DATA#3 LIMITED — Interim / Quarterly Report 2003

Mar 2, 2003

Data^#3 Limited ABN 31 010 545 267

Half-Year Report
31 December 2002

Directors' Report

Your Directors present their report on the consolidated entity consisting of $Data^{#}3$ Limited and its controlled entities for the half-year ended 31 December 2002.

Directors

The following persons were Directors of Data^#3 Limited during the whole of the half-year and up to the date of this report:

R A Anderson G R Clark W T Powell H L Stack

Review of operations

The total revenue of the consolidated entity for the half-year was \$84,375,000 (2001: \$83,503,000).

The earnings before interest, tax, depreciation and amortisation for the half-year was a profit of \$899,000 $(2001: $2,460,000).$

The profit from ordinary activities before income tax expense was \$366,000 (2001: \$1,779,000). The net profit after tax was \$66,000 (2001; \$1,336,000), representing basic earnings per share of 0.5 cents (2001; 9.2) cents).

On 15 August 2002 Powerlan (Old) Pty Ltd (Powerlan Old), the consolidated entity's 50% joint venture partner in the joint venture partnerships Oueensland Desktop Services (ODS) and Oueensland Software Services (OSS), was placed into voluntary administration and receivership. The financial effect of this event includes a loss of \$2,141.000, which is reflected in the current period results of the consolidated entity.

Excluding the effect of this event the core operating results reflected the best first half performance recorded by the consolidated entity, as follows:

Earnings before interest, tax, depreciation and amortisation of \$3,040,000 (2001: \$2,460,000) Profit from ordinary activities before income tax expense of \$2,507,000 (2001: \$1,779,000) Net profit after tax of \$1,614,000 (2001: \$1,336,000) Basic earnings per share of 11.1 cents (2001: 9.2 cents).

Further details regarding the receivership and administration of Powerlan Old and the acquisition of ODS and OSS are outlined in a separate section below, and in note 7 to the financial statements.

The 1% growth in total revenue compared to the previous corresponding period was the result of a 35% increase in services revenues, offset by a 5% decrease in product sales. Consequently the services revenues represented approximately 20% of the total revenues for the period, up from 15% in the first half of 2001.

This revenue result is particularly pleasing considering the ongoing uncertainty and volatility in demand within the information technology industry. The result reflects further strong performances in the Licensing and Enterprise businesses, generally solid improvements in revenues in the technology integration businesses particularly in Queensland, some improvement in the Recruitment Solutions division, and the expected reduction in revenues in the Procurement Solutions division.

While the results in the Application Solutions division strengthened over the previous period, further improvement is expected in the second half to reach acceptable levels of performance. The acquisition of Stockford Limited's Melbourne-based Navision Solution Centre business, which occurred during the period, contributed to this improvement.

Gross margins and costs varied by month dependent on revenue mix, but overall were maintained in line with the previous corresponding period.

Directors' Report (continued)

The consolidated entity continued its focus on internal systems efficiency and cost control during the period, allowing it to operate more effectively despite ongoing market volatility. The enhancements to the financial and cash management processes have continued to produce improved results, with a resultant reduction in borrowing costs compared to the previous corresponding period.

Impact of Powerlan Old's receivership and administration, and the acquisition of ODS & OSS

As set out in the June 2002 Annual Report (note 41), the result for the half-year has been affected by the administration and receivership of Powerlan Old, the consolidated entity's joint venture partner in QDS and QSS, and the subsequent acquisition of ODS and OSS by the consolidated entity.

The financial effect includes a loss of \$2.141,000 in the current period, as detailed further in note 7 to the financial statements. This outcome compares with the original assessment of the possible financial impact detailed in the June 2002 Annual Report, being a range from \$2,000,000 to \$8,000,000, and is consistent with the estimate provided at the consolidated entity's Annual General Meeting on 26 November 2002. This outcome may be improved further depending on the final recovery from the administration of Powerlan Qld. The \$1,000,000 net receivable from Powerlan Old that is included in the current assets of the consolidated entity is considered to be a conservative estimate of that recovery. Based on the preliminary estimates of recoveries provided by the Powerlan Qld administrators, the consolidated entity's possible total recovery ranges up to approximately \$1,700,000 to \$2,000,000. Any additional funds that may be recovered from the administration process, in excess of the current \$1,000,000 net receivable, will provide further mitigation against this loss.

While further costs will be incurred in the final dissolution of the joint venture partnerships they are not expected to be material. Further, the consolidated entity now has control of 100% of the former joint venture partnership operations. and the consolidated entity's second half results will reflect the entire contribution from those operations.

Dividends

The Directors believe that the current financial year's operating performance, excluding the impact of Powerlan Qld, will exceed the previous year. Given that the impact of the Powerlan Qld receivership and administration has effectively been crystallized in the first half, with potential for recovery in the future from the Powerlan Old Administrators, the Directors have declared a fully franked dividend of 2.5 cents per share payable on 30 April 2003.

Rounding of amounts to nearest thousand dollars

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 in accordance with that Class Order, unless otherwise indicated.

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

1 Aanderson

RA Anderson Director

Brisbane Dated this 3^rd day of March 2003

Consolidated Statement of Financial Performance For the half-year ended 31 December 2002

	Note	Half-Year
		2002	2001
		\$2000	\$'000
Revenues from ordinary activities
Sale of goods		67,279	70,821
Services		16,954	12,550
Other		142	132
Total revenue		84,375	83,503
Expenses from ordinary activities
Changes in inventories of finished goods		1,750	1,304
Purchase of goods		(60, 907)	(63, 354)
Employee and contractor costs directly on-charged		(5,706)	(3,116)
Other employee and contractor costs		(13, 169)	(12,918)
Telecommunications		(597)	(647)
Rent		(925)	(897)
Travel		(453)	(495)
Depreciation and amortisation		(453)	(473)
Borrowing costs		(80)	(208)
Other		(1,408)	(1,114)
		(81,948)	(81,918)
Loss on assumption of joint venture partnerships' net liabilities	7	(2,141)
Total expense		(84,089)	(81,918)
Share of net profits of joint venture partnerships accounted for
using the equity method		80	194
Profit from ordinary activities before income tax expense		366	1,779
Income tax expense	$\overline{2}$	(300)	(443)
Net profit		66	1,336
Basic earnings per share		0.5c	9.2c
Diluted earnings per share		0.5c	9.2c

The above Consolidated Statement of Financial Performance should be read in conjunction with the accompanying notes.

Consolidated Statement of Financial Position As at 31 December 2002

	31 December 2002	30 June 2002
	\$200	\$'000
Current assets
Cash assets	12	5,193
Receivables	27,886	22,569
Inventories	3,046	1,296
Other	411	1,156
Total current assets	31,355	30,214
Non-current assets
Investments accounted for using the equity method		631
Other financial assets	7	7
Property, plant and equipment	2,014	1,934
Deferred tax assets	1,135	573
Intangible assets	5,144	5,101
Total non-current assets	8,300	8,246
Total assets	39,655	38,460
Current liabilities
Payables	23,414	20,946
Interest bearing liabilities	2,927	691
Current tax liabilities	449	344
Provisions	1,327	1,182
Other	1,726	5,180
Total current liabilities	29,843	28,343
Non-current liabilities
Interest bearing liabilities	779	1,085
Provisions	423	435
Other	677	730
Total non-current liabilities	1,879	2,250
Total liabilities	31,722	30,593
Net assets	7,933	7,867
Equity
Contributed equity	7,409	7,409
Retained profits	524	458
Total equity	7,933	7,867

The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.

Consolidated Statement of Cash Flows For the half-year ended 31 December 2002

	Note	Half-Year
		2002	2001
		\$2000	\$2000
Cash flows from operating activities
Receipts in course of operations		89,670	93,910
Payments to suppliers and employees		(88, 504)	(90, 730)
Distributions from joint venture partnerships received			215
Interest received		161	122
Borrowing costs		(80)	(234)
Income taxes paid		(783)	(115)
Income taxes refunded		34
Payments to former joint venture partnership creditors		(2, 128)
Net cash inflow / (outflow) from operating activities		(1,630)	3,168
Cash flows from investing activities
Payments for property, plant and equipment		(246)	(176)
Proceeds from sale of property, plant and equipment		18
Payments for purchase of business	6	(203)	(85)
Loan to joint venture partnership	7	(3,406)
Cash acquired on assumption of net liabilities of joint venture
partnerships	7	2,176
Net cash (outflow) from investing activities		(1,661)	(261)
Cash flows from financing activities
Repayment of borrowings		(255)	(290)
Repayment of lease liabilities		(61)	(65)
Proceeds from borrowings		1,500
Repayment of short term funds from joint venture partnership		(3,819)	(2,107)
Net cash (outflow) from financing activities		(2,635)	(2,462)
Net increase / (decrease) in cash held		(5,926)	445
Cash at the beginning of the reporting period		5,193	3,733
Cash at the end of the reporting period		(733)	4,178

The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.

Notes to the Consolidated Financial Statements For the half-year ended 31 December 2002

Note 1. Basis of preparation of half-year financial report

This general purpose financial report for the interim half-year reporting period ended 31 December 2002 has been prepared in accordance with Accounting Standard AASB 1029; Interim Financial Reporting, other mandatory professional reporting requirements (Urgent Issues Group Consensus Views), other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001.

This interim financial report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 30 June 2002 and any public announcements made by Data^#3 Limited during the interim reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001.

The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period.

Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current period.

Employee Benefits and Provisions

Amended Accounting Standard AASB 1028 Employee Benefits and new Accounting Standard AASB 1044 Provisions, Contingent Liabilities and Contingent Assets were adopted with effect from 1 July 2002. Neither of these Accounting Standards has had a material effect on the consolidated entity's financial statements.

	Half-Year
	2002 \$'000	2001 \$'000
Note 2. Income tax
The income tax expense for the half-year differs from the amount calculated on the profit. The differences are reconciled as follows:
Profit from ordinary activities before income tax expense	366	1,779
Income tax calculated at 30%	110	534
Tax effect of permanent differences:
Amortisation of goodwill	48	48
Other non-allowable items	68	76
Share of joint venture partnerships' non-deductible expenses	411
Share of joint venture partnerships' non-assessable revenue	(362)
Income tax adjusted for permanent differences	275	658
Under / (over) provision in previous year	25	46
Benefit of tax losses of prior years recouped		(261)
Income tax expense	300.	443

Notes to the Consolidated Financial Statements For the half-year ended 31 December 2002

Note 3. Segment information

Business Segment

The consolidated entity predominantly operates in one segment. Its activities include the procurement of Information Technology $(IT)$ products; the design, implementation and support of IT infrastructure solutions; and the supply, implementation and support of application software solutions.

Geographical Segment

The consolidated entity's operations are predominantly based in Australia.

	Half-Year
	2002 \$'000	2001 \$'000
Note 4. Equity securities issued
During the 2001 half-year Data # 3 Limited issued 30,425 fully paid
ordinary shares at \$1.25 per share to vendors of the Navision
Solution Centre business of Maggs Business Advisory (acquired
during the year ended 30 June 2001).		38

In relation to the above-mentioned acquisition the consolidated entity owed the vendors \$123,000 as at 30 June 2001 (as disclosed in the June 2001 Annual Report). This debt was paid during the 2001 half-year by the issue of shares, as noted above, and the payment of \$85,000 cash, as shown in the Consolidated Statement of Cash Flows.

Note 5. Contingent liabilities

There were no material contingent liabilities at the end of the reporting period.

Note 6. Acquisition of Stockford Limited's Navision Solution Centre business

In July 2002 the consolidated entity acquired Stockford Limited's Navision Solution Centre business for \$203,000. The operating results of the acquired business have been included in the consolidated statement of financial performance since 1 July 2002. Details of the acquisition are as follows:

Fair value of identifiable net assets / (liabilities) acquired:	Half-Year 2002 \$'000
Plant and equipment Future income tax benefit Provision for employee entitlements	16 -7 (24)
Net identifiable liabilities assumed Goodwill	(1) 204 203
Consideration: Cash paid	203

Notes to the Consolidated Financial Statements For the half-year ended 31 December 2002

Note 7. Receivership and administration of Powerlan Old and the acquisition of ODS & OSS

As set out in the June 2002 Annual Report (note 41), the result for the half-year has been affected by the administration and receivership of Powerlan Old, the consolidated entity's joint venture partner in ODS and OSS.

Negotiations with the Powerlan Old receivers (Receivers) and administrators (Administrators) were concluded on 25 November 2002 (the Agreement) and various outstanding claims and issues relating to this matter were settled, as announced at the consolidated entity's Annual General Meeting on 26 November 2002.

Under the Agreement the Receivers were paid \$2,500,000 from joint venture partnership assets. The consolidated entity assumed the remaining assets & liabilities of the joint venture partnerships. One of the joint venture partnership assets was a loan of \$3,092,000 to Powerlan Old (being the net of the original OSS loan to Powerlan Old of \$3,819,000 offset by moneys owed to Powerlan Old by the joint venture partnerships). The Agreement confirmed the consolidated entity's right to prove as a creditor for the \$3,092,000 receivable in the administration of Powerlan Qld.

The payment to the Receiver facilitated the discharge of Powerlan Limited's secured ANZ debt which effectively enabled the administration of Powerlan Old to continue. On 23 December 2003 a Deed of Company Arrangement (DOCA) was executed by Powerlan Limited under which Powerlan Limited has committed to pay the Administrators \$2,600,000 by 30 June 2003, and a further \$100,000 per month for 24 months commencing from 1 July 2003. The DOCA also approved the transfer of the secured charge over the assets of Powerlan Limited and its controlled entities, to the creditors of Powerlan Old. The consolidated entity is the largest creditor of Powerlan Old, representing approximately 25% of total creditors.

The consolidated entity has estimated that it will recover at least \$1,000,000 of the \$3,092,000 Powerlan Old receivable, representing its approximate 25% share of the \$4.000,000 in administration funds that is expected to be available for distribution following receipt of the first \$2,600,000 DOCA payment from Powerlan Limited in June 2003. The consolidated entity has provided for the remaining \$2,092,000 of the Powerlan Qld receivable.

Based on the preliminary estimates of the recoveries provided by Administrators, the consolidated entity's possible total recovery ranges up to approximately \$1,700,000 to \$2,000,000. Any additional funds that may be recovered from the administration process, in excess of the current \$1,000,000 net receivable, will provide further mitigation against the loss.

The consolidated entity also negotiated arrangements with the joint venture partnership creditors to permanently forbear from pursuing recovery of a component of the joint venture partnership debt. The debt forgiveness recognized by the partnerships totalled approximately \$1,600,000.

The joint venture partnership assets and liabilities acquired by the consolidated entity at settlement are shown below.

Notes to the Consolidated Financial Statements For the half-year ended 31 December 2002

Note 7. Receivership and administration of Powerlan Old and the acquisition of ODS & OSS (continued)

Fair value of identifiable net assets / (liabilities) acquired:	Half-Year 2002 \$7000
Cash	2,176
Trade and other debtors	1,356
Receivable – Powerlan Old	3,092
Provision for non-recovery of receivable - Powerlan Qld	(2,092)
Inventories	-61
Plant and equipment	121
Trade and other creditors	(2, 434)
Loan payable to consolidated entity	(3,406)
Unearned income	(154)
Net identifiable liabilities assumed	(1,280)
Less 50% interest in joint venture partnerships already held	(638)
Legal and other costs	(223)
Loss on assumption of joint venture partnerships' net liabilities	(2,141)

This outcome compares with the original assessment of the possible financial impact detailed in the June 2002 Annual Report, being a range from \$2,000,000 to \$8,000,000, and is consistent with the estimate provided at the consolidated entity's Annual General Meeting on 26 November 2002.

This outcome may be improved further depending on the final recovery from the administration of Powerlan Old. Furthermore, since 25 November 2002 the consolidated entity has control of 100% of the former ODS and QSS joint venture partnership operations, and the consolidated entity's second half results will reflect the entire contribution from those operations.

Directors' Declaration

The Directors declare that the attached financial statements and notes:

• comply with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional $(a)$ reporting requirements: and
• give a true and fair view of the consolidated entity's financial position as at 31 December 2002 and of its $(b)$ performance, as represented by the results of its operations and its cash flows, for the half-year ended on that date.

In the Directors' opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

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

1 Aanderson

RA Anderson Director

Brisbane Dated this $3^rd$ day of March 2003

Independent Review Report to the Members of Data#3 Limited

Scone

We have reviewed the financial report of Data^#3 Limited (the company) for the half-year ended 31 December 2002 as set out on pages 4 to 11. The company's Directors are responsible for the financial report which includes the consolidated financial statements of the consolidated entity comprising the company and the entities it controlled at the end of, or during, the half-year. We have performed an independent review of the financial report in order for the company to lodge the financial report with the Australian Securities and Investments Commission. This review was performed in order to state whether, on the basis of the procedures described, anything has come to our attention that would indicate that the financial report is not presented fairly in accordance with Accounting Standard AASB 1029: Interim Financial Reporting and other mandatory professional reporting requirements in Australia and the Corporations Act 2001, so as to present a view which is consistent with our understanding of the consolidated entity's financial position, and performance as represented by the results of its operations and its cash flows.

Our review has been conducted in accordance with Australian Auditing Standards applicable to review engagements. The review is limited primarily to inquiries of company personnel and analytical procedures applied to the financial data. These procedures do not provide all the evidence that would be required in an audit, thus the level of assurance provided is less than that given in an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

Statement

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the financial report of the company is not in accordance with:

• $(a)$ the Corporations Act 2001, including:
• giving a true and fair view of the consolidated entity's financial position as at 31 December 2002 $(i)$ and of its performance for the half-year ended on that date; and
• $(ii)$ complying with Accounting Standard AASB 1029: Interim Financial Reporting in Australia and the Corporations Regulations 2001; and
• $(b)$ other mandatory professional reporting requirements in Australia.

JOHNSTON RORKE Chartered Accountants

Walker

RCN Walker Partner

Brisbane Dated this 3^rd day of March 2003