuneration of Specified Directors and Specified Executives

Specified Directors

2005

Mr. Sam Kavourakis

Non-Exec Chairman

Mr. Con Scrinis

Joint Managing Director

Mr. Con Liosatos

Joint Managing Director

Mr. Alan Brown

Non Executive

Mr. Cary Stynes

Non Executive

Primary
Emoluments
Base
Salary
$

50,000

137,500

35,000

4,500

Total

2004

395,000

4,500

Superannuation
Contributions
$

Number of
Options Granted
No.

Value of Options
Granted
$

Total
$

Equity

54,500

137,500

35,000

399,500

Mr. Sam Kavourakis

Non-Exec Chairman

Mr. Con Scrinis

Joint Managing Director

Mr. Con Liosatos

Joint Managing Director

Mr. Alan Brown

Non Executive

Mr. Cary Stynes

Non Executive

Mr. Peter Stedwell Non Executive

Total

2,833

31,250

14,583

5,000

117,499

500,000

300,000

19,500 48%

40,333

11,700 27%

42,950

11,700 27%

42,950

11,700 45%

26,283

11,700 45%

26,283

5,000

1,700,000

66,300 37%

183,799

Of total Directors’ remuneration, $260,000 (2004: $112,499) was not paid to the Directors during the financial year ended
30 June 2005 and has been accrued.

The percentage value of each person’s remuneration that consists of options is shown in italics.

Details of the nature and amount of each element of the emoluments of the Specified Executives of the consolidated entity
for the financial year ended 30 June 2005 are as follows:

TRAFFIC TECHNOLOGIES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2005

22. DIRECTORS’ AND SPECIFIED EXECUTIVES REMUNERATION (Continued)

Specified Executives

2005

Mr. Geoff Burke

Fmr TSA General Manager

Mr. James Hopping

TSA General Manager

Mr. Peter Crafter

Company Secretary

Total

2004

Primary
Emoluments
Base
Salary
$

81,524

87,445

35,000

Superannuation
Contributions
$

Number of
Options Granted
No.

Value of Options
Granted
$

Total
$

Equity

7,337

88,861

200,000

18,927 18%

106,372

300,000

28,391 45%

63,391

203,969

7,337

500,000

47,318 18%

258,624

Mr. Peter Crafter

Company Secretary

Total

10,740

The percentage value of each person’s remuneration that consists of options is shown in italics.

(c)

Remuneration options: granted and vested during the year

During the financial year ended 30 June 2005 no options were granted to Specified Directors.

During the financial year ended 30 June 2004 options were granted as equity compensation benefits to Specified Directors
as set out below. The options were issued at no cash consideration. Each option entitles the holder to subscribe for one
fully paid ordinary share in the entity. The options vest immediately on grant. The issue of options was at the discretion of
the Board and was not based on specified performance criteria.

Vested
Number

Granted
Number

Grant
Date

Terms &
Value per
option at
grant date
$

Conditions
Exercise
price per
share
$

For Each
First
Exercise
Date

Grant
Last Exercise
Date

500,000
300,000
300,000
300,000
300,000

30 Jan 04
30 Jan 04
30 Jan 04
30 Jan 04
30 Jan 04

$0.20
$0.20
$0.20
$0.20
$0.20

30 Jan 04
30 Jan 04
30 Jan 04
30 Jan 04
30 Jan 04

30 Jan 09
30 Jan 09
30 Jan 09
30 Jan 09
30 Jan 09

Specified Directors
2004
Mr. Samuel Kavourakis
Mr. Constantine Scrinis
Mr. Constantinos Liosatos
Mr. Alan Brown
Mr. Cary Stynes

Total

1,700,000

Specified Executives
2005
Mr. Peter Crafter
Mr. James Hopping
Mr. Geoff Burke

300,000
200,000
-

22 Apr 05
22 Apr 05
-

$0.20
$0.20
-

22 Apr 05
22 Apr 05
-

30 Jan 09
30 Jan 09
-

Total

500,000

During the financial year ended 30 June 2004 no options were granted to Specified Executives.

TRAFFIC TECHNOLOGIES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2005

22. DIRECTORS’ AND SPECIFIED EXECUTIVES REMUNERATION (Continued)

(d)

Shares issued on exercise of remuneration options

No shares have been issued as a result of the exercise of remuneration options.

(e)

Option holdings of Specified Directors and Specified Executives

Balance at beginning
of period
1 July 2004
Number of
options

Granted
as
remuneration
Number of
options

500,000
300,000
300,000
300,000
300,000

1,700,000

-
-
-

-
-
-
-
-

300,000
200,000
-

500,000

Balance at end
of period
30 June 2005
Number of
options

500,000
300,000
300,000
300,000
300,000

Vested
at
30 June 2005
Number of
options

500,000
300,000
300,000
300,000
300,000

1,700,000

300,000
200,000
-

500,000

300,000
200,000
-

500,000

Specified Directors
Mr. Samuel Kavourakis
Mr. Constantine Scrinis
Mr. Constantinos Liosatos
Mr. Alan Brown
Mr. Cary Stynes

Total

Specified Executives
Mr. Peter Crafter
Mr. James Hopping
Mr. Geoff Burke

Total

Fair value of options

The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions used:

Dividend yield
Expected volatility
Historical volatility
Risk-free interest rate
Expected life of option

2005
$Nil
78%
78%
5.50%
3.75 years

2004
$Nil
45%
45%
5.715%
5.0 years

All options issued to date have vested. Currently the fair values of options are not recognised as expenses in the financial
statements.

TRAFFIC TECHNOLOGIES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2005

22. DIRECTORS’ AND SPECIFIED EXECUTIVES REMUNERATION (Continued)

(f)

Shareholdings of Specified Directors and Specified Executives

Balance at
beginning of
period
1 July 2004
$

40,601
2,293,945
2,293,945
40,601
-

Specified Directors

Mr. Samuel Kavourakis
Mr. Constantine Scrinis
Mr. Constantinos Liosatos
Mr. Alan Brown
Mr. Cary Stynes

770,500
-
100,000
956,500
-

-
1,250,000
1,250,000
-
375,000

Total

4,669,092

1,827,000

2,875,000

Specified Executives
Mr. Peter Crafter
Mr. James Hopping
Mr. Geoff Burke

Total

-
-
-

10,000
-
-

10,000

-
-
-

Purchased
during year
$

Issued during
year
$

Sold during
year
$

Balance at end
of period
30 June 2005
$

-
-
-
-
-

-
-
-

811,101
3,543,945
3,643,945
997,101
375,000

9,371,092

10,000
-
-

10,000

(g)

Loans to Specified Directors and Specified Executives

There were no loans made to Specified Directors or Specified Executives during the financial year and none are outstanding
as at the date of this report.

23. RELATED PARTY TRANSACTIONS

Ultimate parent

Traffic Technologies Limited is the ultimate parent company.

Wholly owned group transactions

Loans

During the financial year ended 30 June 2005 Traffic Technologies Limited made interest-free advances to its wholly owned
subsidiary entity Traffic Technology International Pty Ltd of $548,830 (2004: $10,000). This amount is repayable on demand.

During the financial year ended 30 June 2005 Traffic Technologies Limited made interest-free advances to its wholly owned
subsidiary entity Traffic Services Australia Holdings Pty Ltd of $6,122,791. This amount is repayable on demand.

TRAFFIC TECHNOLOGIES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2005

23. RELATED PARTY TRANSACTIONS (Continued)

Loans with Directors or Director-related entities

Moonlighting Australasia Pty Ltd (a company associated with Directors, Mr. Constantine Scrinis and Mr. Constantinos
Liosatos) made interest free loans to the consolidated entity during the financial year ended 30 June 2005 of $75,000 (2004:
$583,601) to provide working capital. The loans were repaid in February 2005. The balance at 30 June 2005 was $Nil
(2004: $583,601).

Astra Glen Pty Ltd (a company associated with Director, Mr. Constantine Scrinis) was owed $100,000 at 30 June 2005
(2004: $81,250) in respect of accrued Directors’ fees and other advances made to the Company.

Contelite Pty Ltd (a company associated with Director, Mr. Constantinos Liosatos) was owed $100,000 at 30 June 2005
(2004: $81,250) in respect of accrued Directors’ fees and other advances made to the Company.

On 7 January 2005 the Company issued 1,250,000 fully paid ordinary shares to Astra Glen Pty Ltd (associated with Director
Mr. Con Scrinis) on conversion of debt of $250,000 advanced to the Company by Astra Glen Pty Ltd and 1,250,000 fully paid
ordinary shares to Contelite Pty Ltd (associated with Director Mr. Con Liosatos) on conversion of debt of $250,000 advanced to
the Company by Contelite Pty Ltd.

During the financial year ended 30 June 2004, Springbuild Pty Ltd (a company associated with Directors, Mr. Constantine
Scrinis and Mr. Constantinos Liosatos) provided an equity facility of up to $1,000,000, which could be drawn down by the
Company on agreed terms and as required by the Company. The facility was to be provided by way of a convertible loan to
the Company and secured by way of a fixed and floating charge over the Company. The loan was convertible into shares in
the Company at $0.20 (20 cents) per share. The convertible note facility bore interest at 8.95% to the extent that it was not
converted. The facility was undrawn and expired on 26 February 2005.

Other unpaid Directors’ fees totalling $260,000 (2004: $50,000) at balance date comprised $25,000 (2004: $20,833) due to
Mr. Samuel Kavourakis, $17,500 (2004: $14,583) due to Mr. Alan Brown and $17,500 (2004: $14,583) due to Mr. Cary
Stynes.

Other transactions with Directors or Director-related entities

A number of Directors of the Company, or their Director-related entities, hold positions in other entities that result in them
having control or significant influence over the financial or operating policies of these entities.

On 30 January 2004 shareholders approved the acquisition of Traffic Technology International Pty Ltd from Moonlighting
Australasia Pty Ltd (a company associated with Mr. Constantine Scrinis, Mr. Constantinos Liosatos, Mr. Samuel Kavourakis
and Mr. Alan Brown) for $500,000 in consideration the issue of 5,000,000 fully paid ordinary Shares in the Company.

The terms and conditions of the transactions with Directors and their Director-related entities were no more favourable than
those available, or which might reasonably be expected to be available, on similar transactions to non-Director related
entities on an arm’s length basis.

TRAFFIC TECHNOLOGIES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2005

23. RELATED PARTY TRANSACTIONS (Continued)

The aggregate amounts recognised during the year relating to Directors and their Director-related entities were as follows:

Consolidated

Company

Director

Transaction

2005
$

2004
$

2005
$

Cary Stynes

Legal and business consulting fees

140,729

31,570

140,729

Amounts recognised at the reporting date in relation to loans with Director-related entities

Payables (Current)
Payable to Moonlighting Australasia Pty Ltd
Payable to Astra Glen Pty Ltd
Payable to Contelite Pty Ltd
Unpaid Directors’ fees

Other transactions

Consolidated

2005
$

-
100,000
100,000
60,000

260,000

Consolidated
2004
$

Company
2005
$

583,601
81,250
81,250
50,000

796,101

-
100,000
100,000
60,000

260,000

2004
$

31,570

Company
2004
$

214,994
-
-
50,000

264,994

There were no other transactions or balances receivable from or payable to Specified Directors or Specified Executives
during the financial year or at the date of this report.

24. SEGMENT INFORMATION

The consolidated entity operates only in the provision of traffic management systems segment and operates in Australia
with export sales of LED traffic lights to South-East Asia. Export sales were $4,926 during the financial year ended 30 June
2005 (2004: $74,570).

25. FINANCIAL INSTRUMENTS: INTEREST RATE RISK AND CREDIT RISK EXPOSURES

(a)

Significant accounting policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of
measurement and the basis on which revenues and expenses are recognised, in respect of each class of financial asset,
financial liability and equity instrument are disclosed in Note 1 to the financial statements.

(b)

Interest rate risk and exchange rate risk

The consolidated entity manages its exposure to interest rate and foreign currency fluctuations through a formal set of
policies and procedures approved by the Board of Directors. The consolidated entity does not engage in any significant
transactions that are speculative in nature.

TRAFFIC TECHNOLOGIES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2005

25. FINANCIAL INSTRUMENTS: INTEREST RATE RISK AND CREDIT RISK EXPOSURES (Continued)

Exposures of the consolidated entity to interest rate risks on financial assets and liabilities are summarised as follows:

Weighted average interest rate

8.9%

(4,369,698)

(3,173,668)

2005

Financial Assets:

Cash

Receivables

Financial Liabilities:

Payables

Interest-bearing liabilities

Net financial assets/ (liabilities)

2004

Financial Assets:

Cash

Receivables

Financial Liabilities:

Payables

Net financial assets/ (liabilities)

Total
$

1,040,550

4,224,415

5,264,965

3,028,385

5,410,248

8,438,633

Non-interest
Bearing
$

Floating
Interest Rate
$

1,040,550

4,224,415

3,028,385

1,196,030

1,040,550

5,410,248

Non-interest
Bearing
$

Floating
Interest Rate
$

Total
$

40,221

132,682

172,903

922,559

40,221

(749,656)

132,682

922,559

(789,877)

Weighted average interest rate

1.52%

(c)

Credit Risk

Credit risk refers to the risk that a counter-party will default on its contractual obligations resulting in financial loss to the
consolidated entity. The consolidated entity has adopted the policy of only dealing with creditworthy counter-parties and
obtaining sufficient “collateral” or other security, where appropriate, as a means of mitigating the risk of financial loss from
default. The consolidated entity measures risk on a fair value basis. The carrying amount of financial assets recorded in the
financial statements, net of any provision for losses, represents the consolidated entity’s maximum exposure to credit risk,
without taking account of the value of any collateral or other security obtained. The consolidated entity had no significant
concentrations of credit risk with any single counterparty or group of counterparties.

(d)

Net Fair Value

The carrying amount of financial assets and financial liabilities recorded in the financial statements represents their respective
net fair values, determined in accordance with the accounting policies disclosed in Note 1 of the financial statements.

TRAFFIC TECHNOLOGIES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2005

26. IMPACT OF ADOPTING AUSTRALIAN EQUIVALENTS OF INTERNATIONAL FINANCIAL REPORTING STANDARDS

(AIFRS)

The Company has evaluated the key differences in accounting policies that are expected to arise from adopting AIFRS’s, which
will be applicable for the financial year ending 30 June 2006. The Company has, in consultation with its professional advisers,
performed an assessment to identify key areas that will be impacted by the transition to IFRS. Priority has been given to the
preparation of an opening balance sheet in accordance with AIFRS as at 1 July 2004, the Company’s transition date to AIFRS.
This will form the basis of accounting for AIFRS in the future and is required when the Company prepares its first fully AIFRS
compliant financial report for the year ending 30 June 2006.

Set out below are the key areas where accounting policies are expected to change on adoption of AIFRS and the Company’s
best estimate of the quantitative impact of the changes in total equity as at the date of transition and 30 June 2005 and on net
loss for the year ended 30 June 2005.

The figures disclosed are management’s best estimates of the quantitative impact of the changes as at the date of preparing
the 30 June 2005 financial report. The actual effects of transition to AIFRS may differ from the estimates disclosed due to
ongoing work being undertaken to assess the impact of AIFRS on the Company, potential amendments to AIFRS’s and
Interpretations thereof being issued by the standard-setters and IFRIC and emerging accepted practice in the interpretation and
application of AIFRS and UIG Interpretations.

(a)

Reconciliation of total equity as presented under AGAAP to that under AIFRS

Total equity under AGAAP

5,448,389

30,677

6,807,171

218,600

Consolidated
30 June 2005
$

Consolidated
1 July 2004
$

Company
30 June 2005
$

Company
1 July 2004
$

Adjustments to retained earnings (net
of tax)

Write-back of goodwill amortisation
Share based payments

Adjustments to other reserves

350,854
(79,388)

-
(66,300)

-
(52,225)

-
(66,300)

Options granted reserve

79,388

66,300

52,225

66,300

Total equity under AIFRS

5,799,243

30,677

6,807,171

218,600

(b)

Reconciliation of net loss under AGAAP to that under AIFRS

Year ended 30 June 2005

Net loss as reported under AGAAP

Adjustments to net earnings

Write-back of goodwill amortisation
Share based payments

Net loss under AIFRS

Consolidated
30 June 2005
$

Company
30 June 2005
$

(937,002)

233,857

350,854
(79,388)

-
(52,225)

(665,536)

181,632

(c)

Reconciliation of statement of cash flows under AGAAP to that under AIFRS

No material impacts are expected to the cash flows under AGAAP on adoption of AIFRS.

TRAFFIC TECHNOLOGIES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2005

26. IMPACT OF ADOPTING AUSTRALIAN EQUIVALENTS OF INTERNATIONAL FINANCIAL REPORTING STANDARDS

(AIFRS) (Continued)

(d)

Notes on reconciliation of equity as presented under AGAAP to that under AIFRS

(i) Classification of financial instruments - Under AASB 139 Financial Instruments: Recognition and Measurement, financial
instruments will be required to be classified into one of five categories that will, in turn, determine the accounting treatment of
the item. This will result in a change in the current accounting policy that does not classify financial instruments. The future
financial effect of this change in accounting policy is not yet known as the classification and measurement process has not yet
been completed.

(ii) Goodwill - Under AASB 3 Business Combinations goodwill will no longer be able to be amortised but instead will be subject
to annual impairment testing. This will result in a change in the group’s current accounting policy under which goodwill is
amortised on a straight-line basis over 10 years. Under the new policy, amortisation will no longer be charged, but goodwill
will be written down to the extent it is impaired. The directors believe there was no material impairment of goodwill at 1 July
2004 and 30 June 2005.

(iii) Impairment of assets - Under AASB 136 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 group’s current accounting policy under which
non-current assets are written down to recoverable amount where the carrying value of any non-current asset exceeds the
recoverable amount. Under the new policy it is likely that impairment of assets will be recognised sooner and that the
amount of write-downs will be greater. The directors believe there was no material impairment of assets at 1 July 2004 and
30 June 2005.

(iv) Share based payments - Under AASB 2 Share Based Payments, the Company will be required to determine the fair value
of options issued to employees as remuneration and recognise an expense in the Statement of Financial Performance.
Quantifying the effect of this change in accounting policy is impracticable as the details of future equity based remuneration
plans are unknown.

(v) Income taxes - Under AASB 112 Income Taxes, the consolidated entity will be required to use a balance sheet liability
method that focuses on the tax effects of transactions and other events that affect amounts recognised in either the Statement
of Financial Position or a tax-based balance sheet. It is not expected that there will be a material impact as a result of adoption
of this standard.

TRAFFIC TECHNOLOGIES LIMITED
DIRECTORS’ DECLARATION
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2005

In accordance with a resolution of the Directors of the Company, the Directors declare that:

In the opinion of the Directors:

(a)

The financial statements and notes of the Company and of the consolidated entity are in accordance with
the Corporations Act 2001, including:

(i)

giving a true and fair view of the Company’s and the consolidated entity’s financial position as at
30 June 2005 and of their performance for the financial year ended on that date; and

(ii)

complying with Accounting Standards in Australia and the Corporations Regulations 2001; and

(b)

In the opinion of the Directors, as at the date of this declaration, there are reasonable grounds to believe that
the Company will be able to pay its debts as and when they become due and payable.

This declaration has been made after receiving the declarations required to be made to the Directors in accordance
with section 295A of the Corporations Act for the financial period ending 30 June 2005.

On behalf of the board

Samuel Kavourakis
Chairman

Melbourne
2 September 2005

TRAFFIC TECHNOLOGIES LIMITED
ASX ADDITIONAL INFORMATION
(AS AT 12 AUGUST 2005)

Additional information required by the Australian Stock Exchange Limited and not shown elsewhere in this report is as
follows.

(a)

Distribution of Equity Securities

The number of shareholders, by size of holding, in each class of share are:

1
1,001
5,001
10,001

-
-
-
-

1,000
5,000
10,000
100,000

100,001 and over

Ordinary Shares

Number of
Holders

2,408
165
139
393
68

3,173

Number of
Shares

421,463
431,029
1,280,932
14,458,570
27,839,922

44,431,916

Holdings less than a marketable parcel

2,408

421,463

(b) Twenty Largest Holders

The names of the twenty largest holders of quoted shares are:

Name

Ordinary Shares

Number

Percentage

Contelite Pty Ltd*
Astra Glen Pty Ltd*
CVC Sustainable Investments Ltd
CVC Limited
Equity Trustees Limited

1.
2.
3.
4.
5.
6. Mr. Michael Nicolls
7. Wirl Nominees Pty Ltd
8. Mr. S. & Mrs. T. Kavourakis Super Fund*
9.
10. Mr. Michael John De La Haye
11. Mr. A. & Mrs. P Brown Super Fund*
12. Australian Corporate Property Services Pty

Hedderwick Pty Ltd

Ltd*

13. Mr. W. & Ms. P Saxelby Super Fund
14. CPS Holdings Pty Ltd*
15. Bunkers Pty Ltd
16. Berkshire Nominees Pty Ltd
17. Mr. Geoffrey John Rixon
18. Mr. Warren Roy Saxelby
19. Gregory J Wood & Associates Pty Ltd
20. Mr. Peter Arthur Kimberley

3,643,945
3,543,945
2,500,000
1,250,000
1,250,000
1,250,000
900,000
811,101
661,875
545,000
497,000
459,500

383,000
375,000
373,000
300,000
300,000
300,000
285,000
275,000

8.20
7.98
5.63
2.81
2.81
2.81
2.03
1.83
1.49
1.23
1.11
1.03

0.86
0.84
0.84
0.68
0.68
0.68
0.64
0.62

Total

19,903,366

44.80

* Associated with Directors.

TRAFFIC TECHNOLOGIES LIMITED
ASX ADDITIONAL INFORMATION
(AS AT 12 AUGUST 2005)

(c)

Substantial Shareholders (greater than 5%)

The names of substantial holders who have notified the Company in accordance with section 671B of the Corporations Act
2001 are:

Ordinary Shareholders

Contelite Pty Ltd
Astra Glen Pty Ltd
CVC Sustainable Investments Pty Ltd

Ordinary Shares

Number

Percentage

3,643,945
3,543,945
2,500,000

8.20%
7.98%
5.63%

(d)

Voting Rights

All ordinary shares carry one vote per share without restriction.

(e)

Options

At the date of this report there are 3,200,000 unissued ordinary shares in respect of which options are outstanding.

There are 1,700,000 options held by the Directors exercisable at $0.20 (20 cents) per share that were issued on 30 January
2004 and expiring on 30 January 2009.

There are 500,000 options held by third party financiers in part consideration of convertible loans made to the Company.
These options are exercisable at $0.20 (20 cents) per share that were issued on 7 January 2005 and expiring on 12 January
2006.

There are 400,000 options held by executives and staff of the Company exercisable at $0.25 (25 cents) per share that were
issued on 8 August 2005 expiring on 8 August 2010.

INDEPENDENT AUDIT REPORT
TO THE MEMBERS OF
TRAFFIC TECHNOLOGIES LIMITED

Scope

We have audited the financial report of Traffic Technologies Limited and controlled entities for the financial year ended 30
June 2005 comprising the Directors' Declaration, Statement of Financial Performance, Statement of Financial Position,
Statement of Cash Flows and notes to the financial statements.

The company's directors are responsible for the financial report. We have conducted an independent audit of this financial
report in order to express an opinion on it to the members of the company.

Our audit has been conducted in accordance with Australian Auditing Standards to provide reasonable assurance whether
the financial report is free of material misstatement. Our procedures included examination, on a test basis, of evidence
supporting the amounts and other disclosures in the financial report and the evaluation of accounting policies and significant
accounting estimates. These procedures have been undertaken to form an opinion whether, in all material respects, the
financial report is presented fairly in accordance with Accounting Standards and other mandatory professional reporting
requirements in Australia and the Corporations Act 2001 so as to present a view which is consistent with our understanding
of the company's and consolidated entity's financial position and performance as represented by the results of their
operations and their cash flows.

The audit opinion expressed in this report has been formed on the above basis.

Audit Opinion

In our opinion, the financial report of Traffic Technologies Limited is in accordance with:

(a)

the Corporations Act 2001, including:

(i)

giving a true and fair view of the company's and consolidated entity's financial position as at 30 June 2005
and of their performance for the year ended on that date; and

(ii)

complying with Accounting Standards in Australia and the Corporations Regulations 2001; and

(b)

other mandatory professional reporting requirements in Australia.

Dated at Melbourne on 2 September 2005

PITCHER PARTNERS

S P CATLIN
Partner

annual report