CANCOM SE — Interim / Quarterly Report 2003

May 22, 2003

Corporate Report Corporate Report

TABLE OF CONTENTS

SECTION PAGE

TABLE OF CONTENTS	02
PREFACE - KEY FIGURES	03
BUSINESS DEVELOPMENT Q 1	04-07
1) Business development Q1 + Q2	04
1.1) Sales and income trend	05
1.2) Orders position	05
1.3) Cost and revenue trend	05
1.4) Cash position	06
1.5) Significant changes in risks	06
1.6) Research and development activities	06
1.7) Investment	06
1.8) Employees	06
1.9) Outlook for the current financial year	07
2) Directors holdings	07
3) Notes on shares and stock options	07
4) Significant events since the end of the quarter	07
BALANCE SHEET	08-09
INCOME STATEMENT	10
CASH FLOW STATEMENT	11
DEVELOPMENT OF EQUITY	12
APPENDIX	13-20

CONTENT

PREFACE – KEY FIGURES

Dear Shareholders,

The first few months of this year were dominated by a series of negative economic and political headlines, starting with the war in Iraq, and the associated discord between the United States and Europe and within Europe, and continuing with the steady rise in unemployment figures and the lack of any noticeable economic upturn in Germany. These general conditions resulted in an extremely cautious investment climate among European companies, which in turn had noticeable effects on the German IT industry.

This development did not have CANCOM unaffected, mainly making itself felt by a fall in sales to below the level attained in the same period last year. However, we achieved an operating result almost equal to that of the first quarter of 2002, proving that the cost-reduction measures we have introduced are taking effect.

Of course, the lower quarterly sales figure also reflects our customers' caution with regard to investment. However, we feel that for the main part investments have not been put off indefinitely, but only postponed until later in the year. Our own discontinuation of unprofitable business has also reduced sales by about 5 per cent in the third quarter, but has not had any negative impact on the result.

Klaus Weinmann, CEO

The fall in sales can also be accounted for by two exceptional items, which actually lead us to feel quite positive about the prospects for the second half of 2003. The first is that a new Apple model series was introduced in the first quarter of 2002, and had a very positive effect on the sales of that quarter. However, since, in our experience, a new Apple generation can be expected about every 18 months, there is the possibility of an additional source of sales in the second half of this year.

We anticipate a further positive impact in the second half of 2003 from the introduction of the new version of the graphics program Quark, which is expected in July. Since the current version cannot run on Apple's new operating system OS X, many companies have postponed purchasing a new Apple computer until the new version of Quark is introduced. The backlog of

investment projects should therefore begin to clear from July onwards, leading to new orders for CANCOM.

Since our sales will tend to be postponed towards the second half of 2003, we are very confident about both our sales and our operating result over the year as a whole. In the meantime we will continue to concentrate our efforts on improving our profit situation.

Key Figures

Three months' report 2003 in Euro million

Kennzahlenübersicht Dreimonatszahlen 2003 in Mio. Euro	Three months' report 01.01. - 31.03.2003	Three months' report 01.01. - 31.03.2002	Key Figures First 3 months in Euro million
Konzernumsatz EBIT CANCOM Konzern	53,7 -0,1	67,6 -0,02	Consolidated Sales EBIT CANCOM Group
EBITDA CANCOM Konzern	0,5	0,7	EBITDA CANCOM Group
DVFA/SG-Ergebnis je Aktie in €	-0,02	-0,04	Earnings per Share (DVFA/SG) in €
	31.03.2003	31.12.2002
Bilanzsumme	84,3	91,5	Balance Sheet Total
Eigenkapitalquote	51,2 %	47,4 %	Equity Ratio
Mitarbeiter	539	542	Workforce
Auslandsanteil	34,5 %	30 %	International Business

1) Business development since the start of the financial year

The consolidated sales of the CANCOM Group in the first three months of the current year amount to € 53.7 m compared with € 67.6 m in the same period last year.

Earnings before interest, tax, depreciation and amortisation (EBITDA) for the first three months of 2003 amount to € 0.5 m, compared with € 0.7 m in the first quarter of 2002.

The Group made earnings before interest and tax (EBIT) of € -0.1 m in the first quarter, in comparison with earnings of € -0.02 m last year.

CANCOM's strong position places it in a strong strategic position for the remainder of the financial year, and is thus the basis for the continued success of the company.

Since we expect that Group sales will tend to be concentrated in the second half of the year, we are confident about both our sales and our operating result over the year as a whole. In the meantime, we will continue to concentrate our efforts on improving our profit situation.

Below is an overview of the most important developments in the CANCOM Group in the first quarter of 2003.

CANCOM admitted to Prime Standard segment of Frankfurt Stock Exchange

CANCOM IT Systeme AG has been admitted to Deutsche Börse's premium segment, the Prime Standard, with effect from January 2003, since it satisfies all the conditions for its acceptance. The company has therefore left the Neuer Markt segment.

The Prime Standard segment is specifically geared to companies that want to market themselves to international investors. They have to fulfil high international standards of transparency that go beyond the General Standard, and must:

• publish quarterly reports;
• adopt international accounting standards (IAS or US GAAP);
• publish a corporate calendar giving the most important dates;
• hold at least one analysts' meeting per year;
• make ad hoc notifications and issue regular reports in English.

CANCOM's French subsidiary eBizcuss looks into possible acquisition

In March, CANCOM's subsidiary eBizcuss.com S.A., based in Paris, signed a letter of intent detailing a plan for the takeover of International Computer S.A. with effect from 30 June 2003 by means of issue of new eBizcuss shares.

Like eBizcuss, International Computer is listed on the stock exchange in France. For this reason, the letter of intent contains various suspensive conditions, such as the audit of the 2002 accounts of both companies and the agreement of the shareholders of both companies at their respective annual general meetings, which are planned for June this year.

International Computer currently operates six regional sales offices throughout France, which will perfectly complement eBizcuss's four existing sales offices in Paris.

The planned transaction will give the CANCOM Group a market position in France similar to the one it already enjoys in Germany, making it the French IT market leader in the desktop publishing and media environment, and also Apple's and Adobe's largest partner in France.

The takeover of International Computer will increase eBizcuss's annual sales by approximately € 20 m, to about € 50 m.

1.1) Sales and income trend 1.2) Orders position

There was no improvement in the economic outlook in Germany in the first three months of the current year. And the market situation within the German and European IT sector was no exception. There is still a noticeably strong reluctance to invest.

The consolidated sales of the CANCOM Group in the first three months of the current year amount to € 53.7 m compared with € 67.6 m in the same period last year.

Earnings before interest, tax, depreciation and amortisation (EBITDA) in the first three months of 2003 amount to € 0.5 m, compared with € 0.7 m in the first quarter of 2002.

The Group made earnings before interest and tax (EBIT) of € -0.1 m in the first quarter, in comparison with earnings of € -0.02 m last year.

The international portion of consolidated sales in the first quarter of the current year was 34.5 per cent, compared with approximately 30 per cent in the first quarter of 2002.

This means the net income per share according to DVFA/SG in the first three months was € -0.02, compared with a negative net income (earnings) per share of € -0.04 in the same quarter last year.

Since – because of our high capacity to deliver goods immediately – the majority of our orders are converted into sales either on the same day or generally within a week, the reporting date figures on their own give a rather arbitrary picture of our order situation, and we therefore do not publish them.

1.3) Cost and revenue trend

In order to counteract the steady collapse in margins within the IT sector, in 2002 CANCOM concentrated on rigorously reducing its costs in almost all divisions. On top of this, the Company also discontinued its unprofitable business. This had the effect of decreasing sales by about 5 per cent in the third quarter, but did not have any negative impact on the result. The operating result for the first quarter of 2003 – which is around the same as in the comparable period last year, despite the fall in sales – shows that the measures introduced are beginning to have a positive effect on our cost structure. It was therefore possible to keep strictly within the reduced expense budget in the first three months of the current financial year.

1.4) Continued strong cash position

1.7) Investment

The Group's cash position is still good. Although a slight negative cash flow was generated in the first quarter of 2003, we expect a considerable positive cash flow for the year as a whole. And there has been a significant improvement in the cash flow in comparison with the comparable period last year.

Our inventories and accounts receivable represent a valuable asset which can be used as security. We still have credit lines which are far from being fully used up, so we are also able to raise large sums of cash at short notice if necessary. These will enable CANCOM to finance the Company's continued growth.

1.5) Significant changes in the risks from any future development

(since the start of the financial year)

There has been no significant change since the start of the financial year in the risks arising from any future development at CANCOM. These risks are detailed in our 2002 Annual Report, starting on page 20.

1.6) Continuous development and improvement of our products

Since the trade sector forms the CANCOM Group's core business, its research and development activities are all concentrated on the development of the ff-eCommerce software and the webshop, both of which are integrated into CANCOM media solutions GmbH.

1.8) Employees

Apart from the usual investment in the continuous improvement of our internal infrastructure, our investment activity in the first three months of 2003 was focused on minor investments in our company headquarters in Jettingen-

Scheppach, Germany and the logistics centre connected to it.

The number of employees has fallen by about 9 per cent in the past year, from 588 on 31 March 2002 to 539 on 31 March 2003. On 31 December 2002 the company had 542 employees.

1.9) Outlook for the current financial year

In their spring reports this year, the six leading German economic institutes expect an increase of 0.5 per cent in gross domestic product. However, for 2004 the experts expect growth of 1.8 per cent. The EU Commission also anticipates extremely low growth of 0.4 per cent for Germany in 2003, but it expects growth to pick up to 2 per cent in 2004. And for Euroland, the EU Commission expects growth of 1 per cent in 2003 and as much as 2.3 per cent in 2004.

According to the respected IT analysts at the International Data Corporation (IDC), further consolidation is to be expected in the European IT market, particularly in the first half of 2003. At present, companies are generally very reluctant to spend money on new IT equipment. However, according to the analysts, this attitude will influence IT budgets only in the short term. They say expenditure will eventually rise all the more sharply once confidence in the economic situation has returned. Gärtner's IT analysts are of the same opinion. Although they anticipate only a slight increase in the IT budgets of European companies in 2003, they say the surviving IT suppliers will be able to strengthen their position again in 2004 by steady consolidation, because they will then no longer have to continue the current price wars.

According to the Central Association of the German Advertising Industry (Zentralverband der deutschen Werbewirtschaft, or ZAW), the German advertising industry – one of CANCOM IT Systeme AG's most important sales markets – is set to recover again slightly in 2003, with the German daily newspapers having the greatest potential for recovery.

The CANCOM Group plans to continue its growth in the current financial year and in the next few years, increasing its profitability at an even faster rate. Both the process of concentration in the market and CANCOM's own strategic alignment leave it in a strong position for an eventual recovery in the economy, and it is on these factors that the continued success of the Company will be based in the long term.

In the first quarter of 2002 a new Apple model series was introduced, with a very positive impact on sales in that quarter. Since, in our experience, a new Apple generation can be expected about every 18 months, there is the possibility of an additional source of sales in the second half of this year.

We anticipate a further positive impact in the second half of 2003 from the introduction of the new version of the graphics program Quark, which is expected in July. Since the current version cannot run on Apple's new operating system OS X, many companies have postponed purchasing a new Apple computer until the new version of Quark is introduced. The backlog of investment projects caused by this postponement should begin to clear from July onwards, leading to new orders for CANCOM.

Since our sales will tend to be concentrated in the second half of 2003, we are very confident about both our sales and our operating result over the year as a whole. In the meantime we will continue to focus our efforts on improving our profit situation.

2) Shareholdings of members of the Executive and Supervisory Boards (as at 31 March 2003)

Executive Board:
Raymond Kober	705.091 (8,998 %)
Stefan Kober	523.599 (6,682 %)
Klaus Weinmann	523.599 (6,682 %)

Supervisory Board:

Willy Kober	11.880 (0,152 %)
Walter von Szczytnicki	6.252 (0,080 %)

3) Notes on the company's holdings of its own shares, and stock options held by Board members and employees

No stock options were issued to Board members or employees during the period under review. (For further details on stock options see notes.)

4) Events of particular significance since the end of the quarter

There were no events of particular significance after the end of the quarter.

BALANCE SHEET (US-GAAP) – ASSETS

Aktiva	Three months' report 31.03.03 (TEuro)	Annual report 31.12.2002 (TEuro)	Assets
Kurzfristige Vermögensgegenstände			Current assets
Liquide Mittel	6.586	7.924	Cash and cash equivalents
			Short-term investments/
Wertpapiere des Umlaufvermögen	153	183	Marketable securities
Forderungen aus
Lieferungen und Leistungen	19.440	24.940	Trade account receiveable
Vorräte	8.200	8.294	Inventories
Rechnungsabgrenzungsposten und			Prepaid expenses and
sonstige kurzfristige Vermögensgegenstände	3.533	3.829	other current assets
Kurzfristige Vermögens
gegenstände, gesamt	37.912	45.170	Total current assets
Langfristige Vermögensgegenstände			Long-term assets
Sachanlagevermögen	9.370	9.607	Property, plant and equipment
Immaterielle Vermögensgegenstände	3.603	3.608	Intangible assets
Geschäfts- oder Firmenwert	28.857	28.920	Goodwill
Finanzanlagen und Ausleihungen	568	483	Investments and Notes receivable/loans
Latente Steuern	3.333	3.133	Deferred taxes
Sonstige Vermögensgegenstände	637	624	Other assets
Langfristige Vermögens
gegenstände, gesamt	46.368	46.375	Total long-term assets
Aktiva, gesamt	84.280	91.545	Total assets

BALANCE SHEET (US-GAAP) – LIABILITIES AND SHAREHOLDERS EQUITY

Passiva	Three months' report 31.03.03 (TEuro)	Annual report 31.12.2002 (TEuro)	Liabilities and shareholders' equity
Kurzfristige Verbindlicheiten			Current liabilities
Kurzfristige Darlehen und kurzfristiger Anteil an			Short term debt and
langfristigen Darlehen	6.324	7.227	current portion of long-term debt
Verbindlichkeiten aus Lieferungen
und Leistungen	14.200	20.510	Trade accounts payable
Erhaltene Anzahlungen	25	0	Advance payments received
Rückstellungen	2.344	2.324	Accrued expenses
Umsatzabgrenzungsposten	110	213	Deferred revenues
Verbindlichkeiten aus Ertragssteuern	448	418	Income tax payable
Sonstige kurzfristige Verbindlichkeiten	4.831	7.467	Other current liabilities
Kurzfristige Verbindlichkeiten, gesamt	28.282	38.159	Current liabilities, total
Langfristige Verbindlicheiten Langfristige Darlehen	10.020	7.172	Long-term liabilities Long-term debt, less current portion
Umsatzabgrenzung	98	98	Deferred revenues
Latente Steuern	0	0	Deferred tax liability
Pensionsrückstellungen	597	602	Pension accrual
Übrige	37	36	Others
Langfristige Verbindlichkeiten, gesamt	10.752	7.908	Long-term liabilities, total
Eigenkapital			Shareholders' equity
Minderheitenanteile	2.093	2.131	Minority interest
Gezeichnetes Kapital	7.836	7.836	Share capital
Kapitalrücklage	35.178	35.178	Additional paid-in capital
Bilanzgewinn/Bilanzverlust (inklusive			Retained earnings /
Gewinnrücklagen)	180	340	accumulated deficit
Übrige	-41	-7	Others
Eigenkapital, gesamt	43.153	43.347	Total shareholders' equity
			Total liabilities and
Passiva, gesamt	84.280	91.545	shareholders' equity

(figures in German format)

INCOME STATEMENT (US – GAAP)

Zahlenangaben in T€	01.01.03	01.01.02
Gewinn- u. Verlustrechnung	- 31.03.03	- 31.03.02	Income Statement
		Income Statement01.01.01.-30.06.01
Umsatzerlöse	53.722	67.636	Revenues
Herstellungskosten (Materialaufwand)	-45.997	-59.000	Manufacturing costs
Bruttoergebnis	7.725	8.636	Gross operating income
Vertriebskosten	-5.719	-6.498	Distribution costs
Allgemeine Verwaltungskosten	-2.410	-2.534	General administrative costs
Sonstige betriebliche Aufwendungen und Erträge	274	376	Other operating expenses and income
Summe Kosten	-7.855	-8.656	Total costs
Betriebsergebnis	-130	-20	Operating income
Finanzergebnis	-225	-268	Financial income
Sonstige Aufwendungen und Erträge	46	-49	Other expenses and income
Ergebn. v. Steuern und Minderheitenanteile	-309	-337	Result before taxes and minority interest
Steuern vom Einkommen und Ertrag	142	76	Income tax
Minderheitenanteile	38	-36	Minority interest
Konzernergebnis	-129	-297	Consolidated result

CASH FLOW STATEMENT

	01.01.03 -	01.01.02 -
Kapitalfluss		31.03.03 (TEuro) 31.03.02 (TEuro)	Cash Flow
Cashflow aus betrieblicher Tätigkeit:			Cash flows from operating acivities:
Jahresergebnis	-129	-297	Net profit/loss (period)
Anpassungen für:			adjustments for:
Anteile anderer Gesellschafter	-38	36	Minortiy interest
	-167	-261
Abschreibungen	593	732	Depreciation and amortisation
Gewinn/Verlust aus dem Abgang von Anlagevermögen	6	0	Losses on the disposal of fixed assets
Zunahme/Abnahme der latenten Steuern	-200	-173	Increase/decrease in deferred tax asset
Zunahme/Abnahme kurzfristiger Vermögenswerte	5.920	3.030	Increase/decrease in short-term assets
Zunahme/Abnahme sonstige Aktiva	-98	16	increase/decrease in other assets
Zunahme/Abnahme der Rückstellungen	15	-1.837	increase/decreaseand in accruals
Zunahme/Abnahme Verbindlichkeiten	-9.027	-6.105	Increase/decrease in liabilities
Aus betrieblicher Tätigkeit erwirtschaftete/			Net cash provided by
eingesetzte Zahlungsmittel	-2.958	-4.598	operating activities
Erwerb von Tochterunternehmen,
abzüglich erworbener liquider Mittel	32	513	Acquisition of subsidiaries, net of cash aquired
Erwerb von Anlagevermögen	-370	-830	Purchase of property, plant and equipment
Erlöse aus dem Verkauf von Anlagevermögen	13	0	Income from asset disposals
Für Investitionen eingesetzte Zahlungsmittel	-325	-317	Net cash used in investing activities
Kapitalerhöhungskosten	0	0	Costs of capital increase
Einzahlungen aus der Aufnahme von kurz- oder
langfristigen Darlehen	2.848	0	Inflows from short or long-term borrowings
Auszahlungen aus der Tilgung von kurzfristige Darlehen	-903	-2.158	Cash repayments of amounts borrowed
Auszahlung an Unternehmenseigner	0	0	Payment of enterprice owner
Sonstige	0	0	Other
Aus der Finanzierungstätigkeit erzielte/			Net cash used from
eingesetzte Zahlungsmittel	1.945	-2.334	financing activities
Erhöhung/Verminderung der liquiden Mittel	-1.338	-7.249	Net increase/decr. in cash and cash equivalents
Liquide Mittel zu Beginn der Periode	7.924	10.915	Cash and cash equivalents at beginning of period
Liquide Mittel am Ende der Periode	6.586	3.666	Cash and cash equivalents at end of period

DEVELOPMENT OF EQUITY

Figures in T€	comprehensive income	cumulated other comprehensive income	consolidated result (including revenue reserves)	capital reserves	subscribel capital	total
31 December 2001		12	926	33.955	7.482	42.375
consolidated result	-586		-586			-586
other net comprehensive income
- less currency conversion
difference	-19
other comprehensive income		-19				-19
comprehensive income	-605
capital increase				1.330	354	1.684
other changes				-107		-107
31 December 2002		-7	340	35.178	7.836	43.347
consolidated result	-129		-129			-129
consolidated capital
other net comprehensive income
- less currency conversion
difference	-34
other comprehensive income		-34				-34
comprehensive income	-163
capital increase						0
other changes			-31			-31
31 March 2003		-41	180	35.178	7.836	43.153

Notes to the accounts

for the period from 1 January 2003 to 31 March 2003

A. The principles adopted for the consolidated financial statements

1. General information

The consolidated financial statements of CANCOM IT Systeme AG for the quarter ended 31 March 2003 were prepared according to U.S. generally accepted accounting principles (GAAP). All obligatory statements of financial accounting standards (SFAS) were taken into consideration. The figures for the previous year were established according to the same principles. The consolidated income statement was converted to the cost-of-sales accounting method. It was therefore necessary to rearrange the figures shown in these financial statements for the period from 1 January to 31 March 2002 and to eliminate goodwill amortisation to make them comparable with the latest figures.

Since 1 January 2002, goodwill arising from the acquisition of subsidiaries before 30 June 2001 is no longer subjected to straight-line depreciation, in accordance with U.S. GAAP.

2. Scope of consolidation

The following German and foreign subsidiaries are included in CANCOM AG's consolidated statements for the period ended 31 March 2003 according to the principles of full consolidation: Beteiligungs-Sitz der

					accordingly converted at the rate of exchange fixed on the reporting date,
	Gesellschaft	quote in %			while income and expenditure is converted at the average rate for the year.
1. CANCOM media solutions GmbH	Scheppach, Germany 100,0		Differences from the conversion rate on the reporting date in the previous year and between the net income in the balance sheet and in the income statement
including the following companies:					are included under comprehensive income without affecting the net income.
• CANCOM Computersysteme Ges.m.b.H.	Graz, Austria	100,0
• CANCOM (Switzerland) AG	Caslano, Switzerland 100,0
2. CANCOM business solutions GmbH	Scheppach, Germany 100,0
3. Tendi AG	Munich, Germany	89,6
including the following companies:
• Tendi Deutschland GmbH & Co. KG	Pfronten, Germany	100,0	Currency
• Tendi Österreich GmbH & Co KG	Vils, Austria	100,0	Swiss francs
• SoftMail IT AG	Caslano, Switzerland 100,0		• Rate on reporting date	31.03.2003	31.12.2002
• Maily Software GmbH & Co. KG	Sindelfingen, Germany 100,0			1 € = 1,4766 SFR	1€ = 1,4546 SFR
• Bytehouse GmbH	Sindelfingen, Germany 100,0		• Average rate	01.01. – 31.03.03	01.01. – 31.12.02
4. Novodrom GmbH	Scheppach, Germany 100,0			1€ = 1,4662 SFR	1 € = 1,4671 SFR
5. IT Consult GmbH	Scheppach, Germany 100,0
6. eBizcuss.com S.A.	Genneviliers, France	58,3	Pounds sterling
sowie deren Tochtergesellschaften			• Rate on reporting date	31.03.2003	31.12.2002
• KA Services S.A.R.L.	Paris, France	100,0		1 € = 0,6861 GBP	1 € = 0,6535 GBP
• EIRE Services S.A.R.L.	Paris, France	100,0	• Average rate	01.01. – 31.03.03	01.01. – 31.12.02
7. CANCOM Ltd.	Guildford, UK	73,32)		1 € = 0,6696 GBP	1 € = 0,6287 GBP
1) First consolidated on 31 December 2002

2) The voting rights deviate from the capital shares and amount to 60 per cent.

IT SYSTEME AG

3. Accounting and valuation methods Preparation of financial statements included in the consolidated statements

The financial statements of German and foreign companies included in the consolidated statements were prepared as at CANCOM AG's reporting date.

The financial statements of individual subsidiaries were included in the consolidated statements by the acquisition method. This means the purchase costs of the subsidiary are set off against the shareholders' equity of the subsidiary in question at the time of acquisition. Any differences are allocated to the assets and liabilities of the subsidiaries, if they have hidden assets. Any remaining difference on the asset side is capitalised as goodwill under intangible assets. In line with Statement of Financial Accounting Standard (SFAS) 142, for financial years beginning after 15 December 2001 the goodwill on any acquisition that took place before 1 July 2001 is no longer subject to scheduled amortisation, but instead a check must be carried out at least once a year to establish whether extraordinary amortisation is necessary.

Profits, losses, revenues, expenses and income within the Group and existing accounts receivable and payable between the companies in the Group are eliminated. The shares of other shareholders are shown independent of shareholders' equity in a separate adjusting item.

Currency conversion principles

Conversion of the financial statements of foreign subsidiaries is carried by the concept of functional currency. This means that all foreign subsidiaries are financially independent ("foreign entities"). The assets and liabilities are accordingly converted at the rate of exchange fixed on the reporting date, while income and expenditure is converted at the average rate for the year. Differences from the conversion rate on the reporting date in the previous year and between the net income in the balance sheet and in the income statement are included under comprehensive income without affecting the net income.

APPENDIX AppendixAppendix

Short-term assets

Inventories are valued at the lower of acquisition/manufacturing cost or market value. Replacement cost is generally used as a basis for establishing the market value. Calculation of the replacement cost is limited by the net realisable price. Items with reduced marketability are valued at the lower net sale value. No extraordinary write-downs were necessary during the year under review.

Accounts receivable are shown at their net sale value, allowing for a writedown for doubtful debts. Where the agreed interest rate for long-term accounts receivable is less than the market rate, the nominal amount of the account receivable is discounted. Trade accounts receivable are not. If it is doubtful whether an account receivable can be collected, the amount is written down.

Other assets are shown at their nominal values.

Short-term investments/marketable securities are classified as trading securities, in accordance with SFAS 115. They are valued at their market value, and all changes since the previous year are included in earnings.

Cash and cash equivalents can be converted into sums of money within a period of three months at most.

Prepaid expenses are accrued to charge expenses to their relevant accounting period.

Intangible assets

In line with SFAS 142 – "Goodwill and other intangible assets", intangible assets purchased are valued at acquisition cost and the estimated residual value is amortised by the straight-line method over the expected useful life of the assets. Assets are amortised uniformly throughout the Group by the straight-line method (generally over three to five years) over the period during which the relevant company can expect to use or sell the asset. Since 1 January 2002, goodwill from acquisitions is no longer subject to scheduled amortisation. Instead, it is subject to an impairment test at least once per year. SFAS 142 distinguishes between intangible assets with limited and indeterminable useful lives. Only intangible assets with limited useful lives are subject to scheduled amortisation, unlike intangible assets with indeterminable useful lives, which are instead reviewed at least once a year to check if a write-down is necessary. With the exception of goodwill, all intangible assets have a limited useful life.

Prior to 1 January 2002, goodwill was amortised by the straight-line method over a useful life of 15 to 20 years.

Intangible assets developed in-house – i.e. expenditure arising from the company's own activities for the development or modification of software, if the modification is certain to provide additional functionality – are capitalised, if the software developed is for internal use (SOP 98-1 "Accounting for the costs of computer software developed or obtained for internal use") or for sale or marketing (SFAS 86, FIN 6 – "Accounting for the costs of computer software to be sold, leased or otherwise marketed").

Capitalisation of intangible assets developed in-house is carried out on the basis of manufacturing costs, which essentially include direct personnel costs for the staff respectively employed. Overheads are also capitalised. These assets are amortised by the straight-line method over the expected useful life of the asset.

Property, plant and equipment

Property, plant and equipment is valued at acquisition or manufacturing cost. It is subject to scheduled straight-line depreciation over its useful life. The valuations are based on the following useful lives:

Administrative and warehouse buildings 33 1/3 years Fixtures, fittings and equipment 4-10 years

Low-value assets are written off in full in the year of acquisition and shown in the schedule of fixed assets as additions and disposals and as depreciation for the current financial year.

Investments

Other notes receivable/loans are valued at acquisition cost. Non-interestbearing and low-interest-bearing notes receivable and loans are valued at their present value. Shares in subsidiaries in which control is exercised only temporarily because the subsidiary is being held exclusively for the purpose of resale in the near future, as defined by SFAS 115 – "Accounting for certain investments in debt and equity securities" – are valued at their net book values. The investments do not include any securities traded on organised stock markets.

Deferred taxes

Deferred taxes are accrued for temporary differences between the basis of calculation for tax and commercial law purposes which will most probably be cancelled out in the future, and for temporary result differences from consolidation measures affecting net result. The deferred taxes are quantified using the tax rates applying in the year the differences are reversed, if these are already approved on the balance sheet date. In accordance with SFAS 109 – "Accounting for income taxes" – the deferred tax assets and liabilities are shown separately in the Group figures. For loss carryovers that reduce future tax burdens, deferred tax assets have been accrued if it is probable that they will be realised. The value of the deferred taxes is reviewed and adjusted if necessary. Deferred taxes are shown in the balance sheet at their nominal value; no discounting is carried out.

IT SYSTEME AG

Accrued expenses and liabilities

Accrued expenses for employee benefits mainly include performance-related pension obligations, which are determined on the basis of actuarial reports using the projected unit credit method and taking into account future increases in salary and pensions. Accruals are made for contribution-based pension schemes only to the amount of the contributions still due at the balance sheet date.

Liabilities are valued at their repayment value, which is equivalent to the market value.

Realisation of revenues

Revenues for sales of hardware and software are realised when ownership and risk passes to the customer, if payment is pre-arranged or determinable by contract and it is probable that the accounts receivable relating to the sale will be met. Sales relating to system integration are realised only after acceptance by the customer, or installation, if this is an essential condition for the commissioning of the product. Maintenance contracts are realised pro rata over the contractual service period.

Net income per share (earnings per share)

The net income per share is determined in accordance with Statement of Financial Accounting Standards (SFAS) 128 – "Earnings per share". The (basic) income is calculated by dividing the consolidated income by the weighted average number of ordinary shares outstanding during the financial year. The (diluted) income is calculated on the basis that all potentially diluted stock options have been exercised.

Leasing

Payments on an operating lease are recorded as expenses in the income statement using the straight-line method over the term of the leasing contract, unless another systematic fundamental corresponds more closely to the development of usefulness to the Company. An operating lease is one in which not all major risks and opportunities are assigned to the lessee. The Company reviews all leasing contracts at regular intervals to establish whether operating or finance lease terms apply.

4. Acquisitions

No acquisitions were carried out in the first quarter of 2003.

B. Notes to the consolidated balance sheet

1. Cash and cash equivalents

Cash and cash equivalents consists of cash in banks payable on demand and cash in hand.

2. Short-term investments/marketable securities

Short-term investments/marketable securities consists of short-term time deposits.

3. Trade accounts receivable

The trade accounts receivable are due within one year.

4. Inventories

Inventories consist almost exclusively of merchandise, particularly hardware components and software. The majority of the hardware components are stored in the new logistics centre in Scheppach, Germany.

5. Prepaid expenses and other current assets

This item mainly consists of other current assets. These include tax rebates (€ 709k), bonuses due from suppliers (€ 533k), creditors with a debit balance (€ 140k) and employee loans (€ 175k). The prepaid expenses include deferred insurance premiums and advance payments.

6. Fixed assets

6.1 Property, plant and equipment

Property, plant and equipment mainly consists of the grounds and buildings of the administrative and logistics centre in Scheppach, Germany (€ 6.1 m), and the equipment necessary for the small-parts warehouse and the manual pallet rack (€ 1.0 m). Computer equipment, tenant's fittings and office furnishings are also shown under this item.

6.2 Intangible assets

Intangible assets predominantly include software that has either been purchased or produced in-house. Intangible assets produced in-house mainly include manufacturing costs at approx. € 2,390k for customising the integrated EDP system ff-eCommerce (31.12.2002: € 2,240k). Combined with the licensing rights to this software acquired at the end of 2000 and the software components purchased in 2001, 2002 and 2003 from third parties, the manufacturing costs for this EDP system in the consolidated balance sheet amount to about € 3,429k. The probability that the software produced inhouse will generate economic benefit is concluded from the fact that the software is already being used by the Company and that a significant improvement in processes has been achieved.

6.3 Goodwill

Goodwill at the balance sheet date mainly includes the relevant figures arising from the consolidation of Tendi AG, CANCOM media solutions GmbH, eBizcuss.com S.A. and Cancom UK Ltd.

7. Deferred tax assets

The deferred tax assets were capitalised on the basis of the existing approx. € 11.1 m losses carried forward. Where the losses carried forward were taken on as a result of company acquisitions, deferred tax assets were accrued with no effect on the result, by netting against the relevant goodwill.

8. Short-term debt and current portion of long-term debt

This item consists of current liabilities to banks. These include drawings on credit facilities provided by banks and those portions of long-term loans due for repayment within one year.

9. Trade accounts payable

The trade accounts payable are due within one year.

10. Accruals for pensions

Individual performance-related commitments exist in relation to Executive Board members. In addition, a further performance-related commitment to a former employee was taken on when a company was acquired.

11. Other accrued expenses

Other accrued expenses mainly include accruals for invoices not yet received (€ 1,647k), litigation costs (€ 119k), financial statement fees (€ 113k), trade association (€ 102k) and holiday entitlements (€ 131k).

All the accrued expenses are due within one year.

12. Income tax payable

Income tax payable consists of obligations for the years 2001 and 2002.

13. Other current liabilities

Other current liabilities include tax liabilities (€ 1,797k), debtors with a credit balance (€ 992k), wages and salaries (€ 375k) and social security contributions (€ 391k).

14. Long-term debt

Long-term debt consists purely of liabilities to banks with a term remaining to maturity of at least one year. The portion of these debts that is due within the next 12 months is shown under short-term debt and current portion of longterm debt.

15. Shareholders' equity

Authorised and conditional capital

By a resolution of the Annual General Meeting on 18 April 2000, the Executive Board is authorised to increase the share capital once or repeatedly up to a total of € 78,267, by issuing up to 78,267 new bearer no-par-value shares in exchange for cash or non-cash contributions (Authorised Capital I). The capital increases require the approval of the Supervisory Board and must be carried out by 17 July 2004.

The above resolution also authorises the Executive Board to increase the share capital once or repeatedly up to a total of € 540,000, by issuing up to 540,000 new bearer no-par-value shares in exchange for cash contributions (Authorised Capital II). These capital increases also require the approval of the Supervisory Board, and must also be carried out by 17 July 2004.

A resolution passed at the Annual General Meeting on 17 July 2001 authorises the Executive Board to increase the share capital of the Company once or repeatedly up to a total of € 2,767,989, by issuing up to 2,767,989 new bearer no-par-value shares in exchange for cash or non-cash contributions (Authorised Capital III). Again, the capital increases require the approval of the Supervisory Board, and they must be carried out by 15 July 2006.

The Company thus has a total of 3,740,866 shares available for increases in the share capital in exchange for cash or non-cash contributions, of which 540,000 shares may only be exchanged for cash contributions.

In addition, the share capital has been conditionally increased by up to € 3,560,866 by the issue of up to 3,560,866 new no-par-value shares. The Executive Board and the Supervisory Board have been authorised by a resolution of the AGM on 27 May 2002 to issue bonds up to 25 May 2007. The extent to which the conditional capital increase is carried out depends on the number of bondholders who make use of their conversion rights and obligations or their stock options.

C. Notes to the consolidated income statement

1. Other operating expenses and income

Other operating expenses and income for the first quarter of 2003 consists of operating income only. The € 274k (2002: € 376k) therefore consists mainly of the release of accruals (€ 17k), reduction of provisions for individual accounts receivable (€ 9k), income not relating to the period (€ 26k), insurance compensations (€ 91k) and income from benefits in money's worth and payments in kind for employees (€ 67k).

2. Financial income		01.01. – 31.03.03 01.01. – 31.03.02
	T€	T€
other interest and similar income	16	41
interest and similar expenses	-241	-309
Financial income	-225	-268

3. Other expenses and income

Other expenses and income, amounting to € 46k (2002: € -49k), includes currency differences (€ 49k) and extraordinary expenses (€ -3k).

4. Personnel expenses

Personnel expenses include wages and salaries (€ 5,003k) and social security contributions (€ 700k). Pension expenses amount to € 7k.

5. Income tax

The following table shows the income tax paid or due and deferred taxes in the individual countries:

		01.01. – 31.03.03 01.01. – 31.03.02
Current tax expense	T€	T€
In Germany	0	55
Outside Germany	6	42
	6	97
Deferred taxes
Tax assets	-148	-187
Tax liabilities	0	14
	-148	-173
Group tax expenses	-142	-76

Income tax expenses for German companies run to 38.5 per cent on average and, because the income of the partnerships is allocated to the joint-stock companies, relates to corporation tax, trade tax and solidarity surcharge. Income tax expenses for non-German joint-stock companies amount to 31.0 per cent on average; the rates of taxation are between 29 per cent and 34 per cent. The income tax rate across the Group is about 36.5 per cent.

The computation of income tax in accordance with FAS 109 (Deferred taxes) includes tax deferrals resulting from differing valuations in the commercial balance sheet and the tax balance sheet, from realisable carryovers, from differences in results between the tax valuations in the individual financial statements of the consolidated subsidiaries and the standard CANCOM valuation, or from the consolidation processes, if these balance out over the course of time. Deferred tax claims relating to the carrying forward of unused tax losses are capitalised, in view of the expected future positive results. The deferred taxes are calculated on the basis of the taxation rates expected to apply to the period in which an asset is realised or a debt satisfied. The taxation rates used are those that apply or are advertised for the balance sheet date.

In calculating deferred taxes, all temporary differences are included in the tax deferrals, regardless of the time of their realisation. The tax rates used were those applying on the reporting date. The deferred tax claims relate exclusively to future tax savings due to realisable loss carryovers.

Deferred tax assets or liabilities are netted with tax expenses for the current year and shown under income tax.

The transfer of deferred tax assets and liabilities in the balance sheet and deferred taxes in the income statement is shown in the following table:

		01.01. – 31.03.03 01.01. – 31.03.02
	T€	T€
Change in deferred tax assets
according to balance sheet	-200	-187
Change in deferred tax liabilities
according to balance sheet	0	14
Change in tax assets and liabilities
accrued with no effect on income	52	0
Deferred taxes according to income statement	-148	-173

The deferred tax assets accrued without any effect on income relate to losses carried forward that arose through acquisitions. These were set off against goodwill without any effect on income.

6. Net income per share (earnings per share)

			01.01. – 31.03.03 01.01. – 31.03.02
Consolidate result		T€ -129	T€ -297
Weighted average shares
•	Basic	7.836.343	7.481.733
•	Diluted	7.836.343	7.487.670
Net income per share
•	Basic	€ -0,02	€ -0,04
•	Diluted	€ -0,02	€ -0,04

D. Explanation of divergent accounting, valuation and consolidation methods according to Section 292a (2) 4b of the German Commercial Code (Handelsgesetzbuch, HGB)

The accounting, valuation and consolidation methods applied in these financial statements deviate in the following ways from German law governing the preparation of consolidated accounts:

• Cost of capital increase

In accordance with SFAS 109.36c, external expenses for initial public offering and capital increase that can be directly attributed are to be shown in the balance sheet as a deduction from shareholders' equity after Expenses in relation to acquisitions deferred taxes have been subtracted.

• Expenses in relation to acquisitions

According to SFAS 141.20 and SFAS 141.24, the cost of company acquisition should include not only the consideration paid for the acquisition of interests in the companies, but also direct costs (external consultancy fees for auditors, legal advisors etc., including for acquisition price valuation) incurred in connection with the acquisition.

• Software development costs

Once software produced in-house is sold between Group companies, it is also capitalised in CANCOM AG's financial statements prepared according to the German Commercial Code. In this regard, recording and valuation is no longer different from the method according to US GAAP.

• Deferred taxes

According to SFAS 109, deferred taxes are to be accrued on tax losses carried forward where they appear to be realisable in the future. The deferral in question is used in the period in which the tax loss is claimed. In view of the existing losses carried forward, deferred tax assets are capitalised in the period under review.

• Accrued expenses

Accrued expenses are valued on the basis of "best estimate".

E. Other details

1. Segmental reporting

The CANCOM Group discloses segmental information according to the rules of SFAS 131 – "Disclosures about segments of an enterprise and related information".

SFAS 131 includes rules regarding reporting on the operating segments of a company. In addition, it requires a breakdown by products and services and by geographical regions:

In general, according to SFAS 131, segmental information should include those figures that form the internal basis for performance assessments and resource allocation.

IT SYSTEME AG

The CANCOM Group is internally subdivided by geographical regions. In the product category, the CANCOM Group operates as a buyer and seller of hardware and software, i.e. as a dealer. The categories of consultancy and system integration currently have a share of less than 10 per cent in the Group's sales.

Owing to the similarity of the operating segments, the CANCOM Group combines its segments as permitted by SFAS 131.17. The segments are similar in terms of their products, their customer groups and their distribution types and channels.

The CANCOM Group has only one segment, which included hardware and software sales, IT consultancy, and telephone and on-site technical support.

The accounting methods used for internal reporting on the segment are in line with the accounting and valuation methods described in Section A I 3. The only differences arise from currency conversion, and these result in slight deviations between the data for internal reporting and the relevant details for external accounting.

Internal sales are recorded on the basis of either their cost or their current market prices, depending on the type of service or product sold.

2. Stock options

In the period no stock options were issued to employees. In previous years under review, 124,350 stock options were issued to employees at an exchange ratio of 1:1. These cannot be exercised until a specified period after the Annual General Meetings in 2004, 2005 and 2006. Altogether 25,000 stock options have now returned to the Company because the beneficiaries have left the Group. A total of 99,350 of 180,000 possible stock options have thus been issued so far. The remaining 80,650 stock options can still be issued by the Executive Board until 30 April 2003.

The exercise price for options issued in 2002 is € 2.30 per share (2001: € 8.99 per share). Those entitled to subscribe are the Executive Board and Management, and first and second-level managerial employees of both CANCOM IT Systeme AG and its affiliated companies. The lock-up period is generally three years and the exercise period ends five years after the option rights are issued. The issue of option rights is not dependent on the achievement of any particular performance targets.

3. Associated and related companies and persons

CANCOM AG has drawn up these consolidated financial statements as the parent company. The consolidated financial statements are not included in any other consolidated financial statements.

For the purposes of SFAS 57, Klaus Weinmann, Raymond Kober and Stefan Kober can be considered related persons who can exercise considerable control on the CANCOM Group both as Executive Board members and as shareholders in the parent company. The members of the Supervisory Board are also related persons for the purposes of SFAS 57.

There were no accounts receivable or payable in relation to the Executive Board or the other companies within the CANCOM Group at the balance sheet date.

Since 1 November 2001 there has been a consultancy agreement in place between CANCOM AG and the Chairman of its Supervisory Board. This was approved by the Supervisory Board in accordance with Section 114 of the German Companies Act (Aktiengesetz, AktG). The agreement is for an unspecified term and cannot be terminated until 31 October 2004 at the earliest. The annual fees are € 120k.

Transactions with related persons were accounted for at market prices.

4. Directors' holdings (as at the balance sheet date)

Please see page 7 of this report.

geographical segments	Germany		Europe		Elimination		consolidated
		31.03.03 31.03.02		31.03.03 31.03.02		31.03.03 31.03.02	31.03.03 31.03.02
	T€	T€	T€	T€	T€	T€	T€	T€
Revenues
- External sales	35.174	47.204	18.548	20.432
- Intersegment sales	2.161	2.383	385	480	-2.546	-2.863
- Total income	37.335	49.587	18.933	20.912	-2.546	-2.863	53.722	67.636
Result
EBITDA	16	417	446	295			462	712
- Depreciation and amortisation	501	619	92	113			593	732
Operating result (EBIT)1	-485	-202	354	182			-131	-20
- Interest income							16	41
- Interest expenditure							-241	-309
Result from ordinary activities							-356	-288
- Extraordinary result	0		-2				-2	0
- currency differences							49	-49
- Income tax							142	76
- Minority interest							38	-36
Consolidated net income							-129	-297
Other Informations
- Segment assets2	64.624	67.151	19.656	23.295			84.280	90.446
- Currently liabilities	15.387	24.307	12.896	13.651			28.283	37.958
- Long-term liabilities	10.528	8.141	224	96			10.752	8.237
- Investments2	391	189	1	104			392	293

1 Last year's figures adjusted for goodwill depreciation

2 Segment assets and investment including goodwill from consolidation of capital (figures in German format)

www.cancom.de

phone +49 (0) 82 25 / 9 96-1051 fax +49 (0) 82 25 / 9 96-1033