DATA#3 LIMITED — Annual Report 2007

Sep 27, 2007

annual general meeting

The Annual General Meeting of Data# 3 Limited will be held at 10.30am on Friday 2nd November 2007 in Data# 3's corporate head office, Level 2, Data# 3 Centre, 80 Jephson Street, Toowong, Queensland.

Contents

The year in review	1
Operational highlights	2
Key information for shareholders	3
Chairman's report	4
Managing Director's review	6
Directors' profiles	14
Corporate governance statement	15
Directors' report	20
Financial report	30
Independent audit report	61
Shareholder information	63
Corporate directory	65

Pictures throughout capture some of the Data#3 team at work throughout Australia.

The year in review

30 years

Since foundation as an IT business

10 years

Since becoming a national, listed IT solutions company

\$100M

2007 market capitalisation

72% 2007 total return to shareholders

93.6%

Percentage of staff who named Data# 3 as their employer of choice; one they would recommend to others

1st

First Australian ICT company to be a global finalist in two categories over two consecutive years at Microsoft's prestigious Global Partner Awards

97%

Percentage of customers who said Data# 3 met or exceeded expectations (2007 survey)

Operational highlights

Measure	Performance
Competitive positioning	■ We completed the first stage of rolling out our Solutions Framework ■ We met all key partner sales objectives achieving both local and global recognition
	■ We enhanced our sales processes and capability with implementation of a new sales methodology (DSM) which contributed to an increase in 'win' rate
Customer satisfaction	We achieved our target to improve customer satisfaction over the previous year doing so in all areas we survey
Customer engagement
■ Cross-sell index (average number of our areas of specialisation engaged in our top 100 customers)	■ We maintained the index in line with the previous year
■ Revenue under contract	■ We increased revenue under contract from 53.5% to 56.4%
Staff commitment and expertise	■ We achieved our target, increasing the % of our people indicating Data# 3 is an excellent company to work for and one that they would recommend to others in the industry to over 93%
	■ Staff retention rates improved in a challenging market as staff num bers increased to over 350
	■ We retained or improved certification levels across all key and aligned vendors
Operational excellence	■ Expenses as a % of gross margin decreased by 1.5%
	■ Cash management met or exceeded all targets
	■ Asset and inventory management met or exceeded all targets

Objectives for 2008

In 2008 we expect market conditions to essentially remain positive but competitive. We are targeting continued organic growth in all areas of the business. Our focus in 2008 is in three key areas:

• Developing 'remarkable' people of passion and excellence
• Developing outstanding solutions underpinned by market leading expertise; able to adjust quickly to change; and delivered under our Solution Lifecycle Methodology (pdo)2
• Organisational excellence underpinned by continuous review and improvement.

We believe that achieving our objectives in these three areas will enable business and technology success for our customers which in turn will improve performance across all financial and non-financial metrics and provide dividends to shareholders near the top of the sector.

We will continue to look for appropriate partnerships and acquisitions to enhance either our geographic scale or our expertise and ultimately further improve financial performance.

Revenue up 19%

Total revenue grew by 19% to \$285.1 million Software Licensing Solutions increased 20% Infrastructure Solutions increased 12% Recruitment Solutions increased 55%

Net profit up 26%

NPAT

Net profit after tax increased 26% to \$7.2 million Net profit margin increased from 2.38% to 2.52%

Earnings per share increased 25% to 46.1 cents Dividends per share increased 29% to 36 cents Payout ratio increased to 78% from 76%

Internal expense as % of gross margin down by 1.5%

Expense as % of GM

Key productivity measure expense as % of gross margin declined 1.5% to 83%

Net tangible assets up 19%

Net tangible assets increased 19% to \$14.6 million

Share price up 62%

Share price at 30 June

Share price increased 62% to \$6.00 at June 30 Based on average share price over the full year yield was 7.4% fully franked

Chairman's Report

"On behalf of the board I am delighted to report on the 2007 financial year in which the company's performance continued the trend of previous years, once again achieving results that bettered the previous best."

I n line with the previous year, this excellent overall result was achieved through strong performance across most of the company's areas of specialisation. Further examination of the 2007 performance and a review of our expectations for the 2008 financial year are contained in the Managing Director's Review.

The financial performance of the company once again delivered overall returns to shareholders in excess of our targets. This is reflected in the 62% increase in the company's ASX traded share price over the year and dividends for the second half of 22.0 cents per share payable on 28 September 2007 adding to the first half's 14.0 cents for a total of 36.0 cents per share for the full year. Our aim remains to continue to increase these returns over time.

At the start of the financial year, the board reaffirmed its three prime objectives for the business - earnings growth ahead of market growth, operational efficiencies that deliver growth rates in net profit after tax (NPAT) substantially higher than revenue growth, and implementation of capital management strategies that create value for shareholders. Progress was achieved in all aspects.

In terms of our objective for earnings growth, independent analysts have assessed market growth in the range 6% – 8%. With revenues up 19% and internal staff and operating expenses up a lesser 16%, earnings per share increased 25% on the previous year. This performance places your company clearly as a top performer.

In a year marked by significant upward pressure on expense, operational efficiency improved with expenses as a percentage of gross margin decreasing over the previous year. Consequently NPAT grew 26%, ahead of revenue growth of 19%.

In terms of capital management, under the on-market share buy-back which commenced on 1 September 2006 we bought and cancelled 139,721 shares at a cost of \$750,096. On 25 July 2007 we announced an extension of this buy-back for another 12 months.

Our strategy was once again well executed by the management team.

"At the highest level, our offerings positioned us competitively to win, we had the right people in the team, we offered value to our customers and we operated as cost effectively as possible."

We achieved further organic growth from all of the current areas of specialisation and saw a number of significant customer transactions which combined the capabilities and skills across the areas of specialisation.

In addition, opportunities for accelerated growth through partnerships, joint ventures and acquisition were explored, however pricing expectations caused sustainable value to remain elusive.

This strategy has been further refined through the 2008

planning process and is discussed further in the Managing Director's Review.

The 2008 business plans recently approved by the board incorporate a small number of structural changes aimed at further focusing responsibility and maintaining growth rates at better than average industry rates.

Revenue and cost management, together with control of cash flow and other balance sheet items continues to be maintained through a strong focus by the company's Corporate Services team. The company remains debt free.

At the AGM on 8 November 2006, non-executive director and original founder Mr Graham Clark did not stand for re-election. All other current members of the board continue in office. The board has been seeking at least one additional director but does not feel under pressure to make a quick appointment, rather the right one.

We expect market conditions to remain strong for the current financial year and believe we are positioned to improve performance over the 2007 result. We believe there will continue to be upward pressure on people related costs due to the shortage of experienced IT professionals in this strong market but have the opportunity to offset this through relatively lower overhead costs as we grow. The company's management team and staff have steered our way most successfully to date and we expect this to continue. The board acknowledges their outstanding contribution on behalf of all shareholders.

I trust that shareholders share the confidence of management and the board in the company's future success.

Richard Anderson Chairman

Managing Director's Review

"For the fourth year in a row, our performance not only exceeded expectations but improved again on the great results of the previous year - demonstrating our ability to sustain success in a buoyant but challenging market."

With basic earnings per share of 46.1 cents, up 25% on the previous year and a fully franked dividend of 36.0 cents per share, 78% of profit was distributed to shareholders representing a yield of 7.4% based on the average share price at the start and end of the year. We trust we continue to meet the expectations of our stakeholders and are pleased with the continuing positive sentiment towards the company.

My review once again looks at the financial results in some detail, outlines progress we made against the strategic imperatives we identified at the beginning of the year and sets out our objectives and outlook for 2008.

Overall Financial Performance

The following table sets out our performance in 2007 compared with previous years.

	2002# \$'000	2003# \$'000	2004# \$'000	2005# \$'000	2006 \$'000	2007 \$'000
Software Licensing Solutions revenue				60,500	81,600	98,200
% Growth						20%
Infrastructure Solutions revenue				122,200	132,700	148,300
% Growth						12%
Recruitment Solutions revenue				13,800	24,600	38,200
% Growth						55%
Total revenue	172,590	192,885	176,195	197,129	239,612	285,117
% Growth						19%
% Revenue under contract	-	-	48.5%	51.4%	53.5%	56.4%
Total gross margin (GM)	37,200	39,983	38,369	40,976	49,620	57,742
% Growth						16%
Internal staff costs	25,500	26,471	26,308	27,877	33,776	38,970
% Growth						15%
Operating expenses	8,596	10,233	7,900	7,634	8,129	8,952
% Growth						9%
Staff & operating expense as % GM	91.7%	91.8%	89.2%	86.7%	84.5%	83.0%
Net profit after tax	3,170	2,259	3,393	4,177	5,713	7,197
% Growth						26%
Basic earnings per share		21.7 cents 15.5 cents	22.8 cents	27.4 cents	36.9 cents	46.1 cents
% Growth						25%
Dividends per share		0.0 cents 10.0 cents	15.5 cents	19.0 cents	28.0 cents	36.0 cents
% Growth						29%
Payout ratio	-	65%	68%	69%	76%	78%
Share price at 30 June	\$1.21	\$1.00	\$2.05	\$3.00	\$3.70	\$6.00
Capital growth %						62%
Net Tangible Assets	2,766	4,829	6,947	9,215	12,271	14,607
% Growth						19%

Note: The 2005 results have been restated for AIFRS; the 2002, 2003 & 2004 results have not.

Revenue and margin

In this report we have changed the way we categorise revenue. In the past we have reported revenue in Product and Services categories. This is simplistic at best and in no way reflective of either the dependency or complexity of the products and services that constitute an integrated technology solution or of the expertise and capability of our people as they design, deploy and operate these solutions. Our view is that revenue should be reported so that it aligns our offerings in broad terms with the way our customers view and acquire their information and communications solutions – as software, infrastructure and people. To assist our shareholders, we have provided a cross reference on page 8.

Overall revenue increased 19% over 2006 with stronger growth in recruitment and licensing.

Pleasingly, the overall gross margin percentage only slipped marginally even given the shift in revenue mix to lower margin areas.

Expenses

To meet our growth targets for 2007, our financial plan assumed we would increase investment to recruit and train the appropriately skilled people and to provide the associated infrastructure, management and human resources support. Our measure of the effectiveness of this investment is expenses as a percentage of gross margin. Given our view that the year would be marked by significant upward pressure on expense, our target was to keep this measure on par with the previous year. In fact, it decreased by 1.5% over 2006, which was an excellent outcome.

Cash flow

Operating cash flow for the year was approximately \$8.1 million, to some degree as in previous years reflecting the timing benefit of receipts from customers in advance of payments to suppliers. The June 30 cash balance increased from \$14.0 million to \$17.4 million. Interest-bearing debt was effectively nil. The key debtor indicator of average days' sales outstanding (DSOS - calculated as the average monthly balance sheet debtors divided by average day's sales) - was ahead of target at 37.5 days, and virtually unchanged from the 37 days in the previous year.

Returns to shareholders

With dividends up 29% to 36.0 cents per share fully franked and a strong increase in the share price to \$6.00 at 30 June 2007, the total returns to shareholders were 72%.

Balance sheet

Over the year total net assets increased by 13%, total net tangible assets increased by 19%, and the company remained essentially debt free.

Performance of the areas of specialisation

In the main, performance across all areas of specialisation was exceptional.

Revenue (aligned with customer ICT spend)	2006	2007	CHANGE
Software Licensing Solutions	\$81.6 million	\$98.2 million	+ 20%
Infrastructure Solutions	\$132.7 million	\$148.3 million	+ 12%
Recruitment Solutions	\$24.6 million	\$38.2 million	+ 55%
Total Revenue	\$238.9 million	\$284.7 million	+ 19%
Revenue (as previously categorised)	2006	2007	CHANGE
PRODUCT REVENUE
ICT Products	\$76.0 million	\$89.7 million	+ 18%
Software Licensing	\$81.4 million	\$97.5 million	+ 20%
Enterprise Infrastructure	\$27.6 million	\$27.2 million	- 1%
Total Product Revenue	\$185.0 million	\$214.4 million	+ 16%
SERVICES REVENUE
ICT Services	\$29.3 million	\$32.0 million	+ 9 %
Recruitment	\$24.6 million	\$38.2 million	+ 55%
Total Services Revenue	\$53.9 million	\$70.2 million	+ 30%

Software Licensing Solutions

Software Licensing Solutions includes our Software Asset Management Consulting practice and aligns with our customers' need to optimise and manage the acquisition of productivity and security software in volume, predominantly for their desktop and networking environments. Growth of 20% was outstanding and, in a relatively flat market, testament to the strength of our offering, our processes and the expertise of our team.

Other highlights include:

• Strong growth in the Software Licensing with an increasing number of contracts under management and revenue under contract increasing from \$45 million to over \$51 million
• Recognition by Microsoft as the Large Account Reseller of the Year for Australia Pacific for the third time in five years
• Solid growth in the Software Asset Management consulting practice through substantial contracts with the Queensland Government, local government and many commercial entities that will underpin its performance in 2008
• Retention of the practice's leading position with a second nomination as one of three finalists in Microsoft's global partner awards
• Enhancements to Data# 3's proprietary Licensing Online internet site to allow customers to better manage their software licensing
• Recruitment of a number of additional licensing specialists, seeing it well positioned for continued market share gain in 2008
• The introduction of 85 new licensing customers with whom we would look to extend the relationship into other areas of specialisation over time

Infrastructure Solutions

Infrastructure Solutions aligns with our customers' need to design, deploy and operate their desktop, network and data centre hardware and software infrastructure as the foundation for their productivity and corporate software applications. It includes the areas of specialisation previously defined as ICT Services, ICT Products and Enterprise Infrastructure Solutions. Growth of 12% is an indication of the relevance of our offerings to our customers' business and technology needs. The long term and strategic relationships we have with global leaders such as Cisco, HP, IBM and Microsoft continue to be fundamental to our success in providing world's best practice solutions to our customers. The highest level of certifications with each of these vendors is a testament to the expertise of our team.

Other highlights include:

• Several excellence awards from our partners
• HP Personal Systems award for Asia Pacific
• IBM Beacon Award and finalist for best System p AIX solution
• IBM A/NZ award for top System i business partner
• A second successive nomination as one of three finalists in Microsoft's global partner awards for Enterprise Infrastructure Solutions
• Retention of all key vendor certifications particularly our Gold Partner status with Microsoft and Cisco Systems
• Appointment as a Premier Partner and accredited consulting partner with VMware (the world's fastest growing software organisation and leader in server virtualisation)
• Establishment of a printing solutions business and appointment as one of three HP partners nationally to represent their latest Edgeline printing solutions.

Recruitment Solutions

Recruitment Solutions aligns with our customers' need to recruit and/or contract people with the appropriate technology expertise. Growth of 55% was once again outstanding and a reflection of a buoyant market (in which we grew the number of contractors under placement from 300 to over 400), the expertise and focus of our team and close alignment with our infrastructure solutions customers.

Other highlights include:

• A placement success rate of 34% (of roles received) against the industry average of approximately 20%
• Further investment in our proprietary performance management system PerForm with release expected during the current financial year
• Investment in back office systems to improve operational efficiency.

Cross-selling

Our sales incentive model for 2007 was targeted to generate an increase in referral opportunities across the areas of specialisation and was measured by our cross sell index (CSI) – the average number of areas of specialisation engaged in our top 100 customers. We did not achieve the growth we were targeting, with CSI effectively remaining the same as the previous year and this remains an opportunity going forward.

Shared Services

■ Corporate Services

Once again recorded solid investment income coupled with lower expenses as a percentage of company gross margin

■ Organisational Development and Human Resources An increase in investment of 40% over the previous year was in keeping with the focus on developing skills and expertise across all areas of the business.

VISION FOR THE FUTURE

Our vision is to be an exceptional company - one that unites to enable our customers' success through technology; inspires our people to do their best every day; and rewards investors' confidence and support.

Our core values define our culture – uniting for success; taking responsibility; exceeding expectations; striving for excellence and innovation; being flexible and adaptable; and showing mutual respect both inside and outside the business.

OUR STRATEGY FOR 2008

To achieve this vision, we focus on three key areas in our strategy:

• Remarkable people who are inspired and supported in their passion for excellence and doing their best every day; who meet the challenge of work/life balance; who are empowered to contribute to positive change; and who are rewarded and celebrated both as members of the team and as individuals
• Outstanding solutions that embody market-leading expertise in technologies from vendors driving the industry globally and quickly adapt to changes in the environment
• Organisational excellence embedded processes that continuously review and improve the effectiveness of our business operations to ensure we remain a leader in our industry.

Achieving the objectives we have in each of these areas will see expertise and solutions in technology unite through our Solutions Framework and its Lifecycle Methodology (pdo)2 to enable customer success.

Our customers' success will in turn deliver exceptional performance with the appropriate rewards to all stakeholders.

Strategy model

Execution

Our strategy is implemented by identifying specific outcomes, setting targets, ensuring the organisation structure and the people are in place to take responsibility, defining specific actions and continuously reviewing progress and changing where necessary.

In 2008 we will refine our structure by shifting greater responsibility for our go to market, customer satisfaction and profitable service delivery to our state managers. The national managers of our areas of specialisation will provide strategic support and will ensure that resourcing levels are balanced across the regions.

OUTLOOK

In 2008 we will complete the roll-out of our Solutions Framework and our Solution Lifecycle Methodology (pdo)2 . Our 16 Solution Sets will be clearly positioned in terms of their ability to assist customers achieve their business and technology objectives and will be consistently delivered under (pdo)2 .

Solutions Framework

This will strengthen our competitive position in the market and improve the quality and hence profitability with which we deliver our solutions. Additionally, the framework underpins sustainability of that organic growth by providing guidance for the ongoing development of the offerings within our solution sets and their continued relevance to our customers as their adoption of technology shifts along the trend line from product to expertise to solutions to outsourcing and finally to accessing ICT as a service when and where required.

In 2008 the outlook for financial performance reflects the following assumptions:

• The macro economy, reflected as continued strength in corporate profitability, remains positive
• Our customers retain the 'positive' view that ICT investment is strategic
• We can recruit and retain the right people and deploy them to deliver revenue growth
• We maintain or improve current success rates against competitors that will continue to improve
• Our key vendors continue to drive growth and technology leadership and our partnerships be at least maintained or strengthened

Across the business there are a number of initiatives we will undertake to strengthen the foundation for continued performance in our areas of specialisation:

• Significant enhancement of the programs and benefits we can offer to our people. As part of this is we intend to look to how we can further enhance our current remuneration and equity plans
• Investment in further enhancing our leadership and mentoring programs
• More formalised communication programs with our various stakeholders
• Enhanced investment in application systems and infrastructure that underpin operation of the business
• Further enhancement of risk management and reporting processes.

Within our areas of specialisation our plans include specific initiatives that are intended to provide a base for their continued organic growth.

Software Licensing Solutions

This area of specialisation is responsible for the following solution sets:

• Software Licensing
• Software Asset Management

We see these solutions maintaining market leadership and driving solid revenue growth at margins similar to the previous year. Key initiatives that are intended to underpin this include:

• Continued investment in developing the expertise and capability of the licensing team members such that they remain industry leaders
• Maturing the current offerings in line with anticipated technology trends and adoption of (pdo)2 as the default delivery methodology across all offerings
• Continued investment in the systems that underpin increasing effectiveness in business operations
• An enhanced focus on mid-market customers (< 2000 seats)

Infrastructure Solutions

This area of specialisation is responsible for the following solution sets:

• Business analysis and strategic ICT architecture
• Business productivity and knowledge management
• Unified communications, mobility and connectivity
• Identity management
• Virtualisation
• Data lifecycle management
• ICT product procurement
• Selective outsourcing
• Managed operating environment
• Systems management
• Disaster recovery
• Managed print services

Many of these solutions are positioned as market leaders e.g. virtualisation, ICT product procurement and selective outsourcing. We improved the position of others in 2007 such that they can reach a leadership position in 2008 e.g. unified communications, managed operating environment, managed print services, disaster recovery and knowledge management. Others are in the development stage and we expect them to be positioned to generate some return on investment in 2008 with this increasing beyond 2008 e.g. business analysis, identity management, data lifecycle management and systems management.

We expect reasonable revenue growth overall but believe that, given the dependency of revenue on consultant billings in the services areas, the shortage of skills will limit the levels of growth possible here.

Key initiatives that are intended to underpin performance include:

• Consolidation of our three former services practices into one professional services practice with dedicated management nationally and in each region
• An increase in investment in the sales team to ensure we increase coverage particularly across our top 200 customers for all our offerings
• Introduction of a number of additional offerings for the data centre environment and enhancement of the managed and hosted versions of these
• An increase in annuity revenues as we extend our offerings to outsourced and access versions
• Continuing to build repetitive sales processes through telesales and solution bundling.

People Solutions

We have changed the name of the Recruitment Solutions area of specialisation to People Solutions. This reflects a broadening of the offerings in line with our view of our customers' requirements. People Solutions is responsible for the following solution sets:

• Contract and permanent recruitment
• Performance management

With the presumption that the market remains strong, People Solutions is poised for another year of solid growth. Margins are expected to remain tight but to be offset by proportionally lower expense.

Key initiatives that are intended to underpin performance include:

• Further enhancement of current operational systems
• Release of our performance management system PerForm underpinning our human capital performance offering
• Deepening the specialisation in resourcing for business analysis and software development.

Growth

We have demonstrated the ability to sustain strong organic growth for some years and this remains our primary focus. We are mapping our offerings to parallel what we see as our customers' technology adoption trend – from product to expertise to solutions to outsourcing and finally to accessing ICT as a Service - and will continue to invest heavily to ensure organic growth continues to be sustained.

In addition we have been looking for other ways to grow.

Partnering with organisations with complementary offerings, where there is a mutually beneficial opportunity to access a wider market and where the sales forces of both organisations can work together without conflict is one such alternative. The areas we consider appropriate are related infrastructure providers e.g. data centre and hosting companies and application software vendors with either a complementary industry focus or where our infrastructure skills are complementary to their application skills.

We see acquisitions as another alternative. They are strategically appropriate where they enhance our expertise in specific solution areas and/or provide a foundation for transitioning our offerings along the customer technology adoption trend line mentioned above. They are operationally appropriate where the cultural fit is strong, where leadership is committed to staying with the business and where the price is right. We have a healthy regard for the risk involved in acquisitions and while we have considered a number of situations in the past year, none has satisfied our criteria.

"With another record performance in 2007 and with our intention to complete the repositioning that extends our value proposition from 'expertise-oriented' to 'solutionsoriented' in 2008, we believe we can further improve financial performance over the outstanding 2007 result and deliver dividends near the top of the sector."

My thanks once again go to all our stakeholders - to the people who make up the Data# 3 team who have applied their expertise diligently and consistently to deliver results to our customers throughout the past year and who we hope find passion and purpose in a career at Data# 3; to our customers who continue to put their faith in us to deliver ICT solutions that allow them to meet their business goals; to our suppliers whose support has shown the true value of our partnership and whose technical excellence is the solid base on which our solutions are built; and to our shareholders whose continued support is being rewarded with appropriate returns.

John Grant Managing Director

Director's profiles

Richard Anderson OAM

Non-executive Chairman

Richard joined the board of Data# 3 Limited in 1997 and was appointed Chairman in September 2000. He is a member of the board of Namoi Cotton

Cooperative Limited, Lindsay Australia Limited and MFS Diversified Group Management Limited, President of the Guide Dogs for the Blind Association of Queensland, a member of the Council of the Queensland Art Gallery Foundation and Patron of the Brisbane Polo Club Limited. Formerly a partner of PricewaterhouseCoopers, he was the firm's managing partner in Queensland and a member of the firm's National Committee. He previously has been a member of the Capital Markets board of Queensland Treasury Corporation and President of CPA Australia in Queensland.

Terry Powell Non-executive director

Terry was executive Chairman of Data# 3 from its foundation in 1984 and then Managing Director from 1989 to June 1996. Prior to 1984, Terry was Managing Director of Powell Clark &

Associates, formed in 1977 with Graham Clark. As part of Data# 3 Limited's listing on the Australian Stock Exchange, he resigned as Chairman in October 1997 to allow for the appointment of a non-executive Chairman. Terry re-joined the Data# 3 Limited board in February 2002. Prior to retirement from Data# 3 in 2001, Terry was General Manager Group Operations with responsibility for Data# 3's Year 2000 and eBusiness strategy development. In that position Terry had responsibility for the group's systems and processes, operations and logistics, business improvement and human resources. Terry's career in IT began at IBM's Data Processing Division in 1966. He continued with IBM until 1976, enjoying considerable success in systems engineering and sales roles.

John Grant Executive director

John was a director of Data# 3 from its foundation in 1984 and then Managing Director from 1996. He stepped down from the board as a director in November 2000 along with all other

executive directors and took the position of Chief Executive Officer. He was reappointed as Managing Director in July 2004. From 1980 until he joined Data# 3 in 1982, John worked with IBM in sales. John has a degree in Engineering with Honours from the University of Queensland and worked as a civil engineer with the Brisbane City Council from 1970 until 1980. John is Deputy Chairman of the Australian Information Industry Association, the ICT industry's peak representative body; a member the Federal Government's former ICT Advisory board whose charter was to provide advice to the Minister for Communications, Information Technology and the Arts, Senator Helen Coonan, on ICT industry and research priorities; a member of the Queensland Government's Ministerial Advisory Group whose charter is to provide advice to the Minister for State Development, Employment and Industrial Relations, Mr John Mickel on Queensland ICT industry development policy; a member of the Queensland Government's Smart State Council established by Premier Peter Beattie; and a member of Hewlett Packard's Asia Pacific Partner Advisory board whose charter is to provide advice and input to HP on its relationship with its distribution and reseller partners in Asia Pacific.

Corporate governance statement Corporate governance statement

Data#3 has a well established corporate governance culture that provides clarity and openness, and aids its ongoing focus on sustainable performance and shareholder value.

I n 2006/07 corporate governance remained an area of ongoing focus for Data# 3 and the company continued to build on the governance systems embedded in prior years.

This statement outlines the company's main corporate governance practices and policies that have been established by the board and were in place throughout the 2007 financial year, unless otherwise stated, to ensure the interests of shareholders are protected and the confidence of the investment market in the company is maintained. Those practices and policies are current as at the date of this statement.

ASX Principles and Recommendations

In establishing the corporate governance framework, the board has considered best practice governance standards, including the ASX Corporate Governance Council's publication, Principles of Good Corporate Governance and Best Practice Recommendations (March 2003) ("ASX Guidelines"). The ASX Guidelines articulated 10 core principles and 28 recommendations that the Council believes underlie good corporate governance. One of the features of the ASX Guidelines is an "if not, why not" disclosure obligation in relation to practices that differ from the Council's recommendations.

Data# 3's corporate governance practices have accorded with all of the Council's recommendations during the 2007 financial year, save for three minor exceptions:

• 2.5 The board should establish a nomination committee
• 4.3 The structure of the audit committee should consist of ... at least 3 members
• 9.2 The board should establish a remuneration committee

The "if not, why not" rationales for the above exceptions are set out below.

Responsibilities and functions of the board

The board is ultimately responsible to shareholders for the building of sustainable shareholder value within an appropriate risk framework, having regard to the interests of other stakeholders.

The most significant responsibilities of the board are:

• Participating in the development of, and subsequently approving, corporate strategy to position the company so that its sustainable value, and shareholders' ability to realise that value, is maximised
• Reviewing and approving business plans, budgets and financial policies
• Reporting to shareholders and the market
• Ensuring compliance with applicable regulations and standards
• Ensuring business risks are identified, and approving systems and controls to manage those risks
• Reviewing internal controls, and internal and external audit reports to maintain the integrity of accounting and financial records and reporting
• Monitoring and influencing the culture and reputation of the company
• Monitoring board composition, director selection and board processes and performance
• Approving key executive appointments, transfers and terminations and ensuring executive succession planning
• Reviewing the performance of the Managing Director and the senior management team and their respective delegated levels of authority
• Reviewing and approving remuneration policies and practices generally and determining remuneration packages and other terms of employment for directors (within the maximum amount approved by the shareholders) and senior executives

• Ensuring that the board has a sufficient understanding of each substantial segment of the business

• Determining the amount, timing and nature of dividends to be paid to shareholders

• Reviewing business results and forecasts, monitoring budgetary control and corrective actions
• Adopting and overseeing the implementation of corporate governance practices that represent best practice in the company's particular circumstances
• Authorising and monitoring major strategic investment commitments.

The board has delegated authority and powers to the Managing Director as necessary to implement the strategies approved by the board and to manage the operation and administration of the business affairs of the company. The Managing Director may further delegate within specific policies and delegation limits to members of the senior management team, but remains accountable for all authority delegated to its members. The board ensures that the senior management team is appropriately qualified and experienced to discharge its responsibilities. The board has in place procedures to assess the performance of the Managing Director and other members of the senior management team.

Board composition and committees

Details of the members of the board, their experience, expertise, qualifications, term of office and independence status are set out in the Directors' Report under the heading "Information on Directors". There are two non-executive directors, both of whom are deemed independent under the principles set out below, and one executive director, as at the date of signing the Directors' Report.

The board has determined that its optimum composition will:

• Conform with the Constitution of the company (being not less than three nor more than twelve in number)
• Have a majority of directors as non-executive.
• Reflect the company's geographic operations and strategic objectives.

Committees

The board has established the following committees to advise and support the board in carrying out its duties:

• Audit committee
• Superannuation policy committee.

Audit committee

The current members of the audit committee are W T Powell (Chairman) and R A Anderson, with the Managing Director and the Chief Financial Officer participating by invitation.

The audit committee structure meets the ASX Corporate Governance Council recommendations with one exception, being that it does not consist of at least three members and consequently the company will give further consideration to the appointment of an additional member to the audit committee during the coming year. For more information on the audit committee please see below under the heading "Integrity of financial reporting".

Superannuation policy committee

The superannuation policy committee reviews the corporate superannuation funds and provides liaison between the fund members and the fund managers. The committee meets at least once a year and more frequently if required. The superannuation policy committee comprises the following members:

• Employer representatives: R A Anderson (Chairman), B I Hill & J M Pickard
• Member representatives: N F Bennett, L MacPherson & K J Woods.

Director nominations and appointment, and director remuneration

The ASX Corporate Governance Council recommends that companies' boards of directors establish separate nomination and remuneration committees. Considering the size of Data# 3 and the number of its directors, the board considers that the establishment of separate nominations and remuneration committees is not necessary.

In relation to nominations, the board is responsible for:

• Assessment of the necessary and desirable competencies of board members
• Review of board succession plans
• Evaluation of the board's performance
• Appointment of directors.

Directors are initially appointed by the board, subject to election by the shareholders at the next Annual General Meeting (AGM). The company's Constitution specifies that all directors (with the exception of the Managing Director) must retire from office no later than the third AGM following their last election. Where eligible, a director may stand for re-election.

The full board also addresses remuneration requirements. Information on directors' and executives' remuneration is set out in the Directors' Report, under the heading "Remuneration report", and in note 25 to the financial statements.

Board commitment

The board meets as often as the directors determine is necessary to fulfil their responsibilities and duties. Generally though, the board holds normal meetings on a monthly basis. The board also meets formally on a regular basis with the senior management team. The meetings are chaired by the Chairman or, in his absence, his nominee. The Chairman is responsible for ensuring that the governance objectives of the board are pursued and that the conduct of the meetings is efficient and appropriate. The Company Secretary and other executives attend the meetings by invitation, when appropriate.

The number of meetings of the company's board of directors and audit committee held during the year ended 30 June 2007, and the number of meetings attended by each director, is disclosed in the Directors' Report.

Non-executive directors are expected to make the necessary commitment to preparing for and attending board and committee meetings and associated activities. The commitments of non-executive directors are considered by the full board prior to the director's appointment to the board and are reviewed each year as part of the annual performance assessment. Prior to appointment or being submitted for re-election, each non-executive director is required to specifically acknowledge that he has and will continue to have the time available to discharge his responsibilities to the company as outlined above.

Directors' independence

Based on guidance set out in the ASX principles and recommendations, the board has adopted specific principles in relation to an assessment of directors' independence. The company's threshold criteria for assessing independence are as follows:

• the director is not a member of executive management;
• the director is not a substantial shareholder of the company or an officer of, or otherwise associated directly with, a substantial shareholder of the company (substantial being more than 5% of the company's shares on issue (as defined in section 9 of the Corporations Act 2001));
• within the past three years neither the director, nor an immediate family member, has been employed in an executive capacity by the company or a related body corporate of the company, or been a director after ceasing to hold any such employment;
• within the last three years neither the director, nor an immediate family member, has been a principal of an auditor or of any material professional adviser or a material consultant to the company or a related body corporate of the company, or an employee materially associated with the services provided;
• neither the director, nor an immediate family member, is a material supplier or customer of the company or a related body corporate of the company, or an officer of, or otherwise associated directly or indirectly with, a material supplier or customer;
• the director has no material contractual relationship with the company or a related body corporate of the company other than as a director of the company, nor does the director receive additional compensation from any such company, apart from approved director and committee fees;
• the director has not been on the board for a period which could, or could reasonably be perceived to, materially interfere with the director's ability to act in the best interests of the company; and
• the director does not have any interest or any business or other relationship which could, or could be reasonably perceived to materially interfere with the director's ability to act in the best interests of the company or exercise unfettered and independent judgments.

Materiality for these purposes is an amount of over 5% of annual turnover of the company. In addition, a transaction of any amount or a relationship is deemed material if knowledge of it impacts the shareholders' understanding of the director's performance.

In addition to the above threshold criteria, the board determines whether a director is independent in character and judgment.

The ASX Guidelines also suggest that a director will be independent if the director 'has not served on the board for a period which could, or could reasonably be perceived to, materially interfere with the director's ability to act in the best interests of the company'. The board does not consider that the service periods have in any way interfered with the respective directors' ability to act independently and in the best interests of the company.

Managing Director

Our most senior executive, the Managing Director, is selected by the board and is subject to annual performance reviews by the Chairman. The review evaluates performance against preset financial and non-financial goals. The Managing Director recommends policy and strategic direction for board approval, is responsible for managing day-to-day operations, and is the board's principal link to senior management.

Board appraisal

A structured process has been established to review and evaluate the performance of the board as a whole, its committees, the performance of individual directors and the board's interaction with management.

Integrity of financial reporting

The primary responsibility of the audit committee is to assist the board in fulfilling its corporate governance and oversight responsibilities with respect to:

• The integrity of the company's financial reporting
• Compliance with legal and regulatory requirements
• The external auditor's qualifications and independence
• The system of risk management and internal controls that management has established and the process of internal and external auditor review of internal control
• The performance of the company's internal audit function and external auditors.

Both members of the audit committee are independent, non-executive directors.

The board is responsible for the initial appointment of the external auditor and the appointment is ratified by company shareholders at the AGM.

Should a change in auditor be considered necessary, a formal tendering process is undertaken. The board identifies the relevant evaluation criteria and ensures that the process is sufficiently robust to ensure selection of an appropriate external auditor. In selecting an external auditor, particular consideration is given to determining whether the fee quoted is appropriate for the work required; that the work is to be undertaken by people with an appropriate level of seniority and skill; and whether the work proposed is sufficient to meet the company's needs and expectations.

The lead partner of the company's external auditor must be rotated at least every five years, followed by a five-year minimum 'time out' period during which that partner may not take part in the company audit.

On an annual basis the board discusses with the external auditor the provisions the audit firm has in place for rotation of the lead engagement partner and the overall succession plan regarding the professional staff assigned to the company's audit. The current lead engagement partner of the auditor has performed that role for 1 year.

Directors' arrangements with the company

The Constitution provides that a director may enter into an arrangement with the company or with a related body corporate of the company. Directors or the firms that they are members of may act in a professional capacity for the company or a related body corporate of the company, other than to act as an external auditor of the company. These arrangements are subject to the requirements of the Corporations Act 2001. Financial services must be provided to directors under terms and conditions that would normally apply to the public, or in the case of an executive director under terms and conditions that would normally apply to employees. Directors' arrangements with the company in the past have not been material and have therefore not adversely impacted the directors' independent status. Disclosure of related party transactions is set out in note 27 to the financial statements.

When a potential or actual conflict of interest or a material personal interest arises in relation to any matter that concerns the affairs of the company, the director concerned (i) must give the other directors immediate notice of such interest and (ii) does not receive copies of the relevant board papers and withdraws from participating in the board meeting whilst such matters are considered. Accordingly, the director concerned takes no part in discussions or exercises any influence over other members of the board if a potential conflict of interest exists.

Board and committee agenda

Board and committee agenda are structured throughout the year to reflect their defined responsibilities, to give the board a detailed overview of the performance and significant issues confronting each business unit and the company, and to identify major risk elements for review to ensure that assets are properly valued and that protective strategies are in place.

Directors receive detailed financial and operational reports from senior management monthly, and management is available to discuss the reports with the board.

Independent professional advice

Directors and board committee members have the right, in connection with their duties and responsibilities, to obtain independent professional advice at the company's expense. Prior written approval of the Chairman is required, but this will not be withheld unreasonably. If appropriate, any advice so received will be made available to all directors. This right was neither exercised nor sought to be exercised during the year.

Code of conduct

Directors, officers, managers and employees are expected to act with the utmost integrity and objectivity, observe the highest standards of behaviour and business ethics and strive at all times to enhance the good reputation and performance of the company.

The company has developed an extensive code of conduct, which is encapsulated in this corporate governance statement and the company's terms and conditions of employment and conduct guidelines that apply to all employees.

The terms and conditions of employment and conduct guidelines address:

• The underlying vision and values of the company
• Business ethics and protocol
• Relevant policies and procedures
• Employee entitlements
• Responsibilities and expectations of the company and the employees
• Compliance with relevant legal and stakeholder obligations.

All employees have position descriptions that reinforce their duties, rights and responsibilities and all are required to reconfirm their acceptance of the terms and conditions of employment annually. Performance plans are developed for all employees at the start of each financial year and align their goals and key performance indicators with those of the business. The actual performance against these plans is reviewed at six-monthly or annual intervals and more frequently if required.

The company also has a well-established business improvement program that encourages regular feedback, review and continuous improvement, so as to maintain and enhance the desired corporate culture and standard of ethical behaviour.

Policy for trading in company securities

Directors, officers and employees must not buy, sell or subscribe for securities in the company if they are in possession of 'inside information', i.e. information that is not generally available and, if the information were generally available, a reasonable person would expect it to have a material effect on the price or value of the securities in the company. The Corporations Act 2001 provides that a reasonable person would be taken to expect information to have a material effect on the price or value of securities of a body corporate if the information would, or would be likely to, influence persons who commonly invest in securities in deciding whether or not to subscribe for, buy or sell the securities.

It is the board's policy that directors, officers and employees may only trade in the company's securities, subject to the insider trading restrictions above, within the four-week period following the half-yearly and yearly results announcement, AGM or date of issue of a prospectus. Directors must discuss their intention to trade in the company's securities with the Chairman of the company prior to trading.

The board's policy also reinforces the directors' and company's statutory obligations to notify the ASX regarding any dealing in the company's securities which results in a change in the relevant interests of the director in the company's securities. As contemplated in the ASX listing rules, each director has agreed to provide notice of such dealings to the company within three business days of any such dealing to enable the company to comply with its corresponding obligation to notify the ASX.

In unusual or pressing circumstances and subject to the insider trading restrictions above, directors, officers and employees may trade outside the specified periods after discussion with the Chairman. In addition, directors will not trade in the shares of any other entity if inside information on such entity comes to the attention of the director by virtue of holding office as a director of the company.

Continuous disclosure and shareholder communication

The board has established written policies and procedures that focus on continuous disclosure and improving access to information for all investors.

The Company Secretary, working closely with the Managing Director and Chairman, has been delegated responsibility for:

• Ensuring that the company complies with its continuous disclosure requirements
• Overseeing and co-ordinating the disclosure of information to the ASX, the public, analysts, brokers, shareholders and the media
• Educating directors and employees on the company's disclosure policies and procedures and raising awareness of the principles underlying continuous disclosure.

Price sensitive information is publicly released through the ASX before it is disclosed to the public, to analysts or other external parties. This information is promptly posted in the "Investor Relations" section of the company's website, so as to ensure that it is accessible to the widest audience.

The board has also developed procedures for safeguarding confidential corporate information to avoid premature disclosure and for responding to market rumours, leaks and inadvertent disclosures.

The company is committed to providing shareholders with extensive, transparent, accessible and timely communications on company activities, strategy and performance. All shareholders receive a hard copy of the company's annual and half yearly reports. In addition, all recent company announcements, media briefings, details of company meetings, press releases for the last three years and financial reports for the last five years are made available on the company's website www.data3.com.au. The website also includes a mechanism for shareholders to provide feedback and comments. Shareholders can raise questions by contacting the company by telephone, facsimile, email or post. Contact details are provided on the company's internet site and in the "Corporate directory" section of this annual report.

Directors' report

Directors' report

Your directors present their report on Data# 3 Limited and its subsidiaries (the group) for the year ended 30 June 2007.

Principal activities

The principal activities of the group during the course of the financial year related to the delivery of information technology solutions, which draw on the group's broad range of products and services and its alliances with other industry providers. These activities included software licensing and software asset management; the design, deployment and operation of desktop, network and data centre hardware and software infrastructure; and the provision of contract and permanent recruitment services.

There were no significant changes in the nature of the activities of the group during the year.

Dividends

	Cents	\$'000
Final dividend recommended	22.0	3,409
Dividends paid in the year:
Interim for the year	14.0	2,183
Final for the year ended 30 June 2006	17.0	2,658
		4,841

Operating and financial review

• Total revenue of the group was \$285,117,000, a 19% increase from last year with growth in all geographic regions.
• Operating profit of the group before interest (net) and tax was \$9,902,000; and the net profit after tax was \$7,197,000, a 26% increase from last year.
• Total dividends of 36.0 cents per share fully franked, a 29% increase from last year.
• Services revenues increased 30% to \$70,245,000, driven by particularly strong growth in recruitment revenues.
• Product revenues increased by 16% to \$214,414,000, driven by strong growth in software licensing and ICT product revenues.
• Gross margin dollars increased by 16%, with most significant growth in the specialist areas of Licensing Solutions and Recruitment Solutions.
• The overall gross margin percentage decreased only fractionally from 20.8% to 20.3%, reflecting the shift in revenue mix to lower margin areas.
• Internal staff costs and operating expenses declined as a percentage of gross margin by 1.5%.
• Internal staff costs increased by 15% in support of growth and deepening expertise particularly in ICT Services.
• Strong net operating cash inflows, to some degree reflecting the timing benefit of receipts from customers in advance of payments to suppliers.
• A strong financial position, with essentially no long-term borrowings and a current ratio of 1.21 (2006: 1.26).

Business strategy

Our vision is to be an exceptional company - one that unites to enable our customers' success through technology; inspires our people to do their best every day; and rewards investors' confidence and support.

To achieve this vision, our focus is on three key areas:

• Remarkable people who are inspired and supported in their passion for excellence and doing do their best every day; who meet the challenge of work/life balance; who are empowered to contribute to positive change; and who are rewarded and celebrated both as members of the team and as individuals.
• Outstanding solutions that embody market-leading expertise in technologies from vendors that are driving the industry globally and quickly adapt to changes in the environment.
• Organisational excellence embedded processes that continuous review and improve the effectiveness of our business operations to ensure we remain a leader in our industry.

Achieving the objectives we have in each of these areas will see expertise and solutions in technology unite through our solutions framework to enable customer success.

Our customers' success will in turn deliver exceptional performance with the appropriate rewards to all stakeholders.

Earnings per share

	2007	2006
	Cents	Cents
Basic earnings per share	46.13	36.88
Diluted earnings per share	46.13	36.84

Significant changes in the state of affairs

There were no significant changes in the state of affairs of the group during the year other than as disclosed in the financial report.

Significant events after the balance date

No matter or circumstance has arisen since 30 June 2007 that has significantly affected, or may significantly affect:

• (a) the group's operations in future financial years; or
• (b) the results of those operations in future financial years; or
• (c) the group's state of affairs in future financial years.

Likely developments and expected results

In 2008 we expect buoyant but competitive market conditions to remain in place and are targeting continued organic growth in all areas of the business. We also expect the current pressure on staff recruitment and retention in the ICT labour market to continue. To maintain Data# 3's position as an employer of choice we intend to invest further in developing the expertise of our staff and in associated infrastructure. Overall we expect to contain operating expense relative to gross margin generated to a level similar to that achieved in the previous year.

We will continue to look for appropriate partnerships and acquisitions to enhance either our geographic scale or our expertise in specific areas and ultimately further improve financial performance. For shareholders we expect financial performance to improve on the record 2007 result and are looking to continue to deliver dividends that balance the need for working capital and the provision of returns near the top of the sector.

Additional comments on the operations of the group and the expected results of those operations are included in the review of operations of the group set out in the Annual Report.

Further information on likely developments in the operations of the group and the expected results of operations has not been included in this report because the directors believe it would be likely to result in unreasonable prejudice to the group.

Directors' report

Directors

The following persons were directors of Data# 3 Limited during the whole of the financial year and up to the date of this report:

R A Anderson J E Grant W T Powell

Mr G R Clark was a director from the beginning of the financial year until 8 November 2006, the date of his retirement.

Names, qualification, experience and special responsibilities

R A Anderson, OAM, BCom, FCA (Chairman, Non-executive director)

Independent non-executive director since 1997 and chairman since 2000. Formerly a partner with PricewaterhouseCoopers, the firm's managing partner in Queensland, and a member of the firm's National Committee. Previously a member of the Capital Markets Board of Queensland Treasury Corporation and president of CPA Australia in Queensland.

During the past three years Mr Anderson has also served as a non-executive director of three other public companies: Namoi Cotton Cooperative Limited (director since 2001), Lindsay Australia Limited (director since 2002) and MFS Diversified Group Management Limited (director since 2002). President of the Guide Dogs for the Blind Association of Queensland.

Special responsibilities:

Chairman of the board.

Member of audit committee.

Chairman of superannuation policy committee (not a committee of the board of directors).

J E Grant, BEng (Managing director)

Director of the company from its foundation in 1984; managing director from 1996 to 2000; Chief Executive Officer from 2000 to 2004; re-appointed managing director effective 1 July 2004; extensive experience in the IT industry; member of the Federal Government's former ICT Advisory Board, whose charter was to provide advice to the Minister for Communications, Information Technology and the Arts, Senator Helen Coonan, on ICT industry and research priorities; member of the Queensland Government's Ministerial Advisory Group, whose charter is to provide advice to the Minister for State Development, Employment and Industrial Relations, Mr John Mickel on Queensland ICT industry development policy; a member of the Queensland government's Smart State Council established by Premier Peter Beattie; and a member of Hewlett Packard's Asia Pacific Partner Advisory Board whose charter is to provide advice and input to HP on its relationship with its distribution and reseller partners in Asia Pacific.

Mr Grant is currently deputy chairman of the Australian Information Industry Association, the ICT industry's peak representative body and a non-executive director of Sargent Group.

W T Powell, BEcon (Non-executive director)

Non-executive director since 2002. Executive chairman of the company from its foundation in 1984 and then managing director from 1989 to 1996. Prior to 1984 had extensive experience in the IT industry and was managing director of Powell Clark and Associates, formed in 1977. Re-joined the board of Data# 3 Limited in 2002.

Special responsibilities:

Chairman of audit committee.

Interests in shares and options

As at the date of this report, the interests of the directors in the shares of Data# 3 Limited were:

	Number of ordinary shares
R A Anderson	50,000
W T Powell	510,000
J E Grant	861,520

Meetings of directors

The number of meetings of the company's board of directors (including meetings of the audit committee) held during the year, and the numbers of meetings attended by each director were:

Name	Full meetings of directors			Meetings of audit committee
	Meetings attended	Meetings held	Meetings attended	Meetings held
R A Anderson	14	14	4	4
G R Clark	5	5	*	*
J E Grant	14	14	*	*
W T Powell	13	14	4	4

* = Not a member of the committee during the year.

Company secretary

Mr B I Hill, BBus, was appointed to the position of company secretary in 1997. He has served as the financial controller or chief financial officer of the company since 1992 and is a member of CPA Australia and a fellow of Chartered Secretaries Australia.

Remuneration report

All information in this remuneration report has been audited by the company's auditor with the exception of section E. The remuneration report is set out under the following main headings:

• A. Principles used to determine the nature and amount of remuneration
• B. Details of remuneration
• C. Employment contracts
• D. Share-based compensation
• E. Additional information

A. Principles used to determine the nature and amount of remuneration

The board addresses remuneration policies and practices generally, and determines remuneration packages and other terms of employment for senior executives. Executive remuneration and other terms of employment are reviewed annually by the board having regard to performance against goals set at the start of the year, relevant comparative information and independent expert advice. Remuneration packages are set at levels that are intended to attract and retain executives capable of managing the group's operations, achieving the group's strategic objectives, and increasing shareholder wealth.

Executive pay

The executive pay and reward framework has four components:

• Base pay and benefits
• Performance-related bonuses
• Long-term incentives through participation in the Data# 3 Limited Employee Option Plan
• Other remuneration such as superannuation.

The combination of these comprises the executive's remuneration.

Base pay

Base pay is structured as a total employment cost package which may be delivered as a combination of cash and prescribed non-financial benefits at the executive's discretion. There are no guaranteed base pay increases included in any senior executives' contracts.

Directors' report

Remuneration report (continued)

Performance-related bonuses

Performance-related cash bonus entitlements are linked to the achievement of individual objectives, both financial and non-financial, which are relevant to meeting the company's business objectives. In 2007 the proportion of the planned total executive remuneration that was performance-related was 36% (2006: 37%).

A major part of the bonus entitlement is determined by the actual performance against planned group and divisional profit targets relevant to each individual. Using a profit target ensures variable reward is only available when value has been created for shareholders and when profit is consistent with the business plan. In 2007 the planned profit-related component represented 85% of the total executive bonuses (2006: 81%). The balance of the executive bonus entitlement is determined by performance against agreed key performance indicator targets relevant to each individual.

The executives' cash bonus entitlements are assessed and paid either quarterly or six-monthly, based on the actual performance against the relevant full-year profit and key performance indicator targets. The board, together with certain senior managers, is responsible for assessing whether an individual's targets have been met, and profit targets and key performance indicator targets are reviewed and reset annually.

Directors' fees

Fees and payments to non-executive directors reflect the demands which are made on, and the responsibilities of, the directors. The board determines remuneration of non-executive directors within the maximum amount approved by the shareholders from time to time. This maximum currently stands at \$350,000 per annum in total for salary and fees, to be divided among the non-executive directors in such a proportion and manner as they agree. Non-executive directors are paid a fixed remuneration, comprising base fees and superannuation. Non-executive directors do not receive bonus payments or share options, and are not provided with retirement benefits other than statutory superannuation. The board was comprised of three non-executive directors and one executive director during the financial year until November 2006, when one non-executive director retired. The board undertakes an annual review of its performance and the performance of the board committee against goals set at the start of the year.

B. Details of remuneration

Compensation paid, payable, or provided by the group or on behalf of the group, to key management personnel is set out below. Key management personnel include all directors of the company and certain executives who, in the opinion of the board and managing director, have authority and responsibility for planning, directing and controlling the activities of the group directly or indirectly. Comparative information is not shown for individuals who were not considered to be key management personnel in the previous year. The following also includes the five most highly remunerated executives of the group.

Remuneration report (continued)

B. Details of remuneration (continued)

			Short-term		Long- term	Post- employment benefits	Other
		Cash salary and fees \$	Cash bonus \$	Non- L monetary benefits \$	ong service leave \$	Super- annuation \$	Termin- ation \$	Total \$
Non-executive directors
Anderson, R.	2007	90,000	-	-	-	8,100	-	98,100
Chairman	2006	90,000	-	-	-	8,100	-	98,100
Clark, G. – Director	2007	19,583	-	-	-	1,763	-	21,346
(retired 8 November 2006)	2006	55,000	-	-	-	4,950	-	59,950
Powell, W.T.	2007	65,000	-	-	-	5,850	-	70,850
Director	2006	55,833	-	-	-	5,025	-	60,858
Stack, H. – Director	2007	-	-	-	-	-	-	-
(resigned 23 December 2005)	2006	32,500	-	-	-	2,925	-	35,425
Subtotals - non-executive directors	2007	174,583	-	-	-	15,713	-	190,296
	2006	233,333	-	-	-	21,000	-	254,333
Executive director
Grant, J. *	2007	243,165	107,079	69,985	3,016	12,686	-	435,931
Managing Director	2006	229,012	100,000	70,203	2,998	12,139	-	414,352
Other key management personnel
Baynham, L. General Manager	2007 2006	184,207 170,000	138,637 142,055	- -	5,903 2,831	12,686 12,139	- -	341,433 327,025
Bowser, M. – Manager,	2007	140,000	115,676	-	5,703	12,686	-	274,065
Managed Accounts Group	2006	128,998	110,175	-	1,948	12,139	-	253,260
Colledge, B. – Manager,	2007	145,000	159,531	-	4,924	12,686	-	322,141
Licensing Solutions	2006	130,973	138,304	-	2,181	12,139	-	283,597
Crouch, B. – Manager,	2007	155,000	143,276	-	4,919	12,686	-	315,881
Enterprise Solutions	2006	141,973	129,406	-	2,364	12,139	-	285,882
Crouch, P. – Manager, NSW	2007	162,750	96,802	-	3,113	12,686	-	275,351
(from 1 November 2005)	2006	103,333	70,336	-	1,721	8,093	-	183,483
Esler, M. * – Manager,	2007	123,570	95,858	21,747	1,161	12,686	-	255,022
ICT Product Solutions	2006	106,525	115,302	23,185	1,199	20,826	-	267,037
Hill, B. * – Chief Financial Officer /	2007	157,314	49,410	-	6,436	12,686	-	225,846
Company Secretary	2006	136,000	33,240	5,963	2,365	12,139	-	189,707
Lavett, J. – Manager, Victoria	2007	39,733	-	-	-	3,577	59,599	102,909
(terminated 31 August 2006)	2006	138,397	72,778	3,900	2,201	12,139	-	229,415
MacPherson, L. * – Manager,	2007	119,890	29,286	-	3,079	12,686	-	164,941
Organisational Development & Human Resources	2006	108,991	29,480	-	1,815	12,139	-	152,425
Murphy, P.	2007	150,000	78,384	-	4,331	12,686	-	245,401
Manager, ICT Services	2006	135,000	79,759	-	2,248	12,139	-	229,146
Peters, W. – Manager,	2007	130,000	104,910	-	1,388	12,686	-	248,984
Recruitment Solutions	2006	120,000	105,828	-	1,998	12,139	-	239,965
Rackham, J. – Manager,	2007	133,333	72,781	-	2,221	10,572	-	218,907
Victoria (from 1 Sept. 2006)
Totals – key management personnel	2007	2,058,545	1,191,630	91,732	46,194	169,408	59,599	3,617,108
	2006	1,882,535	1,126,663	103,251	25,869	171,309	-	3,309,627

* Denotes those executives who were employed by the parent entity for the year ended 30 June 2007 and represent the four most highly remunerated officers of the parent entity. There were no other officers of the parent entity for the year ended 30 June 2007 (2006: nil).

Directors' report

Remuneration report (continued)

No director or executive received compensation in the form of share-based payments during the year ended 30 June 2007 (2006: nil).

C. Employment contracts

Terms of employment for the managing director and other key management personnel are formalised under rolling contracts. The contracts state that base salary and performance-related bonuses will be agreed annually, which occurs at the commencement of each financial year. The company may terminate the contracts without notice for gross misconduct; otherwise, either party may terminate the contract early with the agreed notice period, subject to termination payments as detailed below. For all key management personnel, except those listed below, termination notice of one month is required and no termination benefit is payable. Other major provisions of the contracts relating to remuneration of the managing director and certain other key management personnel are as follows:

J Grant (Managing director)

Mr Grant's current employment contract commenced on 1 July 2004. Key provisions under his present contract are as follows:

• Termination notice of six months is required.
• Payment of a termination benefit on early termination by the company, other than for gross misconduct, of twelve months of his packaged salary together with an additional amount representing the performance-related bonus earned up to the date of termination. From 1 July 2006, if at the annual renewal date the company chooses not to continue the agreement, the company must provide six months notice and Mr Grant will be entitled to his packaged salary and performance bonus calculated up to the date of his termination.

L Baynham, B Hill and L MacPherson

• Termination notice of three months is required.
• Payment of a termination benefit on early termination by the company, other than for gross misconduct, of six months of the packaged salary including performance-related bonuses. A termination benefit is provided for these individuals as these positions are considered most likely to be subject to early termination in the event of a significant business combination.

D. Share-based compensation

Subject to shareholder approval, additional options may be granted to directors and key management personnel under the Data# 3 Limited Employee Option Plan. All directors and key management personnel of Data# 3 Limited and its subsidiaries are eligible to participate in the plan. Options are issued for \$1 per parcel of options issued and are exercisable from two years prior to the expiry date; the options lapse 30 days following cessation of the option holder's employment. The exercise price of the options that were last issued was determined as the higher of 90 cents per share or the weighted average price of the shares as listed with the ASX within the 5 days immediately prior to the offer date. Options granted under the plan carry no dividend or voting rights. When exercisable, each option is convertible into one ordinary share.

No options were granted to directors or key management personnel during the year ended 30 June 2007 (2006: nil), and no options vested or lapsed during the year (2006: nil).

Details of the value of options exercised by directors and key management personnel during the year were as follows:

Key management person	Exercise date	Number of options	Option exercise price	Fair value V per share at exercise date	alue of A options at exercise date	ggregate value at exercise date
2007 Not applicable
2006 MacPherson, L.	11 November 2005	20,000	\$0.91	\$3.39	\$2.48	\$49,600

Remuneration report (continued)

E. Additional information (unaudited)

Relationship between remuneration and company performance

The overall level of executive reward takes into account the performance of the group over a number of years, with greater emphasis given to improving performance over the prior year. Since 2002, the group's net profit has grown at an average rate of 18% per annum, shareholder wealth has grown at an average rate of 30% per annum, and the average executive remuneration has increased by approximately 8% per annum.

Cash bonuses

For each cash bonus included in the previous table in Section B, the percentage of the planned bonus that was actually earned in the financial year, and the percentage that was forfeited because the person did not meet the relevant profit or other performance-related criteria, are set out below.

Name	Earned	Forfeited
	%	%
Baynham, L.	98	2
Bowser, M.	100	-
Colledge, B.	100	-
Crouch, B.	100	-
Crouch, P.	92	8
Esler, M.	91	9
Grant, J.	99	1
Hill, B.	99	1
MacPherson, L.	97	3
Murphy, P.	78	22

Shares under option

No unissued ordinary shares of Data# 3 Limited are under option at the date of this report. No share options were granted or exercised during the financial year. Furthermore, there has been no movement in shares under option since year end up to the date of this report.

Peters, W. 100 - Rackham, J. 97 3

Indemnification and insurance of directors and officers

During the financial year, Data# 3 Limited paid a premium of \$24,103 to insure the directors and members of the executive management team of the company and the group against any liability incurred by them in their capacity as officers, unless the liability arises out of conduct involving a lack of good faith. The executive officers of the group are also indemnified against any liability for costs and expenses incurred in defending civil or criminal proceedings involving them as such officers if judgement is given in their favour or if they are acquitted or granted relief.

Environmental regulation and performance

The group is not subject to any particular and significant environmental regulations.

Rounding

The company is of a kind referred to in Class Order 98/0100, issued by the Australian Securities & Investments Commission, relating to the "rounding off" of amounts in the directors' report and financial report. Amounts in the directors' report and financial report have been rounded off to the nearest thousand dollars, or in certain cases to the nearest dollar, in accordance with that class order.

Directors' report

Auditor independence and non-audit services

Johnston Rorke continues in office in accordance with section 327 of the Corporations Act 2001. During the year the following fees were paid or payable to the auditor for audit and non-audit services:

		Consolidated
	2007	2006
	\$	\$
Audit services
Audit and review of financial reports and other audit work under
the Corporations Act 2001	97,000	92,500
Non-audit services
Due diligence services on potential acquisition	860	1,500
Corporate services	720	940
IFRS accounting services	-	10,000
Tax compliance services	6,030	5,140
	104,610	110,080

Non-audit services

The company employs Johnston Rorke on assignments additional to its statutory duties where the auditor's expertise and experience with the company and/or the group are important.

The board of directors has considered the position and, in accordance with the advice received from the audit committee is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision of non-audit services by the auditor (refer above) did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons:

• all non-audit services have been reviewed by the audit committee to ensure they do not impact the impartiality and objectivity of the auditor
• none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, including reviewing or auditing the auditor's own work, acting in a management or decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risk and rewards.

A copy of the auditors' independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 29.

This report is made in accordance with a resolution of the directors.

R A Anderson Director

Brisbane 22 August 2007

The Directors Data# 3 Limited Level 2, Data# 3 Centre 80-88 Jephson Street TOOWONG QLD 4066

Auditor's Independence Declaration

As lead engagement partner for the audit of the financial report of Data# 3 Limited for the financial year ended 30 June 2007, I declare that, to the best of my knowledge and belief, there have been:

i. no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and

ii. no contraventions of any applicable code of professional conduct in relation to the audit.

JOHNSTON RORKE

Chartered Accountants

J J Evans Partner

Brisbane, Queensland 22 August 2007

Income Statements For the year ended 30 June 2007

	Notes		Consolidated		Parent
		2007	2006	2007	2006
		\$'000	\$'000	\$'000	\$'000
Revenue
Sale of goods		214,414	185,042	-	-
Services		70,245	53,926	-	49
Other	4	458	644	13,924	10,490
		285,117	239,612	13,924	10,539
Other income	5	60	157	-	-
Expenses
Changes in inventories of finished goods		1,722	901	-	-
Purchase of goods		(188,580)	(163,147)	-	-
Employee and contractor costs directly on-charged
(cost of sales on services)		(34,305)	(22,302)	-	-
Other cost of sales on services		(5,754)	(4,800)	-	-
Other employee and contractor costs		(38,970)	(33,776)	(3,412)	(3,936)
Telecommunications		(901)	(823)	(250)	(219)
Software maintenance and licensing		(305)	(173)	(294)	(286)
Rent	6	(2,568)	(2,444)	(171)	(249)
Travel		(1,473)	(1,203)	(121)	(100)
Professional fees		(601)	(500)	(272)	(197)
Depreciation and amortisation	6	(614)	(501)	(222)	(162)
Finance costs	6	(22)	(7)	(12)	(3)
Management charges – subsidiaries		-	-	(545)	(924)
Other		(2,468)	(2,635)	(396)	(517)
		(274,839)	(231,410)	(5,695)	(6,593)
Profit before income tax expense		10,338	8,359	8,229	3,946
Income tax expense	7	(3,141)	(2,646)	(219)	(286)
Net profit		7,197	5,713	8,010	3,660
		Cents	Cents
Basic earnings per share	8	46.13	36.88
Diluted earnings per share	8	46.13	36.84

The above income statements should be read in conjunction with the accompanying notes.

Balance Sheets As at 30 June 2007

	Notes		Consolidated		Parent
		2007	2006	2007	2006
		\$'000	\$'000	\$'000	\$'000
Current assets
Cash and cash equivalents	10	17,367	13,997	15,926	13,811
Trade and other receivables	11	51,396	34,553	2,436	4,190
Inventories	12	4,985	3,263	-	-
Other	13	1,609	1,259	346	321
Total current assets		75,357	53,072	18,708	18,322
Non-current assets
Available-for-sale financial assets	14	5	5	5	5
Other financial assets	15	-	-	14	14
Property and equipment	16	1,084	1,352	420	503
Deferred tax assets	7	1,087	912	180	131
Intangible assets	17	4,470	4,626	64	117
Total non-current assets		6,646	6,895	683	770
Total assets		82,003	59,967	19,391	19,092
Current liabilities
Trade and other payables	18	53,736	37,275	2,607	1,752
Current tax liabilities		1,391	1,454	1,391	1,454
Provisions	19	685	584	298	273
Other	20	6,293	2,806	1,507	4,918
Total current liabilities		62,105	42,119	5,803	8,397
Non-current liabilities
Provisions	19	490	424	53	48
Other	20	331	527	208	313
Total non-current liabilities		821	951	261	361
Total liabilities		62,926	43,070	6,064	8,758
Net assets		19,077	16,897	13,327	10,334
Equity
Contributed equity	22	9,387	9,563	9,387	9,563
Retained earnings		9,690	7,334	3,940	771
Total equity		19,077	16,897	13,327	10,334

The above balance sheets should be read in conjunction with the accompanying notes.

Statements of Changes in Equity For the year ended 30 June 2007

	Number of Ordinary Shares	Contributed R Equity	etained Earnings	Total Shareholders' Equity
	\$'000	\$'000	\$'000	\$'000
Consolidated
Balance at 1 July 2005	15,350	8,706	5,091	13,797
Net profit	-	-	5,713	5,713
Total recognised income and expense	-	-	5,713	5,713
Issuance of ordinary shares	285	857	-	857
Payment of dividends	-	-	(3,470)	(3,470)
Balance at 30 June 2006	15,635	9,563	7,334	16,897
Net profit	-	-	7,197	7,197
Total recognised income and expense	-	-	7,197	7,197
Repurchase of ordinary shares	(44)	(176)	-	(176)
Payment of dividends	-	-	(4,841)	(4,841)
Balance at 30 June 2007	15,591	9,387	9,690	19,077
Parent
Balance at 1 July 2005	15,350	8,706	581	9,287
Net profit	-	-	3,660	3,660
Total recognised income and expense	-	-	3,660	3,660
Issuance of ordinary shares	285	857	-	857
Payment of dividends	-	-	(3,470)	(3,470)
Balance at 30 June 2006	15,635	9,563	771	10,334
Net profit	-	-	8,010	8,010
Total recognised income and expense	-	-	8,010	8,010
Repurchase of ordinary shares	(44)	(176)	-	(176)
Payment of dividends	-	-	(4,841)	(4,841)
Balance at 30 June 2007	15,591	9,387	3,940	13,327

The above statements of changes in equity should be read in conjunction with the accompanying notes.

Cash Flow Statements For the year ended 30 June 2007

	Notes		Consolidated		Parent
		2007	2006	2007	2006
		\$'000	\$'000	\$'000	\$'000
Cash flows from operating activities
Net profit before income tax		10,338	8,359	8,229	3,946
Depreciation and amortisation		614	501	222	162
Impairment of goodwill		6	70	-	-
Impairment of software assets		-	84	-	-
Bad and doubtful debts		84	63	-	-
Loss on sale of property and equipment		4	45	4	1
Reduction of doubtful debt provision		(60)	(115)	-	-
Income taxes paid		(3,344)	(2,071)	(3,344)	(2,067)
Change in operating assets and liabilities, net of
effects from purchase and sale of businesses
(Increase) / decrease in trade receivables		(17,405)	(4,264)	-	14
(Increase) in inventories		(1,722)	(901)	-	-
(Increase) / decrease in other operating assets		(338)	(283)	(17)	8
(Increase) / decrease in net deferred tax assets		(175)	(146)	(49)	-
Increase / (decrease) in trade payables		14,435	4,993	-	-
Increase / (decrease) in unearned income		3,487	809	-	-
Increase / (decrease) in other operating liabilities		1,844	754	750	171
Increase / (decrease) in current tax liabilities		140	180	(63)	755
Increase in liability for employee benefits		153	81	30	26
Net cash inflow from operating activities		8,061	8,159	5,762	3,016
Cash flows from investing activities
Proceeds received from former joint venture partner		526	-	-	-
Payments for property and equipment		(197)	(399)	(87)	(46)
Payments for software assets		(3)	(325)	(3)	(85)
Payment for investment in subsidiary		-	-	-	(14)
Other		-	2	-	2
Net cash inflow (outflow) from investing activities		326	(722)	(90)	(143)
Cash flows from financing activities
Proceeds from issues of shares		-	18	-	18
Proceeds/(repayments) from amounts due
to/from subsidiaries		-	-	1,460	4,380
Payment of dividends	9	(4,841)	(2,631)	(4,841)	(2,631)
Repurchase of ordinary shares	22	(176)	-	(176)	-
Net cash inflow (outflow) from financing activities		(5,017)	(2,613)	(3,557)	1,767
Net increase in cash and cash equivalents held		3,370	4,824	2,115	4,640
Cash and cash equivalents, beginning of financial year		13,997	9,173	13,811	9,171
Cash and cash equivalents, end of financial year	10	17,367	13,997	15,926	13,811
Non-cash investing and financing activities	30
Financing arrangements	21

The above cash flow statements should be read in conjunction with the accompanying notes.

Notes to the financial statements

Note 1. Summary of significant accounting policies

The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

(a) Basis of preparation of financial report

This general purpose financial report has been prepared in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations), the Corporations Act 2001, and other requirements of the law. These financial statements have also been prepared under the historical cost convention, except for available-for-sale investments, which have been measured at fair value.

The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars (\$'000), unless otherwise stated, under the option available to the company under ASIC Class Order 98/0100. The company is an entity to which the class order applies.

Compliance with IFRS

This financial report complies with Australian Accounting Standards, which include AIFRS. Compliance with AIFRS ensures that the consolidated financial report, comprising the financial statements and related notes, complies with International Financial Reporting Standards (IFRS). The parent entity financial statements and notes also comply with IFRS except that the company has elected to apply the relief provided to parent entities in respect of certain disclosure requirements contained in AASB 132 Financial Instruments: Disclosure and Presentation.

Early adoption of accounting standard

The group has elected to apply AASB 2007-4 Amendments to Australian Accounting Standards arising from ED 151 and Other Amendments to the annual reporting period beginning 1 July 2006. No changes to accounting policies were required, and there was no impact on the parent entity or consolidated financial statements of the group or the earnings per share.

(b)Principles of consolidation

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Data# 3 Limited ("company" or "parent entity") as at 30 June 2007 and the results of all subsidiaries for the year then ended. Data# 3 Limited and its subsidiaries together are referred to in this financial report as the group or the consolidated entity.

Subsidiaries are consolidated from the date on which control is transferred to the group and cease to be consolidated from the date on which control is transferred out of the group.

Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of the subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group.

(c) Foreign currency translation

Items included in the financial statements of each of the group's entities are measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The group's functional and presentation currency is Australian dollars.

Foreign currency transactions are translated to Australian dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. As at balance sheet date the group has not entered any hedge transactions, as the risk to the group from foreign-denominated transactions is insignificant.

Notes to the financial statements

Note 1. Summary of significant accounting policies (continued)

(d) Revenue recognition

Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent it is probable that the economic benefits will flow to the group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

(i) Sale of goods

Revenue from the sale of goods is recognised when the goods are shipped to a customer pursuant to a sales order and the associated risks have passed to the customer.

(ii) Rendering of services

Revenue from services is recognised in accordance with the percentage of completion method. The stage of completion is measured by reference to labour hours incurred to date as a percentage of total estimated labour hours for each contract. Where it is probable that a loss will arise from a fixed price service contract, the excess of total costs over revenue is recognised as an expense immediately.

(iii) Interest income

Revenue is recognised as interest accrues using the effective interest method.

(iv) Dividends

Dividend income is recognised as revenue when the right to receive payment is established.

(e) Income tax

Income tax expense for the period is the tax payable on the current period's taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses.

Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences arising from the initial recognition of an asset or a liability, except that no deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction (other than a business combination) that did not affect either accounting or taxable profit or loss at the time of the transaction.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets and liabilities are not recognised for temporary differences between the carrying amount and tax basis of investments in subsidiaries where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.

Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. Deferred tax assets and deferred tax liabilities are offset only if they relate to the same taxable entity and the same taxation authority, and a legally enforceable right exists to set off current tax assets against current tax liabilities.

Tax consolidation legislation

Data# 3 Limited and its wholly-owned Australian subsidiaries are part of a tax-consolidated group under Australian taxation law. Data# 3 Limited and the controlled entities in the tax-consolidated group, continue to account for their own current and deferred tax amounts. These amounts are measured as if each entity in the tax-consolidated group continues to be a stand-alone taxpayer in its own right. Data# 3 Limited, as the head entity, immediately assumes current tax liabilities or assets and the deferred tax assets arising from unused tax losses and unused tax credits from controlled entities in the tax consolidated group, in addition to its own current and deferred tax amounts. The entities have also entered into tax sharing and funding agreements. Refer to note 7.

Notes to the financial statements

Note 1. Summary of significant accounting policies (continued)

(f) Leases

Leases of property and equipment where the group, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease's inception at the lower of the fair value of the leased property or the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other short-term and long-term payables. Lease payments are allocated between the liability and the interest expense. The leased asset is depreciated on a straight-line basis over the shorter of the asset's useful life or the lease term.

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Operating lease payments, net of any incentives received from the lessor, are charged to the income statement on a straight-line basis over the period of the lease. Where the group is required to return the premises to their original condition on cessation of the lease, a provision for lease remediation is recorded for the present value of the estimated liability.

(g)Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits held at call with financial institutions, and other short-term, highly-liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

For purposes of the cash flow statement, cash includes cash and cash equivalents, net of outstanding bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.

(h) Trade receivables

Trade receivables, which are non-interest bearing and generally due for settlement within 30 days, are recognised initially at fair value and subsequently measured at amortised cost, less an allowance for doubtful debts. Collectibility of trade receivables is reviewed on an ongoing basis. Debts that are known to be uncollectible are written off. An allowance for doubtful debts is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of the receivables.

(i) Inventories

Inventories are stated at the lower of cost and net realisable value. Costs are assigned to individual items of inventory on a specific identification basis and are determined after deducting rebates and discounts. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale.

(j) Business combinations

The purchase method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given up, shares issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the fair value of the instruments is their published market price as at the date of exchange, unless it can be demonstrated that the published price at the date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a more reliable measure of fair value. Transaction costs arising on the issue of equity instruments are recognised directly in equity.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the group's share of the identifiable net assets acquired is recorded as goodwill (refer to note 1(p)). If the cost of acquisition is less than the fair value of the identifiable net assets of the subsidiary acquired, the difference is recognised directly in the income statement, but only after a reassessment of the identification and measurement of the net assets acquired.

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of the exchange. The discount rate used is the entity's incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.

Notes to the financial statements

Note 1. Summary of significant accounting policies (continued)

(k) Impairment of assets

Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to depreciation or amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell or value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows.

(l) Non-current assets held for sale

Non-current assets or disposal groups are classified as held for sale and stated at the lower of their carrying amounts or fair value less costs to sell if their carrying amount will be recovered principally through a sale transaction rather than through continuing use.

(m) Investments and other financial assets

The group classifies its investments in the following categories: financial assets at fair value through profit or loss, available-for-sale financial assets, loans and receivables, and held-to-maturity investments. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and reevaluates this designation at each reporting date where appropriate. Purchases and sales of investments are recognised on trade date.

Investments are initially recognised at fair value plus, for all financial assets not carried at fair value through profit and loss, transaction costs. The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active, and for unlisted securities, the group establishes fair value using other valuation techniques such as reference to the fair values of recent arms' length transactions involving the same or similar instruments, discounted cash flow analysis, and option pricing models refined to reflect the issuer's specific circumstances. The group assesses at each balance date whether there is objective evidence that a financial asset or group of financial assets is impaired. The group considers various factors in determining whether to recognise an impairment charge, including the length of time and extent to which the fair value has been less than the group's cost basis, the financial condition and near-term prospects of the investee.

Financial assets at fair value through profit and loss and available-for-sale financial assets are subsequently carried at fair value. Realised and unrealised gains and losses arising from changes in the fair value of the 'financial assets at fair value through profit or loss' category are included in the income statement in the period in which they arise. Unrealised gains and losses arising from changes in the fair value of non-monetary securities classified as available-for-sale are recognised as a separate component of equity until the investment is sold, collected or otherwise disposed, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the income statement. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of a security below its cost is considered in determining whether the security is impaired. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement.

Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any discount or premium on acquisition over the period of maturity. For investments carried at amortised cost, gains and losses are recognised in income when the investments are derecognised or impaired, as well as through the amortisation process.

As at balance sheet date the group has not entered any derivative contracts.

(n) Fair value of financial instruments other than investments

The fair value of certain of the group's financial instruments, including cash and cash equivalents, trade and other receivables (net of allowance for doubtful accounts) and trade and other payables, accrued compensation, and other accrued liabilities, approximate cost because of their short maturities.

Notes to the financial statements

Note 1. Summary of significant accounting policies (continued)

(o) Property and equipment

Property and equipment is stated at cost, less accumulated depreciation and amortisation. Depreciation of equipment is computed using the straight-line method to allocate cost net of residual values over the estimated useful lives of the assets, being three to 20 years. Amortisation of leasehold improvements is computed using the straight-line method over two to ten years.

Upon impairment, an asset's carrying amount is written down immediately to its recoverable amount (refer to note 1(k)).

(p) Goodwill and purchased intangible assets

Goodwill on acquisition is initially measured at cost, being the excess of the cost of the business combination over the acquirer's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Subsequently goodwill is carried at cost less any accumulated impairment losses. Goodwill is tested for impairment on an annual basis, and between annual tests in certain circumstances, and written down when impaired.

Purchased intangible assets other than goodwill are amortised over their useful lives unless these lives are determined to be indefinite. Purchased intangibles are carried at cost less accumulated amortisation and impairment losses. Amortisation is computed using the straight-line method over the estimated useful lives of the respective assets, generally three to five years.

(q) Trade and other payables

These amounts represent liabilities for goods and services provided to the group prior to the end of the financial year which are unpaid. The amounts are generally unsecured and are usually paid within 30 to 60 days of recognition.

(r) Financial guarantee contracts

Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. The liability is initially measured at fair value and subsequently at the higher of the amount determined in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less any cumulative amortisation.

The fair value of financial guarantees is determined as the present value of the difference in net cash flows between the contractual payments under the debt instrument and the payments that would be required without the guarantee, or the estimated amount that would be payable to a third party for assuming the obligations.

Where guarantees in relation to loans or other payables of subsidiaries or associates are provided for no compensation, the fair values are accounted for as contributions and recognised as part of the cost of the investment.

Change in accounting policy

The policy set out above was adopted for the first time in the current financial year, following the change to AASB 139 Financial Instruments: Recognition and Measurement made in September 2005. In previous reporting periods a liability for financial guarantee contracts was only recognised if it was probable that the debtor would default and a payment would be required under the contract. The new policy has been applied retrospectively. There was no impact on the parent entity or consolidated financial statements of the group or the earnings per share.

(s) Provisions

Provisions are recognised when the group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured at the present value of management's best estimate of the expenditure required to settle the obligation at the balance sheet date. The increase in the provision due to the passage of time is recognised as interest expense.

Where the group expects some or all of a provision to be reimbursed, such as under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement.

Notes to the financial statements

Note 1. Summary of significant accounting policies (continued)

(t) Employee benefits

Wages, salaries, annual leave and sick leave

Liabilities for wages, salaries, including non-monetary benefits, and annual leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees' services up to the reporting date, and are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for sick leave, which is non-accumulating, are recognised when the leave is taken and measured at the rates paid or payable.

Long service leave

The liability for long service leave is recognised in the provision for employee benefits and is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.

Post-employment benefits

Contributions are made by the group to defined contribution superannuation funds. Contributions are charged to expense as they are incurred.

Bonus plans

A liability for employee benefits in the form of bonus plans is recognised in other payables when the group has a present legal or constructive obligation to make such payments as a result of past events and a reliable estimate of the obligation can be made. Liabilities for bonus plans are expected to be settled within 12 months and are measured at the amounts expected to be paid when they are settled.

Share-based compensation benefits

Share-based compensation benefits are provided to employees via the Data# 3 Limited Employee Option Plan and an employee share scheme.

For share options granted before 7 November 2002 and/or vested before 1 January 2005, no expense is recognised. The shares are recognised when the options are exercised and the proceeds received are allocated to share capital.

For share options granted after 7 November 2002 and vested after 1 January 2005, the fair value of the options granted is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options. Fair value is determined using the an appropriate option pricing model and takes into account factors such as exercise price, the term of the option, the share price at grant date and expected volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option.

At each balance sheet date, the group revises its estimate of the number of options that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate. Upon the exercise of options, the balance of the share-based payments reserve relating to those options is transferred to share capital.

The market value of shares issued under the employee share scheme is recognised in the balance sheet as share capital, with employee benefits expense, measured as the difference between the market value of the shares and the consideration paid by the employee, if any.

(u) Contributed equity

Ordinary shares are classified as equity. Issued and paid up capital is recognised at the fair value of the consideration received. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received.

Notes to the financial statements

Note 1. Summary of significant accounting policies (continued)

(v) Earnings per share

Basic earnings per share is computed as profit attributable to equity holders of the company, adjusted to exclude costs of servicing equity (other than ordinary shares), divided by the weighted average number of ordinary shares, adjusted for any bonus element.

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after-tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

(w) Accounting standards not yet effective

Australian Accounting Standards that have recently been issued or amended but are not yet effective and have not been adopted for the annual reporting period ended 30 June 2007, are as follows:

Standard/Interpretation	Application date of standard*	Application date for the group*
2007-7 Amendments to Australian Accounting Standards – June 2007	1 July 2007	1 July 2007
AASB 7 Financial Instruments: Disclosures	1 January 2007	1 July 2007
AASB 8 Operating Segments and consequential amendments to
other accounting standards resulting from its issue	1 January 2009	1 July 2009
AASB 101 Presentation of Financial Statements – revised standard	1 January 2007	1 July 2007
AASB 123 Borrowing Costs revised and consequential amendments
to other accounting standards resulting from its issue	1 January 2009	1 July 2009
Interpretation 10 Interim Financial Reporting and Impairment	1 November 2006	1 July 2007
Interpretation 11 AASB 2 – Group and Treasury Share Transactions	1 March 2007	1 July 2007
Interpretation 12 Service Concession Arrangements	1 January 2008	1 July 2008
Interpretation 13 Customer Loyalty Programs	1 July 2008	1 July 2008
Interpretation 14 Limit on a defined benefit asset, Minimum Funding
Requirements and their Interaction	1 January 2008	1 July 2008

* Application date is for annual reporting periods beginning on or after the date shown in the above table.

The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the company or the group. The circumstances addressed by Interpretations 10, which prohibits the reversal of certain impairment losses, does not affect either the company's or the group's previously reported results and accordingly, there will be no impact to these financial statements on adoption of the Interpretation. The application of AASB 101 (revised), AASB 7, AASB 8, AASB 123, AASB 2007-7 and Interpretation 11 may change the disclosures presently made in relation to the company's and the group's assets, liabilities, segments, financial instruments and the objectives, policies and processes for managing capital. The circumstances addressed by Interpretations 12, 13, and 14 do not have application to the business of the company or the group.

(x) Corporate information

This financial report covers both Data# 3 Limited as an individual entity (parent entity) and the group consisting of Data# 3 Limited and its subsidiaries. Data# 3 Limited is a public company limited by shares, incorporated and domiciled in Australia. The financial report was authorised for issue in accordance with a resolution of the directors on 22 August 2007.

Its registered office and principal place of business is:

Level 2 Data# 3 Centre 80 Jephson Street TOOWONG QLD 4066

Notes to the financial statements

Note 2. Significant accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Significant accounting estimates and assumptions

The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next financial year are discussed below.

Impairment of goodwill

The group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the recoverable amount of the cash generating units to which the goodwill is allocated. The assumptions used in this estimation of recoverable amount and the carrying amount of goodwill are discussed in note 17.

Note 3. Financial risk management

The group's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The group's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the group. To date the group has not used derivative financial instruments.

Risk management is carried out by the chief financial officer (CFO) under policies approved by the board of directors. The CFO identifies, evaluates and mitigates financial risks in close cooperation with senior management.

(a) Market risk

(i) Foreign exchange risk

Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the entity's functional currency. The group operates internationally in New Caledonia; the revenue contracts and employee benefits are denominated in Pacific francs. At 30 June 2007 accounts receivable denominated in Pacific francs amounted to \$519,000 Australian dollars (2006: nil), and accounts payable denominated in Pacific francs amounted to \$247,000 Australian dollars (2006: \$176,000).

(ii) Price risk

The group is exposed to an immaterial amount of equity securities price risk, arising from investments held by the group and classified on the balance sheet as available-for-sale. The group is not exposed to commodity price risk.

(b) Credit risk

The maximum exposure to credit risk on financial assets which have been recognised on the balance sheet is the carrying amount of those assets. Except as noted below, the group has no significant concentrations of credit risk. The group has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history; collateral is not normally obtained. Specific information as to the group's credit risk exposures is as follows:

• During the 2007 year, sales to one Queensland government customer comprised 14% of revenue (2006: 11%).
• There are a number of individually significant debtors. At 30 June 2007, the ten largest debtors comprised approximately 44% of total debtors (2006: 29%), of which 41% were accounts receivable from a number of Queensland Government customers (2006: 34%).

(c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. Due to the dynamic nature of the business, the group aims at maintaining flexibility in funding by keeping committed credit lines available. The group manages liquidity risk by monitoring cash flows and ensuring that adequate cash and unutilised borrowing facilities are maintained.

(d) Cash flow and fair value interest rate risk

The group's exposure to interest rate risk arises predominantly from cash and cash equivalents bearing variable interest rates, as the group intends to hold fixed rate assets and liabilities to maturity. As the group has no other significant interest-bearing assets, the group's income and operating cash flows are not materially exposed to changes in market interest rates.

Notes to the financial statements

Note 3. Financial risk management (continued)

(e) Net fair values

The net fair values of financial assets and financial liabilities approximate their carrying amounts.

		Consolidated	Parent
	2007	2006	2007	2006
	\$'000	\$'000	\$'000	\$'000
Note 4. Other revenue
Interest	458	597	457	549
Corporate charges	-	-	5,967	6,936
Dividends	-	-	7,500	3,000
Other	-	47	-	5
	458	644	13,924	10,490
Note 5. Other income
Foreign exchange gain	-	42	-	-
Reversal of provision against Powerlan (Qld) receivable	60	115	-	-
	60	157	-	-
Note 6. Expenses
Cost of goods sold	186,858	162,246	-	-
Depreciation: property and equipment	99	86	62	37
Amortisation
Leasehold improvements	362	288	104	104
Software	153	127	56	21
Total amortisation	515	415	160	125
Defined contribution superannuation expense	2,944	2,423	287	296
Employee benefits expense (excluding superannuation)	31,432	25,731	2,339	3,237
Foreign exchange loss	133	-	-	-
Other charges against assets
Impairment of goodwill	6	70	-	-
Impairment of software assets	-	84	-	-
Bad and doubtful debts	84	63	-	-
Rental expenses on operating leases
Minimum lease payments	2,363	2,226	130	250
Contingent rentals	(43)	3	(1)	(1)
Rental expenses – other	248	215	42	-
	2,568	2,444	171	249
Finance costs
Interest and finance charges paid/payable	12	3	12	3
Unwinding of discount on provisions	10	4	-	-
	22	7	12	3
Loss on disposal of property and equipment	4	45	4	1

Notes to the financial statements

		Consolidated		Parent
	2007	2006	2007	2006
	\$'000	\$'000	\$'000	\$'000
Note 7. Income tax
Income tax expense
The major components of income tax expense are:
Current income tax expense	3,315	2,776	269	286
Deferred income tax relating to the origination and
reversal of temporary differences	(126)	(146)	(49)	-
Under (over) provision in prior year	(48)	16	(1)	-
Income tax expense	3,141	2,646	219	286
A reconciliation between income tax expense and the
product of accounting profit before income tax multiplied
by the group's applicable income tax rate is as follows:
Accounting profit before income tax	10,338	8,359	8,229	3,946
Income tax calculated at the Australian tax rate: 30% (2006: 30%)	3,101	2,508	2,469	1,184
Tax effect of amounts which are not deductible/ (taxable)
in calculating taxable income:
Non-taxable dividends	-	-	(2,250)	(900)
Non-deductible items	61	77	1	2
Other	1	45	-	-
	3,163	2,630	220	286
Difference in overseas tax rates	26	-	-	-
Under (over) provision in prior year	(48)	16	(1)	-
Income tax expense	3,141	2,646	219	286

	Consolidated
		Balance Sheet		Income Statement
	2007	2006	2007	2006
	\$'000	\$'000	\$'000	\$'000
Deferred income tax
Deferred income tax at 30 June for the group relates
to the following:
Deferred tax assets
Accrued liabilities	688	571	117	137
Provisions	406	355	51	48
Lease incentive liability	158	217	(59)	(59)
Foreign tax losses	-	-	(45)	-
Other	14	-	10	(39)
	1,266	1,143	74	87
Deferred tax liabilities
Lease incentive asset	(158)	(217)	59	59
Other	(21)	(14)	(7)	-
	(179)	(231)	52	59
Net deferred tax assets	1,087	912
Deferred income tax revenue			126	146

Notes to the financial statements

	Parent
		Balance Sheet		Income Statement
	2007	2006	2007	2006
	\$'000	\$'000	\$'000	\$'000
Note 7. Income tax (continued)
Deferred income tax
Deferred income tax at 30 June for the parent entity
relates to the following:
Deferred tax assets
Accrued liabilities	81	49	32	7
Provisions	105	95	10	8
Lease incentive liability	94	125	(31)	(31)
Other	11	-	11	(11)
	291	269	22	(27)
Deferred tax liabilities
Lease incentive asset	(94)	(125)	31	31
Other	(17)	(13)	(4)	(4)
	(111)	(138)	27	27
Net deferred tax assets	180	131
Deferred income tax revenue			49	-

Unrecognised temporary differences

The parent entity has recorded impairment charges of \$6,117,000 in respect of its investment in a subsidiary (refer notes 15, 27). No deferred tax asset has been recognised in relation to these accumulated impairment charges (2006: nil).

Tax consolidation legislation

Data# 3 Limited and its wholly-owned Australian subsidiaries have implemented the tax consolidation legislation as of 1 July 2003. The accounting policy in relation to this legislation is disclosed in note 1(e).

The entities in the tax-consolidated group entered into tax sharing and funding agreements. Under the terms of these agreements, the wholly-owned subsidiaries reimburse Data# 3 Limited for any current tax payable assumed and are compensated by Data# 3 Limited for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to Data# 3 Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned subsidiaries' financial statements.

The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax installments. The funding amounts are recognised as current intercompany receivables or payables.

In the opinion of the directors, the tax sharing agreement is also a valid agreement under the tax consolidation legislation and limits the joint and several liability of the wholly-owned subsidiaries in the case of a default by Data# 3 Limited.

The group has no tax losses available for offset against future taxable profits (2006: nil).

Notes to the financial statements

		Consolidated
	2007	2006
	Number	Number
Note 8. Earnings per share
(a) Weighted average number of shares
Weighted average number of ordinary shares for basic earnings per share	15,600,001	15,492,196
Effect of dilution: Share options	-	15,253
Weighted average number of ordinary shares and potential ordinary shares
for diluted earnings per share	15,600,001	15,507,449

(b) Other information concerning earnings per share

• Earnings for the purpose of the calculation of basic earnings per share and also diluted earnings per share is the net profit.
• Options granted are considered to be potential ordinary shares. Details relating to options are set out in note 28. In 2006 the options were considered dilutive and were therefore included in the calculation of diluted earnings per share. No options were on issue during 2007.

		Parent
	2007	2006
	Number	Number
Note 9. Dividends
Dividends paid on ordinary shares during the year
Final fully franked dividend for 2006: 17.0c (2005: 11.5c)	2,658	1,766
Interim fully franked dividend for 2007:14.0c (2006: 11.0c)	2,183	1,704
	4,841	3,470
Dividends declared (not recognised as a liability at year end)
Final fully franked dividend for 2007: 22.0c (2006: 17.0c)	3,409	2,658
The tax rate at which dividends paid have been franked is 30% (2006: 30%).
Dividends declared will be franked at the rate of 30% (2006: 30%).
Franking credit balance
Franking credits available for subsequent financial years based on a tax rate of 30% (2006: 30%)	7,836	6,596

The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for:

(a) franking credits that will arise from the payment of the current tax liability;

(b) franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and

(c) franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date.

The dividend recommended by the directors since year end, but not recognised as a liability at year end, will result in a reduction in the franking account of \$1,461,000 (2006: \$1,139,000).

Notes to the financial statements

	Consolidated		Parent
	2007 \$'000	2006	2007 \$'000	2006
		\$'000		\$'000
Note 10. Cash and cash equivalents
Cash at bank and on hand	3,867	2,497	2,426	2,311
Deposits at call	13,500	11,500	13,500	11,500
Balances per cash flow statements	17,367	13,997	15,926	13,811

Cash is bearing floating interest rates of approximately 4.5% per annum (2006: 4.4%). Deposits at call comprise deposits with financial institutions available at call and are bearing a floating interest rate of approximately 5.8% per annum (2006: 5.3%). The weighted average interest rate in relation to cash and cash equivalents for 2007 was 5.4% (2006: 5.2%).

	Consolidated		Parent
	2007	2006	2007	2006
	\$'000	\$'000	\$'000	\$'000
Note 11. Trade and other receivables
Trade receivables	51,407	34,079	-	-
Allowance for doubtful debts	(182)	(175)	-	-
	51,225	33,904	-	-
Other receivables	111	123	44	52
Receivable from Powerlan (Qld)	1,327	1,853	-	-
Allowance for doubtful debt	(1,267)	(1,327)	-	-
	60	526	-	-
Amounts receivable from subsidiaries	-	-	2,392	4,138
	51,396	34,553	2,436	4,190

Other receivables

These amounts generally arise from accrued rebates or transactions outside the usual operating activities of the group. Interest is normally not charged, collateral is not normally obtained, and the receivables are normally due within 30 days of recognition.

Receivables from subsidiaries

These amounts are at call, unsecured, interest-free and repayable in cash.

	Consolidated		Parent
	2007	2006	2007		2006
	\$'000	\$'000	\$'000	\$'000
Note 12. Inventories
Finished goods – at cost	4,985	3,263	-	-

Inventories recognised as an expense for the year ended 30 June 2007 totalled \$186,858,000 (2006: \$162,246,000) for the group and are included in the cost of goods sold line item (refer to note 6).

Notes to the financial statements

		Consolidated	Parent
	2007	2006	2007	2006
	\$'000	\$'000	\$'000	\$'000
Note 13. Other current assets
Prepayments	529	777	345	320
Security deposits	82	76	1	1
Accrued rebates	998	406	-	-
	1,609	1,259	346	321
Note 14. Available-for-sale
financial assets (non-current)
Shares in listed corporations – at fair value	5	5	5	5
Available-for-sale investments consist of investments in ordinary shares, and therefore have no fixed maturity date or coupon rate.
Note 15. Other financial assets (non-current)
Shares in subsidiaries – at cost (note 27)	-	-	6,131	6,131
Accumulated impairment	-	-	(6,117)	(6,117)
	-	-	14	14
Note 16. Property and equipment
Leasehold improvements – at cost	2,369	2,335	1,042	1,042
Accumulated amortisation	(1,476)	(1,114)	(729)	(625)
	893	1,221	313	417
Equipment – at cost	659	882	372	671
Accumulated depreciation	(468)	(751)	(265)	(585)
	191	131	107	86
	1,084	1,352	420	503
		Leasehold

	improvements	Equipment	Total
	\$'000	\$'000	\$'000
Consolidated
Carrying amount at 1 July 2005	1,182	190	1,372
Additions	327	72	399
Disposals	-	(45)	(45)
Depreciation/amortisation expense	(288)	(86)	(374)
Carrying amount at 30 June 2006	1,221	131	1,352
Additions	34	163	197
Disposals	-	(4)	(4)
Depreciation/amortisation expense	(362)	(99)	(461)
Carrying amount at 30 June 2007	893	191	1,084

Notes to the financial statements

	Leasehold improvements \$'000	Equipment \$'000	Total \$'000
Note 16. Property and equipment (continued)
Parent
Carrying amount at 1 July 2005	521	78	599
Additions	-	46	46
Disposals	-	(1)	(1)
Depreciation/amortisation expense	(104)	(37)	(141)
Carrying amount at 30 June 2006	417	86	503
Additions	-	87	87
Disposals	-	(4)	(4)
Depreciation/amortisation expense	(104)	(62)	(166)
Carrying amount at 30 June 2007	313	107	420

	Consolidated		Parent
	2007 2006 \$'000 \$'000	2007	2006
			\$'000	\$'000
Note 17. Intangible assets
Goodwill – at cost	4,409	4,409	-	-
Accumulated impairment	(76)	(70)	-	-
	4,333	4,339	-	-
Software assets – at cost	580	578	147	145
Accumulated amortisation and impairment	(443)	(291)	(83)	(28)
	137	287	64	117
	4,470	4,626	64	117

		Consolidated			Parent
			Software		Software
		Goodwill	assets	Total	assets
		\$'000	\$'000	\$'000	\$'000
Carrying amount at 1 July 2005	4,409	173	4,582		53
Additions	-	325	325		85
Amortisation expense/impairment charge	(70)	(211)	(281)		(21)
Carrying amount at 30 June 2006	4,339	287	4,626		117
Additions	-	3	3		3
Amortisation expense/impairment charge	(6)	(153)	(159)		(56)
Carrying amount at 30 June 2007	4,333	137	4,470		64

Intangibles – software assets

Software assets, which have been externally acquired, have been capitalised at cost and are amortised on a straight-line basis over the asset's useful economic life which is generally two to three years. The useful lives and potential impair-ment of the software assets are reviewed at the end of each financial year.

Notes to the financial statements

Note 17. Intangible assets (continued)

Goodwill impairment testing

Goodwill acquired through business acquisitions has been allocated to the smallest identifiable group of assets that generates largely independent cash inflows and which are expected to benefit from synergies of the combination. Due to the nature of Data# 3 operations and internal management reporting and monitoring of goodwill, goodwill has been allocated to the consolidated group. Under AIFRS, goodwill must be tested at least annually for impairment. Management has carried out impairment testing as at each reporting date.

The recoverable amount has been determined based on a value-in-use calculation using cash flow projections based on financial projections approved by senior management for financial year 2008. The before-tax discount rate applied to cash flow projections is 13%. Cash flows beyond the 2008 financial year have been extrapolated using an average growth rate of 9.8%.

Key assumptions used in value-in-use calculations

Budgeted gross margins have been determined based on past performance and management's expectations for the future. The discount rate was estimated based on the company's weighted average cost of capital at the date of impairment test.

	Consolidated		Parent
	2007	2006	2007	2006
	\$'000	\$'000	\$'000	\$'000
Note 18. Trade and other payables
Trade payables - secured (note 21)	12,697	11,325	-	-
- unsecured	33,578	20,515	-	-
	46,275	31,840	-	-
Other payables - unsecured	7,461	5,435	2,607	1,752
	53,736	37,275	2,607	1,752
Note 19. Provisions
Current
Employee benefits	685	584	298	273
Non–current
Employee benefits	367	315	48	43
Lease remediation (note 1(f))	123	109	5	5
	490	424	53	48
Total	1,175	1,008	351	321

Lease	Lease
remediation	remediation
\$'000	\$'000
Balance at 1 July 2006 109	5
Arising during the year 4	-
Increase to present value 10	-
Balance at 30 June 2007 123	5

Notes to the financial statements

		Consolidated		Parent
	2007	2006	2007	2006
	\$'000	\$'000	\$'000	\$'000
Note 20. Other liabilities
Current
Unearned income	6,097	2,610	-	-
Lease incentives	196	196	104	104
Amounts payable to subsidiaries	-	-	1,403	4,814
	6,293	2,806	1,507	4,918
Non–current
Lease incentives	331	527	208	313
Unearned income comprises amounts received in advance
of the provision of goods or services. Payables to subsidiaries
are at call, unsecured, interest-free and repayable in cash.
Note 21. Financing arrangements
Unrestricted access was available at balance date to the
following lines of credit:
Bank overdrafts	600	600	600	600
Bill facility	3,955	3,955	3,955	3,955
	4,555	4,555	4,555	4,555

All financing facilities were unused as at 30 June 2007 and 2006.

Bank overdrafts

The bank overdraft facilities are subject to annual review, may be drawn at any time and may be terminated by the bank without notice. Interest is variable and is charged at prevailing market rates. The weighted average interest rate at year end was 10.3% (2006: 9.7%).

Bill facility

The facility is subject to annual review. No bills were outstanding as at 30 June 2007 or 2006.

	Consolidated		Parent
	2007 \$'000	2006 \$'000	2007 \$'000	2006 \$'000
Secured liabilities (current and non-current)
Lease incentives (note 20)	527	723	312	417
Trade payables (note 18)	12,697	11,325	-	-
Total secured liabilities	13,224	12,048	312	417

Assets pledged as security

All the assets of the group are pledged as security for bank facilities and certain trade creditor facilities as noted above. Leasehold improvements (refer note 16) effectively secure lease incentive liabilities as noted above.

Notes to the financial statements

	Notes	Number of shares	Issue Price \$	\$'000
Note 22. Contributed equity
(a) Movements in ordinary share capital
Balance at 1 July 2005		15,349,773		8,706
Exercise of options under Data# 3 Limited Employee Option Plan	28	20,000	0.91	18
Dividend reinvestment plan issue	(i)	125,211	2.96	371
Dividend reinvestment plan issue	(i)	140,067	3.35	468
Balance at 30 June 2006		15,635,051		9,563
Repurchase of ordinary shares	(ii)	(44,115)	4.00	(176)
Balance at 30 June 2007		15,590,936		9,387

(i) The company has established a dividend reinvestment plan under which holders of ordinary shares may elect to have all or part of their dividend entitlements satisfied by the issue of new ordinary shares rather than being paid in cash. Shares are issued under the plan at a discount to the market price of up to 10%; the shares issued under the plan during the 2006 year were offered to shareholders at a discount of 5%. The dividend reinvestment plan has been suspended indefinitely from 1 September 2006.

• (ii) The company commenced a 12 month on-market buyback of up to 10% of the company's ordinary shares beginning 1 September 2006. All shares purchased under the buyback are cancelled.
• (iii) Effective 1 July 1998, the corporations legislation in place abolished the concepts of authorised capital and par value shares. Accordingly, the company does not have authorised capital or par value in respect of its issued shares.

(b)Ordinary shares

All ordinary shares issued as at 30 June 2007 and 2006 are fully paid. Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote.

(c) Share options

No share options remain outstanding as at 30 June 2007 (refer note 28).

Note 23. Contingent liabilities

At 30 June 2007 bank guarantees totalling \$410,000 (2006: \$410,000) were provided to lessors as security for premises leased by the parent entity and the subsidiaries. The guarantees will remain in place for the duration of the operating leases. Bank guarantees are secured by charges over all of the group's assets.

Cross guarantees have been provided by the parent entity and its Australian wholly-owned subsidiaries as described in note 27.

Notes to the financial statements

	Consolidated		Parent
	2007	2006	2007	2006
	\$'000	\$'000	\$'000	\$'000
Note 24. Commitments
Future minimum rentals payable under non-cancelable
operating leases as at 30 June are as follows:
Within one year	2,035	2,187	989	1,001
Later than one year but not later than five years	3,079	4,439	2,058	2,638
	5,114	6,626	3,047	3,639

Operating leases include leases of premises, motor vehicles and office equipment. Under the relevant lease agreements (mainly premises) the rentals are subject to periodic review to market and/or for CPI increases. Operating leases are under normal commercial operating lease terms and conditions. Certain operating lease commitments of the parent entity, mainly comprising premises, are paid for and recognised as expenses by subsidiaries.

Note 25. Key management personnel

Directors

The following persons were directors of Data# 3 Limited during the 2006 and 2007 financial years, except as noted:

R Anderson	Chairman – non-executive
G Clark	Non-executive director (from 1 July 2005 to 8 November 2006, the date of his retirement)
J Grant	Managing director
W Powell	Non-executive director
H Stack	Non-executive director (from 1 July 2005 to 23 December 2005, the date of his resignation)

Other key management personnel

The following persons also had authority and responsibility for planning, directing and controlling the activities of the group, directly or indirectly, during the financial year:

Name	Position	Employer
Baynham, L.	General Manager	Data# 3 Business Systems Pty Ltd
Bowser, M.	Manager – Managed Accounts Group	Data# 3 Business Systems Pty Ltd
Colledge, B.	Manager – Licensing Solutions	Data# 3 Business Systems Pty Ltd
Crouch, B.	Manager – Enterprise Solutions	Data# 3 Business Systems Pty Ltd
Crouch, P.	Manager – New South Wales	Gratesand Pty Ltd
Esler, M.	Manager – ICT Product Solutions	Data# 3 Limited
Hill, B.	Chief Financial Officer and Company Secretary	Data# 3 Limited
Lavett, J.	Manager – Victoria	Gratesand Pty Ltd
MacPherson, L.	Manager – Organisational Development and HR	Data# 3 Limited
Murphy, P.	Manager – ICT Services	Data# 3 Business Systems Pty Ltd
Peters, W.	Manager – Recruitment Solutions	Data# 3 Business Systems Pty Ltd
Rackham, J.	Manager – Victoria	Gratesand Pty Ltd

All of the above persons were also key management personnel during the year ended 30 June 2006, except for P Crouch and J Rackham, who were promoted to their positions on 1 November 2005 and 1 September 2006, respectively. J Lavett was a key management person from 1 July 2005 to 31 August 2006, the date of his termination.

Notes to the financial statements

	Consolidated		Parent
	2007	2006	2007	2006
	\$'000	\$'000	\$'000	\$'000
Note 25. Key management personnel (continued)
Key management personnel compensation
Short-term employee benefits	3,341,907	3,112,450	1,191,887	1,191,234
Long-term employee benefits	46,194	25,869	13,692	8,377
Post-employment benefits	169,408	171,309	66,457	78,243
Other benefits	59,599	-	-	-
	3,617,108	3,309,627	1,272,036	1,277,854

The company has taken advantage of the relief provided by regulation 2M.6.04 of the Corporations Regulations 2001 and has transferred the detailed remuneration disclosures to the directors' report. The relevant information can be found at Sections A-D of the remuneration report.

Equity instrument disclosures relating to key management personnel

Shares under option

Subject to shareholder approval, additional options may be granted to directors and executives under the Data# 3 Limited Employee Option Plan, details of which are set out in note 28. No options were granted in the 2006 and 2007 financial years. Information in respect of options held as at 30 June 2007, whether directly, indirectly or beneficially, by each key management person, including their personally-related entities, is set out below.

Balance

	Balance		Balance		Balance	Vested and exercisable
	30 June 2005	Exercised	30 June 2006	Exercised	30 June 2007	30 June 2006	30 June 2007
MacPherson, L.	20,000	(20,000)	-	-	-	-	-

Shares issued on exercise of Data# 3 Limited remuneration options during the years ended 30 June 2007 and 2006

Key management person	Shares issued	Paid per share	Unpaid per share
	Number	\$	\$
2007
Not applicable.
2006
MacPherson, L.	20,000	0.91	-

Notes to the financial statements

Note 25. Key management personnel (continued)

Number of shares in Data# 3 Limited held by key management personnel

Ordinary shares held directly, indirectly or beneficially by each key management person, including their personally-related entities are shown below.

	Balance	Options	Other	Balance	Other	Balance
	30 June 2005	exercised	changes	30 June 2006	changes	30 June 2007
Directors:
Anderson, R.	40,000	-	5,000	45,000	5,000	50,000
Clark, G.	618,880	-	(35,148)	583,732	*(583,732)	-
Grant, J.	861,520	-	-	861,520	-	861,520
Powell, W.T.	620,000	-	(55,000)	565,000	(55,000)	510,000
Stack, H.	10,000	-	*(10,000)	-	-	-
Other executives:
Baynham, L.	51,600	-	-	51,600	-	51,600
Bowser, M.	20,000	-	(10,000)	10,000	-	10,000
Colledge, B.	23,600	-	-	23,600	-	23,600
Crouch, B.	10,000	-	-	10,000	-	10,000
Esler, M.	760,100	-	-	760,100	-	760,100
Hill, B.	50,000	-	-	50,000	-	50,000
MacPherson, L.	-	20,000	-	20,000	(8,000)	12,000
	3,065,700	20,000	(105,148)	2,980,552	(641,732)	2,338,820

* Reflects retirement or resignation of director; the shares were not sold

Key management personnel who are not shown in the tables above held no shares or options in Data# 3 Limited. There has been no movement in key management personnel shareholdings since year end up to the date of this report.

Other transactions with key management personnel

Mr J E Grant, an executive director, is a director of Wood Grant & Associates Pty Ltd and has the capacity to significantly influence decision making of that entity. Data# 3 Limited engages Wood Grant & Associates Pty Ltd to assist with design and production of the annual and half-yearly financial reports. These transactions are made on normal commercial terms and conditions and at market rates.

	2007	2006
	\$'000	\$'000
Amounts recognised as expense
Other expense	21,318	21,325

There were no other transactions during the year with key management personnel or their personally–related entities.

Notes to the financial statements

		Consolidated	Parent
	2007	2006	2007	2006
	\$'000	\$'000	\$'000	\$'000
Note 26. Remuneration of auditor
During the year the following fees were paid or payable to
the auditor for audit and non-audit services:
Audit services
Audit and review of financial reports and other
audit work under the Corporations Act 2001	97,000	92,500	97,000	92,500
Non-audit services
Due diligence services on potential acquisition	860	1,500	860	1,500
Corporate services	720	940	720	940
IFRS accounting services	-	10,000	-	10,000
Tax compliance services	6,030	5,140	6,030	5,140
Total remuneration	104,610	110,080	104,610	110,080

There was no remuneration paid to related practices of Johnston Rorke. It is the group's policy to employ Johnston Rorke on assignments additional to its statutory audit duties where Johnston Rorke's expertise and experience with the group are important.

Note 27. Related parties

Wholly–owned group

The consolidated financial statements include the financial statements of Data# 3 Limited and the subsidiaries listed in the following table.

Name of entity Country of formation		Equity holding
	or incorporation		(ordinary shares)
		2007	2006
		%	%
Data# 3 Business Systems Pty Ltd	Australia	100	100
Gratesand Pty Ltd	Australia	100	100
Data# 3 NC SARL	New Caledonia	100	100

Transactions between Data# 3 Limited and other entities in the wholly-owned group during the years ended 30 June 2007 and 30 June 2006 consisted of:

■ Loans advanced to/by subsidiaries and repayments (refer Cash Flow Statement);

• Recovery of corporate charges received by Data# 3 Limited for accounting, administrative services, management and use of assets (refer note 4);
• Management charges from subsidiaries for use of assets and provision of systems and services (refer Income Statement);
• Dividends received by Data# 3 Limited (refer note 4); and
• Transactions between Data# 3 Limited and its wholly-owned subsidiaries under the tax sharing and funding agreements described in note 7. The parent entity recognised a receivable of \$3,046,000 in relation to its subsidiaries' current tax amounts for the year ended 30 June 2007 (2006: a receivable of \$2,778,000).

Loans provided are at call, interest-free and unsecured and have no fixed repayment terms (refer notes 11 and 20). Corporate charges by the parent entity are based on budgeted cost. Management charges by subsidiaries are based on discounted retail price. Unless otherwise stated, transactions are on commercial terms and conditions.

Management has carried out impairment testing as at each reporting date in relation to the parent entity's investment in its subsidiaries. As at 1 July 2004 an impairment loss of \$1,745,000 was recognised against the net investment in CICtechnology (Gratesand Pty Ltd). In 2006 the investment's carrying value was written down to zero on the basis of the value-in-use calculation used to determine the asset's recoverable amount.

Notes to the financial statements

Note 27. Related parties (continued)

Entities subject to class order relief

Data# 3 Limited, Data# 3 Business Systems Pty Ltd (Business Systems), and Gratesand Pty Ltd (Gratesand) are parties to a deed of cross guarantee under which each company guarantees the debts of the others. By entering into the deed, these wholly-owned entities have been relieved from the requirements to prepare a financial report and directors' report under Class Order 98/1418 (as amended) issued by the Australian Securities & Investments Commission. Data# 3 Limited and Business Systems both have net assets as at 30 June 2007. However, Gratesand has net liabilities of \$7,776,000 as at 30 June 2007 (2006: 8,536,000); this deficiency includes a payable to Data# 3 Limited of \$1,424,000 (2006: 4,458,000). Management believes no provision is necessary in relation to the net deficiency in Gratesand, as Gratesand traded profitably in 2007 and is expected to continue trading profitably in the foreseeable future. Additionally, trading profits in other subsidiaries which are party to the deed of cross guarantee, particularly Business Systems, are more than sufficient to cover the deficiency in Gratesand.

The above companies, which comprise the parent entity and all of its Australian subsidiaries, represent a "Closed Group" for the purposes of the class order. The consolidated income statements for the closed group for the years ended 30 June 2007 and 2006 are set out in the following table.

		Closed Group
	2007	2006
	\$'000	\$'000
Revenues
Sale of goods	213,514	185,042
Services	67,635	51,971
Other	1,338	1,227
Total	282,487	238,240
Other income	60	115
Expenses
Changes in inventories of finished goods	1,722	901
Purchase of goods	(187,914)	(163,147)
Employee and contractor costs directly
on-charged (cost of sales on services)	(34,305)	(22,302)
Other cost of sales on services	(5,514)	(4,768)
Other employee and contractor costs	(37,871)	(32,414)
Telecommunications	(880)	(795)
Software maintenance and licensing	(305)	(172)
Rent	(2,504)	(2,407)
Travel	(1,317)	(1,109)
Professional fees	(583)	(471)
Depreciation and amortisation	(607)	(501)
Finance costs	(22)	(7)
Other	(2,305)	(2,688)
Total	(272,405)	(229,880)
Profit before income tax expense	10,142	8,475
Income tax expense	(3,066)	(2,680)
Net profit	7,076	5,795

Notes to the financial statements

Note 27. Related parties (continued)

A summary of movements in consolidated retained earnings for the years ended 30 June 2007 and 2006 of the closed group is set out below.

	Closed
	Group
	\$'000
Retained earnings at 1 July 2005	5,091
Profit after income tax/net profit (total recognised
income and expense)	5,795
Dividends provided for or paid	(3,470)
Retained earnings at 1 July 2006	7,416
Profit after income tax/net profit (total recognised
income and expense)	7,076
Dividends provided for or paid	(4,841)
Retained earnings at 30 June 2007	9,651

The consolidated balance sheet as at 30 June 2007 for the closed group is set out below.

		Closed Group
	2007	2006
	\$'000	\$'000
Current assets
Cash and cash equivalents	15,929	13,814
Trade and other receivables	50,863	34,667
Inventories	4,985	3,263
Other	1,604	1,218
Total current assets	73,381	52,962
Non-current assets
Available-for-sale financial assets	5	5
Other financial assets	14	14
Property and equipment	1,072	1,349
Deferred tax assets	1,075	912
Intangible assets	4,466	4,619
Total non-current assets	6,632	6,899
Total assets	80,013	59,861
Current liabilities
Trade and other payables	52,753	37,087
Current tax liabilities	1,391	1,454
Provisions	685	584
Other	5,325	2,806
Total current liabilities	60,154	41,931
Non-current liabilities
Provisions	490	424
Other	331	527
Total non-current liabilities	821	951
Total liabilities	60,975	42,882
Net assets	19,038	16,979
Equity
Contributed equity	9,387	9,563
Retained earnings	9,651	7,416
Total equity	19,038	16,979

Notes to the financial statements

Note 28. Share-based payments

Data# 3 Limited Employee Share Scheme

The establishment of the Data# 3 Limited Employee Share Scheme was approved at an extraordinary general meeting of the company held on 26 February 1999. All full-time and part-time employees, excluding directors, of Data# 3 Limited and its subsidiaries are eligible to participate in the scheme. To 30 June 2007 no shares have been issued under the scheme.

Under the scheme, eligible employees may be offered a minimum of 200 shares at a price determined by the directors where the discount of the share price is not more than 25% of the weighted average price of the shares trading on the ASX over the five trading days immediately prior to the Board resolution. Offers under the scheme are at the sole direction of the Board of directors. The market value of shares issued under the scheme, measured as the weighted average market price on the day of issue of the shares, is recognised in the balance sheet as share capital, and compensation expense, measured as the difference between the market value of the shares and the consideration paid by the employee, is recorded as part of employee benefits costs.

The board of directors may, by resolution, restrict shares issued under the scheme from being sold for a specified period of time after their issue, up to a maximum of three years. In all other respects the shares rank equally with other fully paid ordinary shares on issue (see note 22(b)).

Data# 3 Limited Employee Option Plan

The establishment of the Data# 3 Limited Employee Option Plan (the Plan) was approved at an extraordinary general meeting of the company held on 5 November 1997.

All full-time and part-time employees, including directors, of Data# 3 Limited and its subsidiaries are eligible to participate in the plan. Options are issued for \$1 per parcel of options issued and are exercisable from two years prior to the expiry date; the options lapse 30 days following cessation of the option holder's employment. The exercise price of the options last issued was determined as the higher of 90 cents per share or the weighted average price of the shares as listed with the ASX within the 5 days immediately prior to the offer date. Options granted under the plan carry no dividend or voting rights. When exercisable, each option is convertible into one ordinary share.

Set out below are summaries of options granted under the plan:

Grant date	Expiry date	Exercise price	Balance at start of the year Number	Issued during the year Number	Exercised during the year Number	Balance at end of the year Number
Consolidated and parent – 2007
Not applicable.		-	-	-	-	-
Consolidated and parent – 2006
22 November 2002	21 November 2005	\$0.91	20,000	-	20,000	-

Notes to the financial statements

Note 28. Share-based payments (continued)

Details of the options exercised during the years ended 30 June 2007 and 2006 are as follows:

			Consolidated	Parent
	Fair value per share	2007	2006	2007	2006
Exercise date	at issue date	Number	Number	Number	Number
11 November 2005	\$3.39	-	20,000	-	20,000

The fair value of shares issued on the exercise of options is the closing price at which the company's shares were traded on the Australian Stock Exchange on the date the options were exercised.

	Consolidated		Parent
	2007	2006	2007	2006
	\$'000	\$'000	\$'000	\$'000
Aggregate proceeds received from employees on the
exercise of options and recognised as issued capital	-	18,200	-	18,200
Aggregate fair value of shares issued to employees
on the exercise of options as at their issue date	-	67,800	-	67,800

Refer to note 1(t) for information in relation to the company's accounting policy for options granted. The above options were granted after 7 November 2002 and vested prior to 1 January 2005. Accordingly the exemption contained in AASB 1 First-time Adoption of Australian Equivalents to IFRS did not require the application of AASB 2 Share Based Payments to the above options.

Note 29. Segment information

Business segment

The group predominantly operates in one business segment. Its activities include software licensing and software asset management; the design, deployment and operation of desktop, network and data centre hardware and software infrastructure; and the provision of contract and permanent recruitment services.

The products and services offered by the group are similar with respect to nature, distribution methods, risks and returns, and customer bases. Revenue is generated by providing customer solutions that draw on all or several areas of specialisation, resulting in strong interdependency among our product and service offerings.

Geographical segment

The group's operations are based predominantly in Australia.

	Consolidated		Parent
	2007 \$'000	2006 \$'000	2007 \$'000	2006 \$'000
Note 30. Non-cash investing
and financing activities
Dividends satisfied by issue of shares (note 22)	-	839	-	839

Directors' declaration

In the opinion of the directors:

• (a) the financial statements and notes set out on pages 30 to 59 are in accordance with the Corporations Act 2001, including:
• (i) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
• (ii) giving a true and fair view of the company's and group's financial position as at 30 June 2007 and of their performance, as re resented by the results of their operations and their cash flows, for the financial year ended on that date; and
• (b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; and
• (c) the audited remuneration disclosures set out on pages 23 to 26 of the directors' report comply with Australian Accounting Standard AASB 124 Related Party Disclosures and the Corporations Regulations 2001; and
• (d) at the date of this declaration, there are reasonable grounds to believe that the members of the closed group identified in note 27 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in note 27.

The directors have been given the declarations by the managing director and chief financial officer required by section 295A of the Corporations Act 2001.

This declaration is made in accordance with a resolution of the directors.

R A Anderson Director

Brisbane 22 August 2007

Independent audit report to the members of Data#3 Limited

Report on the financial report and AASB 124 remuneration disclosures contained in the directors' report

We have audited the accompanying financial report of Data# 3 Limited, which comprises the balance sheet as at 30 June 2007, and the income statement, statement of changes in equity and cash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors' declaration for both Data# 3 Limited (the company) and the consolidated entity comprising the company and the entities it controlled at the year's end or from time to time during the financial year.

As permitted by the Corporations Regulations 2001, the company has disclosed information about the remuneration of directors and executives (remuneration disclosures), required by Australian Accounting Standard AASB 124 Related Party Disclosures, under the heading "remuneration report" of the directors' report and not in the financial report. We have audited these remuneration disclosures.

Directors' responsibility for the financial report

The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that compliance with the Australian equivalents to International Financial Reporting Standards ensures that the consolidated financial report, comprising the consolidated financial statements and notes, complies with International Financial Reporting Standards.

The directors of the company are also responsible for the remuneration disclosures contained in the directors' report.

Auditor's responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. Our responsibility is to also express an opinion on the remuneration disclosures contained in the directors' report based on our audit.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report and the remuneration disclosures contained in the directors' report. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial report and the remuneration disclosures contained in the directors' report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial report and the remuneration disclosures contained in the directors' report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report and the remuneration disclosures contained in the directors' report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independent audit report to the members of Data#3 Limited

Independence

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.

Auditor's opinion on the financial report

In our opinion:

• (a) the financial report of Data# 3 Limited is in accordance with the Corporations Act 2001, including:
• (i) giving a true and fair view of the company's and consolidated entity's financial position as at 30 June 2007 and of their performance for the year ended on that date; and
• (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and
• (b) the consolidated financial report also complies with International Financial Reporting Standards as disclosed in Note 1.

Auditor's opinion on AASB 124 remuneration disclosures contained in the directors' report

In our opinion the remuneration disclosures that are contained in the remuneration report in the directors' report comply with Australian Accounting Standard AASB 124 Related Party Disclosures.

JOHNSTON RORKE Chartered Accountants

J J Evans Partner Brisbane, Queensland 22 August 2007

Shareholder information

The shareholder information set out below was applicable as at 20 August 2007.

1. Distribution of equity securities

(a) Analysis of numbers of equity security holders by size of holding:

				Class of security
			Ordinary	Options for
			shares	ordinary shares
1	-	1,000	493	-
1,001	-	5,000	972	-
5,001	-	10,000	257	-
10,001	-	100,000	153	-
100,001 and over			22	-
			1,897	-

(b) There were 61 holders of less than a marketable parcel of ordinary shares.

2. Twenty largest quoted equity security holders

	Ordinary shares
	Number	Percentage of
	held	issued shares
National Nominees Limited	2,088,107	13.39
Oakport Pty Ltd	571,000	3.66
Wood Grant & Associates Pty Ltd	460,429	2.95
ANZ Nominees Limited	409,181	2.62
Citicorp Nominees Pty Limited	367,336	2.36
Citicorp Nominees Pty Limited	321,315	2.06
ANZ Nominees Limited	312,607	2.01
Elterry Pty Ltd	300,000	1.92
J P Morgan Nominees Australia Limited	292,731	1.88
Powell Clark Trading Pty Ltd	278,732	1.79
Fadmoor Pty Ltd	240,002	1.54
G R Clark	205,000	1.31
Thomson Associates Pty Ltd	200,000	1.28
M R Esler	179,100	1.15
J E Grant	179,100	1.15
J T Populin	169,014	1.08
JHG Super Pty Ltd	160,771	1.03
A J & L D O'Rourke	131,910	0.85
M G Populin	120,444	0.77
D R & V J Newbold	111,489	0.72
	7,098,268	45.53

Shareholder information

3. Substantial shareholders

Substantial shareholders in the company are set out below:

Name	Number held	Percentage
Souls Funds Management Limited	1,509,995	9.69
Paradice Investment Management Pty Ltd	1,126,825	7.23
J E Grant / Wood Grant & Associates Pty Ltd	861,520	5.53
4. Unquoted equity securities
	Number held	Number of
		holders
Options issued under Data# 3 Limited Employee
Option plan to take up ordinary shares	-	-

5. Voting rights

The voting rights attaching to the ordinary shares, set out in the company's constitution, are:

(a) every shareholder present at a general meeting has one vote on a show of hands; and

(b) on a poll, each shareholder has one vote for each fully paid share held.

Options have no voting rights.

Financial calendar

2007

• 22 August Full year results announcement
• 14 September Record date for final dividend
• 28 September Final dividend payment
• 2 November Annual General Meeting

2008

• By 22 February Half year results announcement
• 14 March Record date for interim dividend
• 28 March Interim dividend payment
• 30 June Year end

Corporate directory

CORPORATE HEAD OFFICE

Brisbane Level 2 Data# 3 Centre 80 Jephson Street TOOWONG QLD 4066

P.O. Box 551 INDOOROOPILLY QLD 4068

All Data# 3 locations can be reached on the following numbers for the cost of a local call. T: 1300 23 28 23 F: 1300 32 82 32 E: info@data3.com.au W: www.data3.com.au

REGISTERED OFFICE Level 2

80 Jephson Street TOOWONG QLD 4066

BRANCH OFFICES

Sydney Level 2 107 Mount Street NORTH SYDNEY NSW 2060

P.O. Box 426 NORTH SYDNEY NSW 2059

Melbourne

Level 2 785 Toorak Road HAWTHORN EAST VIC 3123 Canberra 65 Canberra Avenue GRIFFITH ACT 2603

P.O. Box 3611 MANUKA ACT 2603

Gladstone Shop 3 93 Goondoon Street GLADSTONE QLD 4680

Noumea 140, Rue Bénébig Haut-Magenta 98800 Noumea NEW CALEDONIA

Warehouse and Service Centres Milton 67 Castlemaine Street MILTON QLD 4064

Silverwater Unit 4 8 Millennium Court SILVERWATER NSW 2128

BOARD OF DIRECTORS

Richard Anderson (Non-executive Chairman) Terry Powell (Non-executive Director) John Grant (Managing Director)

AUDITORS

Johnston Rorke Level 30 Central Plaza One 345 Queen Street BRISBANE QLD 4000 BANKERS

Commonwealth Bank of Australia Corporate Banking Level 9 240 Queen Street BRISBANE QLD 4000

SHARE REGISTRY Link Market Services Limited Level 12 300 Queen Street BRISBANE QLD 4000

Locked Bag A14 SYDNEY SOUTH NSW 1235 T: (02) 8280 7454 F: (02) 9287 0303 E: registrars@linkmarketservices.com.au W: www.linkmarketservices.com.au

ABN NUMBERS Data# 3 Limited ABN: 31 010 545 267

Data# 3 Business Systems Pty Ltd ABN: 31 010 500 642

Gratesand Pty Ltd ABN: 49 002 725 171

ACN NUMBER 010 545 267

ASX CODE DTL