CANCOM SE — Interim / Quarterly Report 2005

Nov 10, 2005

INTERIM REPORT

First 9 months 2005

Table of contents

Section	Page
Tab le of contents	02
Prefac e – Key figures	03
Business Development Q2	04-07
1) Business development	04
2) Order situation	04
3) Cost and revenue trend	05
4) Cash position	05
5) Significant changes in risks	05
6) Research and development activities	05
7) Investment	05
8) Employees	05
9) Outlook for the current financial year	05
10) Shareholdings	06
11) Notes on shares and stock positions	06
12) Significant events since the end of the quarter	07
Balance sheet	08-09
Income statement	10
Cash flow statement	11
Development of equity	12-13
Appendix	14-22

INHALT

Preface – Key figures

Dear Shareholders,

The German IT sector is currently in a considerably better position than at any other time during the past two years. However, performance has not been uniform throughout the sector: in the hardware segment the

rise in demand has largely been offset by a drop in prices, whereas in the IT services segment we are experiencing a continuous rise in demand, while prices remain stable.We are therefore very pleased to have developed the IT services side of our business in good time to benefit from this trend.

Our success can be seen especially well from the significant rise in our gross earnings, as well as from the doubling of our operating profit.

We expect the trend towards the purchasing of all IT solutions from a single source to continue.

We, therefore, plan to expand further, especially in the services segment.

We are particularly interested in acquisitions that suitably complement our existing expertise, or which enable us to expand the geographical areas serviced by our professional service teams.

However, our acquisition strategy will be focused primarily on increasing our gross earnings and Klaus Weinmann, ultimately our profit, rather than on boosting sales.

CEO & President

Key figures

First 9 months 2005 in Euro million

Kennzahlenübersicht Neunmonatszahlen 2005 in Mio. Euro	First 9 months 01/01/ - 09/30/2005	First 9 months 01/01/ - 09/30/2004	Change	Key Figures First 9 months 2005 in Euro million
Konzernumsatz	161.3	150.3	+7.3 %	Consolidated Sales
Rohertrag	31.3	25.3	+23.7 %	Gross profit
EBITDA CANCOM Konzern	2.7	1.9	+46.0 %	EBITDA CANCOM Group
EBIT CANCOM Konzern	1.5	0.7	+123.1 %	EBIT CANCOM Group
Periodenüberschuss Konzern	0.6	0.0	+0.6 E million	Consolidated result
	09/30/2005	12/31/2004
Bilanzsumme	58.8	57.6	+2.1 %	Balance Sheet Total
Eigenkapitalquote	45.0 %	41.5 %	+8.4 %	Equity Ratio
Mitarbeiter	531	420	+26.4 %	Workforce

1. Business development since the start of the financial year

The economic environment in Germany is still restrained.

This has led the German FederalAssociation of the Information Economy,Telecommunications and the New Media (Bitkom) to lower slightly its forecast for the German IT market for the year. Nevertheless, growth in the German IT sector is significantly above the average for the German economy.

Despite the restrained general situation, in the first nine months of the current financial year the CANCOM Group continued on its path of expansion.

Below are details of the figures for the first nine months of 2005:

Consolidated sales and profit for both the third quarter and the first nine months of 2005 exceeded the relevant figures for 2004.

Sales in the first nine months of 2005 were 7.3 percent higher than in the same period in 2004, at � 161.3 million compared with � 150.3 million. Consolidated sales in the third quarter of 2005 amounted to � 53.5 million, compared with � 50.3 million in the same quarter of 2004 – an increase of 6.4 percent.

The trend in the gross yield margin is particularly gratifying: it rose from 16.8 percent to 19.4 percent during the nine months from January to September. The reason for this significant improvement in profitability is the successful expansion of the IT service business, which enabled the gross yield to be increased by 23.7 percent to � 31.3 million.

Consolidated earnings before interest, tax, depreciation and amortisation (EBITDA) during the first nine months of 2005 were higher than in the same period of 2004, at � 2.7 million compared with � 1.9 million. Taking the third quarter separately,consolidated EBITDA earnings amounted to � 1.0 million, in comparison with � 0.5 million in the same quarter of 2004.

At � 1.5 million, the figure for consolidated earnings before interest and tax (EBIT) in the first nine months of 2005 was more than double that for the same period in 2004. In fact, the EBIT figure reported was reduced by one-off restructuring costs for the integration of acquisitions amounting to � 0.3 million, without which EBIT would have amounted to � 1.8 million (166.6 percent higher) and EBITDA would have reached � 3.0 million (61.5 percent higher).

Consolidated EBIT earnings in the third quarter of 2005 amounted to � 0.5 million, again more than double the figure for the same period of 2004.

The Group made a profit of � 0.6 million in the first nine months of 2005,compared with zero profit in the same period of 2004.

The Group's total assets at 30 September 2005 amounted to � 58.8 million, a slight increase over the figure of � 57.6 million at 31 December 2004. However, the CANCOM Group's equity ratio rose from 41.5 percent at 31 December 2004 to 45.0 percent at 30 September 2005, partly as the result of a capital increase for cash.

Below is an overview of the most significant developments within the CANCOM Group and its divisions during the third quarter of 2005. Further details may be obtained from pages 4 and 5 of the interim report for the first half of 2005.

CANCOM takes over customer list of Stoll GmbH

In September, CANCOM IT Systeme took over the customer list of the insolvent IT dealer Stoll GmbH via its subsidiary CANCOM Deutschland GmbH. Stoll GmbH is based in Weissensberg near the German town of Lindau. Especially in the IBM and Sony environments, the Stoll company was an important and respected partner.

Of course, CANCOM will maintain the professional and comprehensive service to which Stoll's customers have been accustomed. In addition, they will have access to the high-end IT services range of the CANCOM Group, including inter alia storage,security and network infrastructure, SAP and system solutions.

2. Order situation

Our high capacity to deliver goods immediately means that many incoming orders are converted into sales on the same day, or at least within two weeks. Consequently, the reporting date figures on their own normally do not give an objective picture of our order situation, and for this reason we do not publish them.

3. Sales and income trend

In order to counteract the accustomed shrinking margins within the IT sector, the CANCOM Group is attempting, in an ongoing process, to optimise further its cost situation. This process has been continued in the first nine months of the financial year 2005.

4. Continued strong cash position

The CANCOM Group's cash position continues strong. Our business makes it necessary to maintain our inventory at an appropriate level, but this guarantees that we are able to make deliveries at short notice, which often gives us a decisive competitive advantage over our rivals. Our accounts receivable represent a valuable asset which can be used as security, and the credit facilities at our disposal enable us to raise large sums of cash at short notice if necessary.At the same time they serve as a method of financing CANCOM's future growth.

5. Significant changes in the risks of future development (since the start of the financial year)

There have been no significant changes in the risks of future development at CANCOM since the start of the financial year. Details of the risks to which we are exposed can be found in the annual report for 2004, starting on page 24.

6. Continual development and improvement of our products

No significant research and development costs have been incurred.

7. Investments

Investments by the CANCOM Group:

The investments are mainly confined to the continual improvement of the internal infrastructure as well as office and business equipment. Depreciation on property, plant and equipment and on intangible assets amounted to � 0.524 million, in comparison with � 0.384 million in the third quarter of 2004.

8. Our employees

At 30 September 2005, the CANCOM Group had a total of 531 employees, according to the method of counting specified by the German Commercial Code (Handelsgesetzbuch, HGB).A year ago the Group had 425 employees.As at 31 December 2004, the CANCOM Group had 420 employees. The increase in employee numbers is mainly owing to the acquisition of ECS ComputerPartner GmbH, based in Munich, and the employees of ECS Enterprise Consulting Solution GmbH in Bad Homburg, Germany.

9. Outlook for the current financial year

As in 2004, the Asian and US markets are proving to be the drivers of global economic growth in 2005.According to forecasts by Deutsche Bank, economic development in the Eurozone, where growth of 1.3 percent is expected, will once again lag behind. In Germany, economic growth is expected to be particularly weak, at 0.6 percent.

The main reasons for the low expectations for the German economy are the continued low domestic demand and the smaller number of working days in comparison with 2004.

At the same time, leading economic researchers and economists believe that a number of sources of uncertainty exist, which may have either a negative or a positive effect on the forecasts, depending on how the situation develops. These include the geopolitical situation in the Middle East, which past experience has shown to be linked with fluctuations in the price of crude oil; the increase in the US current account deficit; and future movements in the exchange rates between the key world currencies.

The German Federal Association of the Information Economy, Telecommunications and the New Media (Bitkom) expects the German IT market to grow by 3.1 percent this year. Growth of 0.8 percent is forecast for the ITC hardware and systems segment, and the IT services and software segments are each expected to grow by 4.5 percent. In 2006 BITKOM expects the German ITC market to grow at the slightly faster rate of 3.4 percent.

For the fourth quarter of 2005, the CANCOM Group will endeavour to continue its sales growth while accelerating the increase in profits. The optimisation of the Company in 2004, along with the acquisition of ECS Computer Partner GmbH and the customer list and employees of ECS Enterprise Consulting Solution GmbH, have created a good basis for taking advantage of the positive trend in the Apple environment and the gradually diminishing investment backlog in the IT sector.

10. Shareholdings of members of the Executive and Supervisory Boards (as at 30 September 2005)

590,741 (6.159 %)
511,099 (5.329 %)
476,145 (4.965 %)
11,880 (0.124 %)
6,252 (0.065 %)

11. Explanatory notes on the Company's own shareholdings and on stock options of Board members and employees

No stock options were issued to Board members or employees during the third quarter of 2005. (For further details regarding stock options, please refer to the Notes.)

CANCOM IT Systeme AG's own shareholdings:

The Company did not acquire or sell any shares during the period under review.

12. Events of particular significance after the end of the third quarter

CANCOM IT Systeme AG takes over assets of IT:net solutions GmbH

At the beginning of November, CANCOM IT Systeme AG took over the employees and customer list of IT:net solutions GmbH via its subsidiary CANCOM Deutschland GmbH. The company is headquartered in the German town of Balingen.

IT:net solutions GmbH is a services company specialising in the ERP market. The company, which arose from a management buyout of infor net solutions GmbH, has three German locations: Balingen, Solingen and Bremen. In the financial year 2004/2005, the company achieved sales of � 5.3 million, with a profit margin of � 1.8 million.

The experienced management of IT:net solutions GmbH and its 23 employees are staying with the company, which will allow the customer list to be integrated smoothly.

The asset purchase price, including a variable component, amounts to approximately � 0.8 million.

The takeover will enable CANCOM to expand significantly its presence in the high-growth IT services and solutions segment.

The Executive Board of CANCOM IT Systeme Aktiengesellschaft in November 2005

Consolidated balance sheet (ifrs) – Assets

Zahlenangaben in TE	9 months` report	Annual accounts	Figures in E '000
Aktiva	09/30/2005 (TEuro)	12/31/2004 (TEuro)	Assets
Kurzfristige Vermögensgegenstände			Current assets
Liquide Mittel	3,488	7,224	Cash
Forderungen aus			Trade receiveable
Lieferungen und Leistungen	17,670	15,791
Vorräte	9,204	7,542	Inventories
Rechnungsabgrenzungsposten und			Prepaid expenses and
sonstige kurzfristige Vermögensgegenstände	1,971	1,509	other current assets
Kurzfristige Vermögens
gegenstände, gesamt	32,333	32,066	Total current assets
Langfristige Vermögensgegenstände			Long-term assets
Sachanlagevermögen	7,933	7,943	Property, plant and equipment
Immaterielle Vermögensgegenstände	106	1,265	Intangible assets
Geschäfts- oder Firmenwert	16,279	13,348	Goodwill
Finanzanlagen	0	91	Financial assets
Ausleihungen	223	688	Loans receivable
Latente Steuern	1,635	2,016	Deferred taxes
Sonstige Vermögensgegenstände	289	198	Other assets
Langfristige Vermögens
gegenstände, gesamt	26,465	25,549	Total long-term assets
Aktiva, gesamt	58,798	57,615	Total assets

Consolidated balance sheet (ifrs) – liabilities and equity

Zahlenangaben in TE	9 months` report	Annual accounts	Figures in E '000
Passiva	09/30/2005 (TEuro)	12/31/2004 (TEuro)	Equity and liabilities
Kurzfristige Verbindlicheiten			Current liabilities
Kurzfristige Darlehen und kurzfristiger Anteil an			Short term debt and
langfristigen Darlehen	2,569	880	current portion of long-term debt
Verbindlichkeiten aus Lieferungen
und Leistungen	16,028	15,631	Trade payables
Erhaltene Anzahlungen	86	180	Advanced payments redeived
Rückstellungen	1,970	2,613	Accrued liabilities
Umsatzabgrenzungsposten	185	87	Deferred revenues
Verbindlichkeiten aus Ertragssteuern	204	315	Income tax payable
Sonstige kurzfristige Verbindlichkeiten	3,713	5,065	Other current liabilities
Kurzfristige Verbindlichkeiten, gesamt	24,755	24,771	Total current liabilities
Langfristige Verbindlicheiten			Long-term liabilities
Langfristige Darlehen	7,097	7,703	Long-term debt
Umsatzabgrenzungsposten	67	170	Deferred revenues
Latente Steuern	0	141	Deferred taxes
Pensionsrückstellungen	362	892	Pension accrual
Sonstige langfristige Verbindlichkeiten	30	17	Other long-term liabilities
Langfristige Verbindlichkeiten, gesamt	7,556	8,923	Total Long-term liabilities
Eigenkapital			Equity
Gezeichnetes Kapital	9,591	8,827	Issued capital
Kapitalrücklage	13,617	12,448	Capital reserves
Bilanzgewinn/Bilanzverlust (inklusive			Earned surplus
Gewinnrücklagen)	3,423	2,818
Eigenkapitaldifferenz aus Währungsumrechnung	-144	-172	Currency translation difference
Eigenkapital, gesamt	26,487	23,921	Total equity
			Total equity and
Passiva, gesamt	58,798	57,615	liabilities

Income statement (ifrs)

Zahlenangaben in T€	07/01/05	07/01/04	01/01/05	01/01/04	Figures in E '000
Gewinn- und Verlustrechnung	-09/30/05	-09/30/04	-09/30/05	-09/30/04	Income Statement
Gewinn- u. Verlustrechnung	- 30.09.03	- 30.09.02	- 30.09.03	- 30.09.02	Income State
Umsatzerlöse	53,525	50,317	161,346	150,347	Revenues
Sonstige betriebliche Erträge	130	55	455	220	Other operating income
Bestandsveränderungen an fertigen
und unfertigen Erzeugnissen	-33	0	12	0
Andere aktivierte Eigenleistungen					Work performed by the
	217	0	278	0	enterprise and capitalised
Gesamtleistungen	58,839	50,372	162,091	150,567	Total operating performance
Materialaufwand /
Aufwand für bezogene Leistungen	-43,310	-42,173	-130,794	-125,303	Cost of purchased materials and services
Rohertrag	10,529	8,199	31,297	25,264	Gross profit
Personalaufwand	-6,042	-4,510	-17,935	-13,402	Staff costs
Abschreibungen auf Sachanlagen					Depreciation of property, plant and
und immaterielle					equipment and amortisation of
Vermögensgegenstände	-524	-384	-1,250	-1,205	intangible assets
Sonstige betriebliche Aufwendungen	-3,493	-3,155	-10,636	-9,995	Other operating expenses
Betriebsergebnis	470	150	1,476	662	Profit from operations
Zinserträge/ -aufwendungen	-326	-178	-659	-592	Interest income / expense
Währungsgewinne /-verluste	23	54	16	-19	Foreign currency exchange income / losses
Ergebnis vor Steuern					Profit before taxes
(und Minderheitenanteile)	167	26	833	51	(and minority interests)
Steuern vom Einkommen und Ertrag	-59	-21	-228	-29	Income tax
Ergebnis vor Minderheiteanteilen	108	5	605	22	Profit before minority interests
Minderheitenanteile	0	0	0	-16	Minority interests
Periodenüberschuss / Periodenfehlbetrag	108	5	605	6	Net profit for the period
Durchschnittlich im Umlauf befindliche					Average number of
Aktien (Stück) unverwässert	9,590,751	8,747,354	9,418,237	8,422,082	shares outstanding (basic)
Durchschnittlich im Umlauf befindliche					Average number of
Aktien (Stück) verwässert	9,590,751	8,747,354	9,418,237	8,422,082	shares outstanding (diluted)
Ergebnis je Aktie (unverwässert)	0.01	0.00	0.06	0.00	Earnings per share (basic)
Ergebnis je Aktie (verwässert)	0.01	0.00	0.06	0.00	Earnings per share (diluted)

Consolidated cash flow statement (ifrs)

Zahlenangaben in T€	01/01/05 -	01/01/04 -	Figures in E '000
Kapitalfluss	09/30/05	09/30/04	Cashflow
Cashflow aus gewöhnlicher Tätigkeit:			Cash flows from operating activities:
+/- Periodengewinn vor Steuern- und Minderheitenanteilen	833	51	+/- Net profit for the period before taxes and minority interests
+/- Berichtigungen			+/- Adjustments
+/- Abschreibungen auf Sachanlagen und immaterielle			+/- Depreciation of property, plant and
Vermögensgegenstände	1,250	1,205	equipment, and amortisation of intangible assets
+/- Veränderungen der langfristigen Rückstellungen	-530	-10	+/- Change in long-term accruals
+/- Veränderungen der kurzfristigen Rückstellungen	-1,136	-710	+/- Change in current accruals
+/- Ergebnis aus dem Abgang von Anlagevermögen	-10	83	+/- Profit/ losses on the disposal of fixed assets
+/- Zinsaufwand	659	592	+/- Interest expense
+/- Veränderungen der Vorräte	-1,662	-853	+/- Change in inventories
+/- Veränderungen der Forderungen aus Lieferungen			+/- Change in trade receivables and
und Leistungen sowie anderer Forderungen	-2,122	3,128	other receivables
+/- Veränderungen der Verbindlichkeiten aus Lieferungen			+/- Change in trade payables and
und Leistungen sowie anderer Schulden	-1,411	-3,245	other liabilities
+/- Gezahlte Zinsen	-361	-296	+/- Interest paid
+/- Gezahlte und erstattete Ertragsteuern	-83	-287	+/- Income tax paid and refunded
Nettozahlungsmittel aus betrieblicher Tätigkeit	-4,573	-342	Netto cash from/ used in operating activities
Cashflow aus Investitionstätigkeit			Cash flows from investing activities
+/- Erwerb von Tochterunternehmen			+/- Acquisition of subsidiaries less net
(abzgl. erworbene Nettozahlungsmittel)	-1,584	-157	cash assets acquired
+/- Zahlungen für Zugänge zu immateriellen			+/- Payments for additions to intangible assets as
Vermögenswerten sowie Sachanlagen	-767	-450	well as property, plant and equipment
+/- Zahlungen für Zugänge zu Finanzanlagen	465	-8	+/- Payments for additions to financial assets
+/- Erlöse aus dem Abgang von und Sachanlagen			+/- Proceeds from disposal of property, plant and
und Finanzanlagen	846	25	equipment as well as financial assets
+/- Erhaltene Zinsen	55	49	+/- Interest received
Für Investitionstätigkeit eingesetzte Nettozahlungsmittel	-985	- 541	Net cash from/ used in investing activities
Cashflow aus Finanzierungstätigkeit			Cash flows from financing activities
+/- Erlöse aus der Ausgabe von gezeichnetem Kapital	1,200	1,344	+/- Proceeds from issuance of share capital
+/- Kapitalerhöhungskosten	-68	-227	+/- Dividends Paid
+/- Ein/Auszahlungen für aufgenommene Kredite			+/- Inflows/ outflows in connection with loans
	1,015	-2,713	taken out by the enterprise
+/- Gezahlte Zinsen	-353	-345	+/- Interest paid
Für Finanzierungstätigkeit eingesetzte Nettozahlungsmittel	1,794	-1,941	Net cash from/ used in financing activities
Nettozu-/abnahme von Zahlungsmitt. u. Zahlungmittelaqivalente	-3,764	-2,824	Net increase/ decrease in cash and cash equivalents
+/- Wechelkursbedingte Wertänderungen	28	18	+/- Effects of currency exchange rate changes
+/- Finanzmittelbestand am Anfang der Periode	7,224	7,523	+/- Cash and cash equivalents at beginning of period
Finanzmittelbestand am Ende der Periode	3,488	4,717	Cash and cash equivalent sat end of period
Zusammensetzung:			Composition
Liquide Mittel	3,488	4,717	Cash
Wertpapiere des Umlaufvermögens	0	0	Marketable securities held as current assets
	3,488	4,717

Consolidated statement of changes in equity (ifrs)

		Gezeichnetes		Gewinnrück-	Eigene
	Aktien/	Kapital/Issued	Kapitalrücklagen/	lagen/Revenue	Anteile/Treasury
	Shares	capital	Capital reserves	reserves	shares
	TStück/Quantity '000	TE /'000	TE /'000	TE /'000	TE /'000
31. Dezember 2003	8,016	8,016	35,463	122	0
Kapitalerhöhungen	811	811	1,544
Veränderung der kumulierten
Währungsdifferenzen
Veränderung der Rücklagen			-24,559
Ergebnis des Berichtszeitraums
Minderheitenanteile
31. Dezember 2004	8,827	8,827	12,448	122	0
Kapitalerhöhungen	764	764	1,237
Veränderung der kumulierten
Währungsdifferenzen
Veränderung der Rücklagen			-68
Ergebnis des Berichtszeitraums
Minderheitenanteile
30. September 2005	9,591	9,591	13,617	122	0

Consolidated statement of changes in equity (ifrs)

	Eigenkapital	Minderheiten-		Eigenkapitaldiff. aus der
	gesamt/Total	anteile/Minority	Billanzgewinn/	Währungsumrechnung/
	equlity	interests	Earned surplus	Translation reserve
	TE /'000	TE /'000	TE /'000	TE /'000
31 December 2003	22,172	632	-21,894	-167
Capital increase	2,355
Change in accumulated foreign
currency exchange difference	-5			-5
Change in reserves	-147		24,412
Net profit for the period	178		178
Minority interests	-632	-632
31 December 2004	23,921	0	2,696	-172
Capital increase	2,001
Change in accumulated foreign
currency exchange difference	28			28
Change in reserves	-68
Net profit for the period	605		605
Minority interests	0	0
30 September 2005	26,487	0	3,301	-144

NOTES

to the consolidated accounts for the quarter ended 30 September 2005

A. The principles adopted for the consolidated financial statements

1. General information

Until 31 December 2004 the consolidated financial statements of CANCOM IT Systeme Aktiengesellschaft and its subsidiaries ("CANCOM Group" or "the Group") were drawn up according to US Generally Accepted Accounting Principles (US GAAP). From 1 January 2005, the Group switched to International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS).All obligatory IFRSs and IASs for 2005 are fully taken into account. The previous year's figures were calculated according to the same principles. The consolidated income statement was prepared on the basis of the total-cost accounting method.

The consolidated financial statements were drawn up in euro. Unless otherwise stated, all amounts are in thousand Euro (€ '000).

The financial year covers the period from 1 January to 31 December 2005. The address of the Group's registered office is: Messerschmittstrasse 20, 89343 Jettingen-Scheppach, Germany.

The shares are traded on the Regulated Market on the Frankfurt Stock Exchange under ISIN DE0005419105 and are admitted to the Prime Standard.

The main corporate objective of CANCOM IT Systeme Aktiengesellschaft and its consolidated subsidiaries is the marketing of complete IT system solutions (hardware, software and network products) in both the PC and Apple environments. It also offers a comprehensive range of IT services (e.g. consulting, system integration, service and support, and training).

2. Scope of consolidation

The consolidated financial statements include CANCOM IT Systeme Aktiengesellschaft and all subsidiaries in which CANCOM IT Systeme Aktiengesellschaft has either a direct or an indirect majority shareholding, or in which it holds the majority of the voting rights. These subsidiaries are fully consolidated. There are no other associated companies which would have to be consolidated in accordance with the equity method.

CP Vermögensverwaltungs GmbH and ECS Enterprise Consulting Solutions München GmbH have transferred their shares in ECS Computer Partner GmbH (now CANCOM Computer Partner GmbH) to CANCOM IT Systeme Aktiengesellschaft, partly in exchange for cash and partly in exchange for shares in CANCOM IT Systeme Aktiengesellschaft. This was agreed by a contract of sale and capital contribution of 29/30 December 2004 (document register no. B 1087/2004). The capital increase through contributions in kind was entered in the Commercial Register on 11 April 2005.

The following German and non-German subsidiaries are included in CANCOM IT Systeme Aktiengesellschaft's consolidated financial statements for the quarter ended 30 September 2005 according to the principles of full consolidation:

	Company's registered office	Equity stake as percentage
1. CANCOM Deutschland GmbH	Jettingen-Scheppach/Germany 100.0
and its subsidiaries
• CANCOM Computersysteme Ges.mbH	Graz/Austria	100.0
• CANCOM (Switzerland) AG	Caslano/Switzerland	100.0
2. CANCOM ComputerPartner GmbH	Munich/Germany	100.0
3. Novodrom GmbH	Jettingen-Scheppach/Gernany 100.0
4. Maily Distribution GmbH	Sindelfingen/Germany	100.0
5. CANCOM Ltd.	Guildford/UK	100.0
6. SoftMail IT AG	Caslano/Switzerland	100.0

3. Accounting and valuation methods

Preparation of the financial statements included in the consolidated statements

The financial statements of German and non-German companies included in the consolidated financial statements were prepared as of the reporting date for the quarterly financial statements of CANCOM IT Systeme Aktiengesellschaft.

Principles of consolidation

The consolidated financial statements are based on the financial statements of the companies consolidated into CANCOM IT Systeme Aktiengesellschaft.

IFRS 3 is applied from January 2005, i.e. there is no retrospective application. In accordance with IFRS 3.79, amortisation of goodwill valued prior to this date has been discontinued. The book value of the associated accumulated amortisation has been offset by a corresponding goodwill write-down. In accordance with IAS 36, goodwill is tested for impairment annually.

The financial statements of the individual subsidiaries were included in the consolidated statements by the acquisition method. This means the purchase costs of a holding are offset 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 IFRS 3 "Business Combinations", IAS 36 "Impairment of Assets" and IAS 38 "Intangible Assets", goodwill is no longer subject to scheduled amortisation. Instead, an impairment test must be carried out at least once a year to establish whether an extraordinary write-down is necessary. The reviews of goodwill, based on market values, are carried out at reporting unit (cash-generating unit) level. For the purpose of this rule, a reporting unit is an operating segment or one level below.

Profits, losses, revenues, expenses and income within the Group and any accounts payable and receivable between the companies in the Group are eliminated. Shares held by other shareholders are shown in a separate adjusting item under shareholders' equity.

Calculations and assumptions

In drawing up the consolidated financial statements we have to make estimates and assumptions. These have an impact on the amounts shown for assets, liabilities and contingent liabilities, as well as proof of expenditure and income. The actual amounts may deviate from these assumptions and estimates.

IT SYSTEME AG

Currency conversion principles

Conversion of the financial statements of non-German subsidiaries is carried out according to the concept of functional currency. In the CANCOM Group, all non-German subsidiaries are financially independent ("foreign entities"). The assets and liabilities are accordingly converted at the rate of exchange applicable on the reporting date, while income and expenditure are converted at the average rate for the year. In the case of non-monetary items, differences from the conversion rates on the reporting dates in the previous year, and between the net income for the year in the balance sheet and in the income statement, are offset against shareholders' equity without affecting the net income and shown in a separate component of shareholders' equity, in line with IAS 21.30. In the case of monetary items, exchange differences are recognised in profit or loss, in accordance with IAS 21.28.

Currency

	Q3/2005	Q3/2004	Q3/2003
Swiss francs
• Rate on reporting date	1E=1.549 SFR	1E=1,554 SFR	1E=1,538 SFR
• Average rate	1E=1.546 SFR	1E=1,547 SFR	1E=1,510 SFR
Pounds sterling
• Rate on reporting date	1E=0.672 GBP	1E=0.671 GBP	1E=0.706 GBP
• Average rate	1E=0.686 GBP	1E=0.674 GBP	1E=0.692 GBP

Derivative instruments

The Group uses derivative interest rate swaps. In accordance with its treasury principles, the Group does not hold any derivative instruments for the purpose of trading. Derivative instruments are shown in the balance sheet initially at their acquisition cost, and subsequently at their market value. How profits or losses are recorded depends on the type of item to be hedged. The derivatives can be classified as hedges for the attached fair value of a recognised asset or liability (fair-value hedge), or as hedges for a planned transaction (cash flow hedge). Changes in the market value of derivatives that are intended for hedging the cash flow and are suitable for that purpose, and which prove 100 percent effective in accordance with IAS 39, are recognised under shareholders' equity. If the derivatives are not 100 percent effective, the differences are recognised in the income statement. The amounts accrued in shareholders' equity are shown in the income statement in the same period in which the hedged planned transaction affects the income statement. For derivative instruments that are used to hedge an attached fair value, the profits or losses from the derivative and the corresponding profit or loss from the hedged item are recognised immediately in the income statement. Some hedging operations are perfectly suitable from the point of view of the Group's internal risk principles, but do not fulfil the conditions for being recorded in the balance sheet as hedging operations in accordance with IAS 39 (Hedge Accounting). Changes in the market value of derivatives that are not suitable for hedge accounting in accordance with IAS 39 are recognised in the income statement immediately.

The market values of forward foreign exchange transactions and foreign currency options are established on the basis of market conditions on the reporting date. The market value of interest rate options on the reporting date is established by the financial institution with which they were concluded.

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. The revenue figures constitute the amounts after deduction of cash discounts, price reductions, customer bonuses and rebates.

Research and development

Other than development costs relating to the production of the integrated EDP system ff-eCommerce, no further research and development costs were incurred in the first quarter of 2005 (for further information, please refer to Intangible Assets).

Earnings per share

Earnings per share are determined in accordance with IAS 33 "Earnings per share". The basic earnings per share are calculated by dividing the consolidated income by a weighted average number of ordinary shares outstanding in the financial year.

The diluted earnings per share are calculated on the basis that all potentially diluted stock options will be exercised. It is to be assumed that, for economic reasons, the options will be exercised when the subscription price compares favourably to the market price of the Company's shares.

Short-term assets

Inventories are valued at the lower of acquisition or manufacturing cost and market value, in accordance with IAS 2. Generally, the average value method is used. Replacement cost is generally used as a basis for establishing the market value. Calculation of the replacement cost is limited by the net sales proceeds as the maximum value and the net sales proceeds less profit margin as the minimum value. Items with reduced marketability are valued at the lower realisable value. No extraordinary write-downs were necessary during the period under review.

Accounts receivable are shown at their net sales proceeds value, allowing for a write-down 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 discounted. If it is unlikely that an account receivable can be collected, the amount is written down.

Other assets are shown at their nominal values.

Cash and cash equivalents include cash in banks and cash on hand and cash deposits that can be turned into cash within a period of three months at most, and which are not subject to significant fluctuations in value.

Prepaid expenses are accrued in order to charge expenses to their relevant accounting period, and are valued at their nominal value.

Intangible assets

In line with IAS 38 "Intangible Assets", intangible assets purchased are valued at acquisition cost and the estimated residual book value is written down by the straight-line method over the expected useful life of the assets.Assets are written down uniformly throughout the Group by the straight-line method (generally over a period of three to five years) over the period during which the relevant company can expect to use 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 a year (IFRS 3 and IAS 36). IAS 38 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 subjected to an impairment test at least once a year in accordance with IAS 36. With the exception of goodwill, all intangible assets have a limited useful life.

Goodwill is subjected to an impairment test annually, or if there are signs of possible impairment. The impairment value of goodwill is reviewed at reporting unit (cash-generating unit) level based on segmental reporting in accordance with IAS 36. The process constitutes a comparison of the book values of the reporting unit, including allocated goodwill, with their market values. The market value of the reporting unit is the value at which it could be bought or sold as a whole on the valuation date. CANCOM IT Systeme Aktiengesellschaft calculates the market value as the present value of the future cash flows of the reporting unit over a period of five years, discounted by the prevailing market rate of interest. Cash flows beyond the five-year period are extrapolated using a constant rate of growth and discounted.

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 (IAS 38.21), if the software developed is for internal use or for sale or marketing purposes (IAS 38.68 a and 18ff). The decisive factor here is the point in time at which technical feasibility is reached, with costs being charged to expense as development costs until the technical feasibility of the product is established.According to IAS 38.57, for capitalisation the development must be technically feasible, it must be intended to complete the intangible asset, and the product must be useful. There must also be adequate technical, financial and other resources available to complete the development. It must also be possible to measure reliably the costs of the development.

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

Property, plant and equipment

Property, plant and equipment are valued at acquisition or manufacturing cost in accordance with IAS 16. They are subject to scheduled straight-line depreciation over their useful lives. 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.

Extraordinary depreciation on long-term assets

If there are indications that the book value of a long-term asset cannot be recovered, the requirement for an extraordinary write-down is reviewed on the basis of IAS 36.9 "Impairment of Assets". In this case CANCOM would carry out an extraordinary writedown on the book value.Long-term assets that will continue to be used in the future are tested for impairment by comparing the net book value and the undiscounted future inflow and outflow of funds. If this value (current value of the reporting date) is less than the net book value, the assets are written down in accordance with IAS 36 and IAS 38.108.

Investments

Other notes receivable/loans are valued at acquisition cost. Non-interest-bearing and low-interest-bearing notes receivable and loans are valued at their present value. The investments do not include any securities traded on organised markets.

Deferred taxes

Deferred taxes are accrued according to the balance sheet liability method. This involves the accrual of deferred taxes for temporary differences between the basis of calculation for the purposes of tax law and for commercial law, which will most probably be cancelled out in the future, and for temporary result differences from consolidation measures affecting the net income. Deferred taxes are assessed 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 IAS 12 and SIC-21, 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.

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. In the event of unforeseeable changes in pension obligations or plan assets, actuarial profits and losses can occur which are not reported in the statement of income. These profits and losses which have been incurred but not yet entered in the accounts with effect on net income are realised to the extent that they exceed, at the beginning of a financial year, the value of pension obligations and plan assets by a range that is greater than 10 percent.

Other accruals are made where there is an uncertain external obligation with a financial or legal cause, which is expected to be claimed and which can be reliably quantified. The obligation is valued on the basis of best estimate, taking into account unit costs and overheads. General administrative, distribution and development costs are not taken into account.

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

Stock options

IFRS 2 "Share-based Payment" contains rules on accounting for and explaining stockbased payment transactions. CANCOM IT Systeme Aktiengesellschaft only granted stock options to employees before 1 October 2003. The accounting and valuation principles of IFRS 2 are applied to these stock options. Under these principles, the stock-based employee remuneration agreements are valued on the basis of the intrinsic value of the option. The stock-based remuneration schemes are shown in the balance sheet in accordance with IFRS 2.7ff.

Comprehensive income

In accordance with IAS 1.96 b, the Company is obliged to show separately in its consolidated annual financial statements the comprehensive income and its components,consolidated net income for the year and other comprehensive income. Cumulative other comprehensive income consists of differences from currency conversion that are not included in the consolidated net income for the year. For details please see the statement of changes in shareholders' equity.

Consolidated cash flow statement

The cash flow statement is drawn up according to IAS 7 and shows the inflow and outflow of cash in the Group during the year under review. It distinguishes between cash flows from current operating activities and cash flows from investment and financing activities.

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 over the term. An operating lease is one in which not all major risks and opportunities

IT SYSTEME AG

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 and divestments

CP Vermögensverwaltungs GmbH and ECS Enterprise Consulting Solutions München GmbH have transferred their shares in ECS Computer Partner GmbH (now CANCOM Computer Partner GmbH) to CANCOM IT Systeme Aktiengesellschaft, partly in exchange for cash and partly in exchange for shares in CANCOM IT Systeme Aktiengesellschaft. This was agreed by a contract of sale and capital contribution of 29/30 December 2004 (Document register no. B 1087/2004). CANCOM IT Systeme Aktiengesellschaft has included this investment in the consolidated financial statements from 1 January 2005 in accordance with the principles of full consolidation. The capital increase through contributions in kind was entered in the Commercial Register on 11 April 2005.

B. Notes to the consolidated balance sheet

1. Cash and cash equivalents

Cash and cash equivalents consist exclusively of cash in banks payable on demand and cash in hand. Cash and cash equivalents amounting to € 850k (third quarter 2004: € 840k) are pledged to a bank.

2. Trade accounts receivable

The trade accounts receivable are due within a year.

3. Inventories

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

4. Prepaid expenses and other assets

This item mainly consists of other short-term assets. These include bonuses and rebates due from suppliers (€ 898k), creditors with a debit balance (€ 146k), other short-term loans (€ 110k), employee loans (€ 98k), commission income (€ 98k) and tax credits (€ 39k). The prepaid expenses include deferred insurance premiums and advance payments.

5. Fixed assets

5.1 Property, plant and equipment

Property, plant and equipment mainly consists of the land and buildings of the administrative and logistics centre in Jettingen-Scheppach, Germany, in the value of € 5.7 million and the equipment necessary for the automated small parts warehouse and the manual pallet rack in the value of € 0.8 million. Computer equipment, tenant's fittings and office furnishings are also shown under this item.

5.2 Intangible assets

Intangible assets mainly include software that has been purchased. In the previous quarter, intangible assets produced in-house, i.e. the integrated EDP system ff-eCommerce, were carried in the balance sheet. This software was sold under a sale-and-leaseback arrangement on 30 September 2005, and is being leased back since that date.

5.3 Goodwill

Goodwill at the balance sheet date mainly includes the relevant figures arising from the consolidation of CANCOM Deutschland GmbH and Cancom Ltd., UK.

5.4 Notes receivable/loans

Notes receivable/loans comprises the asset value of reinsurance cover, which amounts to € 223k.

6. Deferred tax assets

The deferred tax assets were capitalised on the basis of the existing German and non-German corporate tax loss carryovers, amounting to approximately € 10.4 million, and German trade tax loss carryovers, which amount to € 8.3 million. Where the loss carryovers were taken on as a result of company acquisitions, deferred tax assets were accrued with no effect on the net income, by netting against the relevant goodwill.

(in € '000)
2,016
161
-542
1,635

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

Short-term debt and current portion of long-term debt comprises liabilities to banks. These are drawings on credit facilities provided by banks and those portions of long-term loans due for repayment within one year.

8. Trade accounts payable

The trade accounts payable are due within one year.

9. Accruals for pensions

Individual performance-related commitments exist with regard to Executive Board members.

The size of the pension commitments for pension schemes in Germany is calculated essentially by the years of service and the remuneration of the employees in question.

10. Other accrued expenses

The other accrued expenses mainly consist of accruals for outstanding invoices from suppliers (€ 548k), bonuses and commissions (€ 361k), accruals for holiday entitlements (€ 312k), uncertain risk (€ 260k), financial statement costs (€ 130k), trade association (€ 98k) and accruals for salaries (€ 79k).

All of the accrued expenses are due within one year, apart from an accrual of € 13k for severance payments shown under other long-term liabilities.

11. Income tax payable

Income tax payable comprises mainly obligations for 2004 and 2005.

12. Other current liabilities

Other current liabilities consists of sales tax (€1,684k), income tax on wages and salaries and church tax (€ 535k), social security contributions (€ 495k), debtors with a credit balance (€ 429k), purchase price commitments (€ 190k) and short-term loan liabilities (€ 109k).

13. Long-term debt

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

Long-term debt includes a subordinated loan of € 3.0 million. In accordance with the resolution passed at this year's Annual General Meeting authorising Executive Board members to issue profit-sharing rights, it is intended to convert this loan into profit-sharing rights.

14. Deferred tax liabilities

The deferred tax liabilities consist of the deferral of capitalised services rendered for own account.

The valuation is based on a uniform tax rate of 38.4 percent.

15. Shareholders' equity

Share capital

The Company's share capital as at 30 September 2005 is € 9,590,751, divided into 9,590,751 notional no-par-value shares.

The Company's authorised capital as at 30 September 2005 amounts to € 4,788,671.

Authorised and conditional capital (as at 30 September 2005)

At the Annual General Meeting of 16 June 2004 a resolution was passed authorising the Executive Board to undertake a one-off increase or several increases in the share capital of up to a total of € 838,671, by issuing up to 838,671 new notional no-par-value bearer shares in exchange for cash or non-cash contributions. The capital increases require the approval of the Supervisory Board and must be carried out by 15 June 2009. The shareholders may avail of their subscription rights; however, these can be excluded in the event of a capital increase through non-cash contributions in connection with the acquisition of an investment. The Executive Board is also authorised to exclude fractional amounts from the shareholders' subscription rights; the Executive Board, with the agreement of the Supervisory Board, will decide on the content of the relevant rights inherent in the shares and the other conditions of the share issue (Authorised Capital 2004/I).

Based on the resolution of the Annual General Meeting of 22 June 2005, the Executive Board is also authorised to undertake a one-off increase or several increases in the share capital of up to a total of € 950,000, by issuing up to 950,000 new notional nopar-value bearer shares in exchange for cash contributions. The capital increases require the approval of the Supervisory Board and must be carried out by 20 June 2010. The Executive Board may exclude the shareholders' subscription rights with the approval of the Supervisory Board, provided that the new shares are issued at a price that is not significantly lower than the stock market price. The Executive Board is also authorised to exclude fractional amounts from the shareholders' subscription right; the Executive Board, with the agreement of the Supervisory Board, will decide on the content of the relevant rights inherent in the shares and the other conditions of the share issue (Authorised Capital 2005/II).

By a resolution of the Annual General Meeting of 22 July 2005, the Executive Board is authorised to undertake a one-off increase or several increases in the Company's share capital of up to a total of € 3,000,000 by issuing up to 3,000,000 new notional nopar-value bearer shares in exchange for cash or non-cash contributions. The capital increases require the approval of the Supervisory Board and must be carried out by 20 July 2010. The shareholders may avail of their subscription rights; however, these can be excluded in the event of a capital increase through non-cash contributions in connection with the acquisition of an investment or parts of other companies. The Executive Board is also authorised to exclude fractional amounts from the shareholders' subscription rights; the Executive Board, with the agreement of the Supervisory Board, will decide on the content of the relevant rights inherent in the shares and the other conditions of the share issue (Authorised Capital 2005/III).

As at 30 June 2005, the conditional capital amounted to € 3.740.866.

The increase in share capital by up to € 3,560,866 through the issue of up to 3,560,866 new notional no-par-value bearer shares will only be implemented to the extent that holders of bonds, which the Executive Board and Supervisory Board were authorised to issue until 25 May 2007 by resolution of the Annual General Meeting of 27 May 2002, exercise their conversion rights or obligations and their option rights. The new shares carry dividend rights from the beginning of the financial year for which, at the time of the their issue, no resolution of the Annual General Meeting has been passed on the appropriation of the net income for the year.

The increase in share capital by up to € 180,000 through the issue of up to 180,000 new notional no-par-value bearer shares will only be carried out to the extent that beneficiaries of warrants, which the Executive Board was authorised to issue by a resolution of the Annual General Meeting on 18 April 2000, exercise their conversion rights. The shares resulting from the exercised option rights carry dividend rights from the beginning of the financial year in which they originate as a result of the option rights being exercised.

C. Notes to the consolidated income statement

1. Segment reporting

The CANCOM Group discloses segmental information according to the rules of IAS 14.

IAS 14 contains rules regarding reporting on the operating segments (divisions) of a company (primary reporting segments). In addition, it requires a breakdown by geographical regions (secondary reporting segments).

In general, according to IAS 14, segmental information should include those figures that form the internal basis for performance assessments and resource allocation.

The CANCOM Group is internally subdivided by geographical regions. In the Product

division, the CANCOM Group operates as a buyer and seller of hardware and software, i.e. as a dealer. The Consulting and System Integration divisions accounted for about 10 percent of the Group's sales in the period from 1 January to 30 September 2005.

In the third quarter of 2005 the CANCOM Group had only one segment, which included hardware and software sales, IT consultancy as well as 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. 3. The only differences arise from currency conversion and these result in slight deviations between the data for internal reporting and the relevant disclosures 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.

Segmental assets

Since the CANCOM Group had only one segment in the period under review, the segmental assets are split only by geographical regions.

The CANCOM Group's segmental reporting for the first nine months of 2005 includes the following companies in Germany: CANCOM Deutschland GmbH, CANCOM Computer Partner GmbH, Novodrom GmbH, Maily Distribution GmbH and CANCOM IT Systeme Aktiengesellschaft.

Europe includes CANCOM Ltd., CANCOM (Switzerland) AG, CANCOM Computersysteme Ges.mbH and Soft Mail IT AG.

Geographical data (secondary reporting segment)

The table "Geographical Segments" below (page 22) divides up different data from the consolidated financial statements by regions.All the figures shown were calculated in the same way as the relevant consolidated data, which is why the totals of the segmental data correspond to the consolidated values.

Information on dominant customers:

The CANCOM Group has no customers that individually account for more than 3 percent of its total sales.

2. Other operating income

Other operating income consists of the following:

	1 Jan – 30 Sep 2005	1 Jan – 30 Sep 2004
	(in € '000)	(in € '000)
Rent income	153	107
Reversal of pension accruals	65	0
Income not relating to the reporting period	137	113
Other operating income	100	0
Total	455	220

3. Other capitalised services rendered for own account

Development costs to the value of € 278k were capitalised under fixed assets in the period from 1 January to 30 September 2005. These are subject to scheduled straight-line depreciation from the point at which they became useful.

4. Personnel expenditure

Personnel expenses consist of the following:

Total	17,935	13,402
Pension expenses	133	88
Social security contributions	2,439	1,782
Wages and salaries	15,363	11,532
	(in € '000)	(in € '000)
	1 Jan – 30 Sep 2005	1 Jan – 30 Sep 2004

5. Other operating expenses

Other operating expenses consist of the following:

1 Jan – 30 Sep 2005	1 Jan – 30 Sep 2004
(in € '000)	(in € '000)
2,002	1,503
457	419
1,013	465
1,858	2,580
277	246
453	317
1,458	1,684
1,068	592
620	659
388	533
312	278
264	281
466	438
10,636	9,995
	Stock exchange and entertainment expenses Adjustment of value of accounts receivable

6. Interest income / expenses

	-592
	-641
55	49
	1 Jan – 30 Sep 2004
1 Jan – 30 Sep 2005	-714 -659

Interest income mainly consists of interest on cash in banks and interest from customers.

7. Income tax

The rate of income tax for German companies is 38.4 percent (second quarter 2004: 38.4 percent) and relates to corporation tax, trade tax and solidarity surcharge. The divergence between the tax expenses reported and those at the tax rate of CANCOM IT Systeme Aktiengesellschaft arises as follows:

	1 Jan – 30 Sep 2005	1 Jan – 30 Sep 2004
	(in € '000)	(in € '000)
Result before tax	833	34
Tax expense at the rate
of the German companies (38.4%)	320	13
Taxation rate difference outside Germany	-68	-225
Change in the adjustment item
for deferred tax assets	22	251
Tax-free income	10	31
Tax expenses in previous years	-50	7
Non-deductible operating expenditure
and trade tax additions and reductionsn	19	-59
Other	-25	11
Actual tax expenses	228	29

Below is a breakdown of the income tax:

	(in € '000)
Capitalisation of tax loss carryover
of CANCOM IT Systeme Aktiengesellschaft	44
Deferred taxes owing to deviations from tax balance sheet
of CANCOM IT Systeme Aktiengesellschaft	49
Capitalisation of tax loss carryover
of CANCOM Deutschland GmbH	111
Deferred taxes owing to deviations from tax balance sheet
of CANCOM Deutschland GmbH	16
Tax expenses of CANCOM Deutschland GmbH
in previous years	-19
Utilisation of tax loss carryover of
CANCOM ComputerPartner GmbH	119
Trade tax of CANCOM ComputerPartner GmbH	2
Utilisation of tax loss carryover of Novodrom GmbH	1
Corporation tax and solidarity surcharge of Maily Distribution GmbH	0
Trade tax of Maily Distribution GmbH	1
Utilisation of tax loss carryover of
CANCOM Computersysteme Ges.m.b.H., Austria	49
Corporation tax of
CANCOM Computersysteme Ges.m.b.H., Austria	24
Utilisation of tax loss carryover of
CANCOM (Switzerland) AG	17
Capitalisation of tax loss carryover of CANCOM Ltd., UK	-27
Tax yield of Softmail Group, Switzerland	-18
Deferred tax liability of the Group	-141
Total	228

The actual tax rate is calculated as follows:

Actual tax expense rate	27.4 %
Income tax	228
Result before tax	833
	(in € '000)

Income tax comprises the income tax paid or due and the deferred taxes in the individual countries:

Group tax expenses	228 29
	237	-144
Tax liabilities	-141	0
Tax assets	378	-144
Deferred taxes:
Current	-9	173
	(in € '000)	(in € '000)
	1 Jan – 30 Sep 2005	1 Jan – 30 Sep 2004

The computation of income tax in accordance with IAS 12 includes tax deferrals resulting from differing valuations in the commercial balance sheet and the tax balance sheet, from realisable loss 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 partially 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 will apply on the balance sheet date.

D. Other disclosures

1. Stock options

Disclosures in accordance with IFRS 2.44:

Long Term Incentive Plan

On 18 April 2000, the shareholders of CANCOM IT Systeme Aktiengesellschaft approved the introduction of the "CANCOM IT Systeme Aktiengesellschaft Long-Term Incentive Plan 2000" ("LTI Plan 2000"). This is a stock-based compensation scheme for members of the Executive Board, the management of the subsidiaries and other selected employees. Those entitled may be allocated options to purchase ordinary shares.

Each stock option entitles the holder to purchase an ordinary share in CANCOM IT Systeme Aktiengesellschaft. It can be exercised during a period of up to five years, with certain lock-up periods having to be observed. The exercise price is fixed in the individual option agreement. This is equal to the average stock market price (closing price in floor trading) of ordinary shares in CANCOM IT Systeme Aktiengesellschaft at the Frankfurt Stock Exchange over the last 10 trading days before the day the relevant stock options are granted. However, the stock options may only be exercised if, at the time the stock options are exercised, the CANCOM IT Systeme Aktiengesellschaft share has performed at least as well as the Technology All Share Index over the period since the Annual General Meeting in the financial year in which the stock options were issued.

Stock options may not be exercised by the beneficiaries until at least three years after the subscription rights were granted.

No stock options were issued to employees in the first nine months of 2005, because the stock options scheme referred to has since expired. There are no plans at present to start a new stock options scheme.

Below are details of the options granted under the LTI Plan 2000 up to 30 September 2005 (IFRS 2.45):

Number of shares for the LTI Plan not yet issued	Number of options issued	Average exercise price per option
Position at 31 December 2004	99,350	80,650	9.67
Shares authorised in the period 1 Jan – 30 Sep 2005 Granted	0 0
Exercised Forfeited	0 32,450	932,450	17.07
Position at 30 September 2005	131,800	48,200	4,69

The following table gives an overview of the unexercised stock options as at 30 September 2005:

Year	Number of	Average term	Average exercise
	options issued	remaining	price
		(years)	(in €)
2001	17,200	1.00	8.99
2002	3,.000	2.00	2.30
2003	0	-	-
2004	0	-	-
Jan-Sep 2005	0	-	-
	48,200	1.50	4.69

No stock options were issued to members of the Executive Board. During the calendar year 2006, the stock options issued in 2001 and 2002 may only be exercised between the 4th and the 20th stock exchange trading day after the Company's Annual General Meeting.

2. Associated and related companies and persons

CANCOM IT Systeme Aktiengesellschaft 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 IAS 24, 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 shareholders in CANCOM IT Systeme Aktiengesellschaft. The Supervisory Board members are also related persons.

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

Since 1 November 2001, there has been a consultancy agreement in place between CANCOM IT Systeme Aktiengesellschaft 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 can be terminated subject to 12 months' notice. The annual fee is € 120k.

Transactions with related persons were accounted for at market prices.

3. Shareholdings of the Executive and Supervisory Board members (as at the balance sheet date)

Please see the shareholders' structure on page 6 of this report.

4. Shareholdings in the Company as defined by Section 20 IV of the German Companies Act (Aktiengesetz, AktG)

No shareholder reported in writing to CANCOM IT Systeme Aktiengesellschaft a majority shareholding as defined by Section 20 of the above Act in the first nine months of 2005.

The German version of this report is legally binding. The company cannot be held responsible for any misunderstandings or misinterpretation arising from this translation.

Consolidated segment reporting

geographical segments		Germany		Europe		Elimination		consolidation
	09/30/05	09/30/04	09/30/05	09/30/04	09/30/05	09/30/04	09/30/05	09/30/04
	T€	T€	T€	T€	T€	T€	T€	T€
Sales revenues
- External sales	135975	119,657	25,371	30,649
- Sales between segments	7,126	7,371	528	687	-7,654	-8,058
- Total income	143,101	127,028	25,899	31,336	-7,654	-8,058	161,346	150,306
Result
EBITDA	2,130	650	596	1,216			2,726	1,866
- Depreciation and amortization	1,157	1,059	93	146			1,250	1,205
(EBIT)	973	-409	503	1,070			1,476	661
- Interest income							55	49
- Interest expense							-714	-641
Result of ordinary activities							817	69
- Extraordinary result	0	0	0	0			0	0
- Currency differences							16	-19
- Income tax							-228	-29
- Minority interest							0	-16
- Discontinuing operations							0	0
Consolidated income							605	5
Other information
- Segment assets1	52,541	46,242	6,257	7,271			58,798	53,513
- Current liabilities	21,852	17,971	2,903	3,148			24,755	21,119
- Long-term liabilities	7,527	8,689	29	13			7,556	8,702
- Investments1	3,706	913	146	69			3,852	982

¹ Segmentvermögen und Investitionen inklusive Firmenwerte aus der Kapitalkonsolidierung

INTERIM REPORT

First 9 months 2005

www.cancom.de/english fon +49 (0) 82 25 / 9 96-1051 fax +49 (0) 82 25 / 9 96-4-1051