DATADOT TECHNOLOGY LIMITED — Annual Report 2011

Aug 25, 2011

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DATADOT TECHNOLOGY LIMITED ABN: 54 091 908 726

APPENDIX 4E Preliminary Financial Report For the year ended 30 June 2011

Results for announcement to market

Results for announcement to market
		% change	30 June 2011	30 June 2010
Revenuesfromordinary activities	down	25%	7,487,425	10,010,986
Profit/ (Loss) from continuing operations after income tax	down	[Note 1]	(583,399)	931,326
Profit/(Loss) from ordinary activities after income taxattributable tomembers	down	[Note 2]	(489,639)	931,326
Net Profit/(Loss) for the period attributable to members	down	[Note 3]	(489,639)	931,326

• [1] A loss from continuing operations after income tax of $583,399 was recorded for the current year and a profit of $931,326 was recorded for the prior period.

• [2] A loss from ordinary activities after income tax attributable to members of $489,639 was recorded for the current year and a profit of $931,326 was recorded for the prior period.

• [3] A loss for the period attributable to members of $489,639 was recorded for the current year and a profit of $931,326 was recorded for the prior period.

Dividends

No dividends have been declared or paid during the year.

Commentary on the financial results

• Cash at Bank increased by $1,732,187 from $1,796,406 to $3,528,593.

• Total assets increased by 94% from $5,139,731 to $9,958,760 and total liabilities increased by 8% from $1,968,370 to $2,118,428. Net assets increased from $3,171,361 to $7,840,332.

• In AgTechnix Pty Limited’s first full year, revenues were $123,278 with a net loss of $187,519.

• DataTraceDNA Pty Limited (DataTrace) became a wholly owned subsidiary of DataDot Technology Limited (DataDot) on 1 December 2010 and in the remaining seven months achieved revenues of $690,599 and a net profit of $71,372. A one-time gain on revaluation to fair value for DataTrace of $552,134 was recognised by DataDot in December 2010.

• Net tangible assets per security increased from 0.81 to 1.06 cents per share primarily due to the capital injections in 2010/11.

Refer to the attached Discussion and Analysis of Financial Results on pages 2 – 7 for further commentary on the financial results.

Preliminary financial report – financial details

Refer to the attached financial information on pages 8 – 25. The financial information included in this document for the year ended 30 June 2011 is in the process of being audited and has been derived from the draft financial report of DataDot Technology Limited for the year ended 30 June 2011. The previous corresponding period was for the year ended 30 June 2010.

DataDot Technology Limited ABN 54 091 908 726 Appendix 4E

Discussion and Analysis of Financial Results

Revenues for DataDot Technology Limited (DataDot) in 2010/11 were $7,487,425, being 25% lower than in 2009-10, mid-point in the range forecast by directors in April 2011. Earnings after tax were a loss of $583,399 compared to a profit of $931,326 in the previous year. In each case the decline was primarily due to supply chain disruptions caused by the Japanese earthquake and tsunami and soft trading conditions in Europe. Expected seasonal upswings in both revenue and earnings in the second half did not occur as a result of these world events.

While recognising that global markets remain fragile at this point in the cycle, directors are confident of recovery in revenue and earnings in 2012:

• Financially the company is sound, with cash reserves of over $3.5 million and minimal debt;

• Subject to sales materialising as expected, the business will return to positive cash generation in the first half of 2012;

• Expenses are tightly controlled;

• Business development investment in 2010 will yield initial returns during 2011/12;

• Product value has been significantly enhanced with insurance benefits in core vehicle markets;

• New product partnerships and distribution channels established in 2010 will generate new revenue streams in 2011/12; and

• Strategic settings are under constant review due to economic and financial market turbulence.

Outlook, Strategy and Pipeline

Directors remain confident that despite the challenges of 2011, the strategy outlined at the 2010 Annual General Meeting remains on track and will generate materially stronger revenue during the course of the year. Reduced reliance on the volatile automotive industry has reduced previous levels of associated concentration risk and continuation of this trend will further improve the quality of revenue and earnings in 2011/12. Although expected growth, particularly European growth, is vulnerable to a renewed economic crisis in Europe, current prospects continue to develop encouragingly.

Emerging benefits of DataDot’s core diversification strategy are evident in the sales pipeline, which continues to build, with excellent long term growth prospects. Specifically:

• Employment of additional business development and sales resources in Australia, USA and Europe;

• AgTechnix Pty Limited (AgTechnix), the company formed in conjunction with Ipeco Pty Ltd, has achieved initial sales of IntelliSeed[TM] and its diverse range of advanced polymer seed coating and seed enhancement products in Australia, India and China. Sales are expected to grow in 2011/12. Having already conducted trials, a number of prospective major customers are expected to place orders before the next planting season in the northern hemisphere, between September and November 2011. AgTechnix intends to set up operations in India in 2011/12;

• Laser Induced Breakdown Spectroscopy (LIBS) authentication technology continues to be enhanced in R&D projects funded by large corporate clients. These exciting opportunities are in:

• mining services, for the identification and differentiation of ore and waste; and

• o building materials, for life-cycle management, quality control and identification;

• Club Marine Insurance has completed the Australia-wide rollout of DataDotDNA[®] and Club Marine insurance products offered via its expanded platform of outlets in Australia. A New Zealand rollout of the program is planned in Q2 FY2012;

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Discussion and Analysis of Financial Results (continued)

• DataDot’s licensee, DataDot Technology South Africa (DDSA), has secured additional OEM customers for “Whole of Vehicle Marking” utilising DataDotDNA[®] . DataDot expect that royalties payable to DataDot arising from these sales will be significantly greater in 2011/12 due to legal requirements (WOVM) expected to come into effect in that market in 2012;

• DataDot USA (DDUSA), a wholly owned subsidiary of DataDot, is continuing to increase its sales through both direct and distribution channels. Sales and pipeline opportunities in the Americas continue to expand in the USA, Canada, Mexico, Brazil, Argentina and Chile. DDUSA is expected to make an increased contribution to group profits in FY2012 and beyond;

• TraceCoat[TM] , the metal, glass and plastic coating product announced in January 2011, combining DataTrace and Surface Technology Inc.’s technologies, is under evaluation for proof of concept with a key client;

• DataTrace is working with three large global customers on anti-counterfeit/ brand protection pilot programs. If successful, sales to these customers are likely to commence in the second half of this financial year and to be material;

• Manufacturing capacity for AuthentiCable[TM] (the anti-theft product for copper and aluminium cable) is being enhanced to enable production-scale trials to cable manufacturers;

• Coats plc, the world’s leading industrial threads and consumer crafts business, and VTTM Holdings LP, provider of VerifiTT, a unique anti-counterfeiting technology incorporating DataTraceDNA[TM] , have formed a joint venture company, CoatsVTT Limited to commercialise the VerifiTT thread. Coates is the world market leader in industrial yarns and threads and consumer crafts and operates in more than 70 countries, with 73 factories and over 20,000 employees. Sales for Coats plc in 2010 were US$1.6 billion; and

• DataDot is continuing to enhance its value proposition through the development of new opportunities for the sales of DataDotDNA[®] based anti-theft solutions. These solutions are typically provided in combination with products and technologies from other suppliers.

Product Innovation and Technological Enhancements

In July 2011, Directors gave an update on innovation and technological enhancements, which are summarised as follows:

DataDot Technology Limited product range:

• Project Thor – next generation multi-substrate DataDots

• Beacon DataDot System (machine locatable DataDots)

• Mirror Image DataDots (dots able to be read upside down)

• DataDot Dry-pod system (enhanced shelf life application system)

• DataDot silicone tip pen applicator (based on the successful DataTrace pen applicator)

• DataTraceDNA Pty Limited product range:

• TraceCoat[TM ] (DataTrace coated onto metals via an electro-less nickel plating process)

• DataTrace Single DataTraceDNA[TM] code reader – the “C1” (new “field-force” reader)

• AuthentiCableTM (anti copper and aluminium cable theft system)

• Development of new DataTraceDNA[TM] codes

AgTechnix Pty Ltd product range:

• IntelliLabel[TM] (high security tamper evident identification label)

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DataDot Technology Limited ABN 54 091 908 726

Appendix 4E

Operating Results for the year

Summarised operating results are as follows:

Geographic segments Asia Pacific Americas Europe AgTechnix DataTraceDNA Consolidated entity adjustments Non-segment unallocated revenues and expenses Finance costs Share of loss of joint venture Income tax expense Consolidated entity sales and (loss)/profit	2011 2010 Total Revenues Results Total Revenues Results $ $ $ $
	4,654,264 472,437 6,179,652 1,982,874 937,901 (27,484) 1,166,970 (82,621) 1,834,256 223,283 3,723,954 918,416 123,278 (187,519) - - 690,599 71,372 - -
	8,240,298 552,089 11,070,576 2,818,669 (852,869) - (1,077,174) - 99,996 (879,281) 17,584 (1,716,721) - (22,403) - (48,907) - (111,716) - (103,793) - (122,088) - (17,922)
	7,487,425 (583,399) 10,010,986 931,326

Asia Pacific

Revenues in Asia Pacific decreased by $1,525,388 (25%) due primarily to reduced sales from automotive OEM customers affected by the earthquake and tsunami that devastated northern Japan in March 2011, causing serious supply chain disruptions to Japanese and other motor vehicle manufacturers’ production. Whilst the impact was one-off, sales are yet to return to the levels preceding the earthquake but are expected to do so in the first half of this financial year. Net profit decreased to $472,437 from $1,982,874, a reduction of $1,510,437, reflecting the impact of reduced sales as well as the investment in new business development activities and the establishment of an additional manufacturing facility based in Taiwan.

Americas

Despite lower revenues, the net loss in the Americas reduced from $82,621 in 2010 to $27,484 and DataDot anticipates that the Americas region will be profitable in 2012. Sales in the Americas were 20% lower than the prior year ($937,901 in 2011 compared to $1,166,970 in 2010), reflecting the challenging trading conditions and Japanese tsunami supply chain disruption that affected the United States motor vehicle market as well as the significant appreciation of the Australian dollar against the US dollar. The reduction in revenues from the United States was offset by revenues from new distributors that were appointed in Argentina, Brazil and Chile.

Europe

In Europe, softness in automotive sales due to ongoing economic uncertainty in the region led to revenues for the year decreasing 51% from the prior year ($1,834,256 in 2011 compared to $3,723,954 in 2010). The appreciation of the Australian dollar against the Pound Sterling and the Euro also exacerbated this negative impact. Lower sales led to a reduction in net profit for Europe of $695,133, from $918,416 in 2010 to $223,283 in 2011.

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Operating Results for the year (continued)

AgTechnix Pty Limited

In AgTechnix Pty Limited’s first full-year reporting period, revenues were $123,278 and the net loss was $187,519. AgTechnix Pty Limited (AgTechnix) has achieved initial sales of IntelliSeed[TM ] and its diverse range of advanced polymer seed coating and seed enhancement products in Australia, India and China. The technology continues to be tested in controlled environments by several international seed companies in Asia Pacific, India and Europe.

DataTraceDNA Pty Limited

On 1 December 2010, DataDot acquired the 50% shareholding in DataTrace DNA Pty Limited (DataTrace) owned by CSIRO, so becoming the sole shareholder and owner of DataTrace and making DataTrace a wholly-owned subsidiary of DataDot.

For the seven months from December 2010 to June 2011, DataTrace revenue was $690,599 and net profit was $71,372 (as part of the consolidated DataDot Group). For the five months to 30 November 2010 when DataTrace was accounted for as a joint venture, the share of loss from DataTrace was $111,716.

In addition to DataDot acquiring CSIRO’s 50% shareholding in DataTrace, CSIRO assigned the associated intellectual property to DataTrace, so providing DataTrace with access to the currency, personal identity and national security markets that had previously been closed to DataTrace under the terms of its licence to commercialise the intellectual property.

The total transaction was valued at $1,395,015 and consideration (net of CSIRO’s half-share of valuation costs) was 33,718,327 ordinary DataDot shares valued at 4.1 cents per share. The issue of shares was approved by shareholders at the 2010 AGM. As a result of this transaction CSIRO became the largest shareholder in DataDot, initially holding 8.93% of issued share capital though this has since been diluted to 2.89% of issued capital. As part of the acquisition of DataTrace, DataDot’s investment in DataTrace was revalued to reflect fair value, resulting in a one-off gain of $552,134.

Strategically the DataTrace share and IP transfer was a significant development as the DataTrace technology underpins many of the products that DataDot has been developing and gives DataDot access to additional growth markets from which it was previously excluded.

Operating Expenses

DataDot’s operating expenses (excluding restructuring expenses incurred in 2010) increased by 8% from $5,517,607 in 2010 to $5,938,576, despite inclusion in the current year of 100% of DataTrace expenses from 1 December 2010 onwards and expenses of the new subsidiary AgTechnix Pty Limited from 1 July 2010. On a like for like basis, total expenses were in line with the prior year. Within these expenses were the transaction costs incurred in acquiring the CSIRO’s half-share of DataTrace, investment in additional business development personnel in key expansion markets, expenses incurred in providing expanded production capacity in South Africa and increased depreciation resulting from capital deployed in investing in new production and authentication technologies.

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DataDot Technology Limited ABN 54 091 908 726 Appendix 4E

Operating Results for the year (continued)

Liquidity and Capital Resources

There was an increase in cash for the year ended 30 June 2011 of $1,732,187 to a closing balance of $3,528,593 due to the issue of new shares detailed below offset by reduced sales, increased investment in business development personnel, expanded production capacity and new technology developments.

Cash inflows from financing activities for the 2011 year of $3,630,449 included proceeds from issue of shares of $3,970,000 less transaction costs of $284,164 and repayment of borrowings/leases of $55,387. This compares to cash outflows from financing activities in 2010 of $220,712.

Cash outflows from operating activities were $1,042,461 due to the reduced sales, increased investment in strategic business development personnel and the associated net loss. In 2010, cash inflows from operating activities were $1,874,511.

Cash outflows from investing activities were $892,823 due to the acquisition of CSIRO’s half-share of DataTrace, purchase of plant and equipment associated with expanding productive capacity in South Africa and development of new technologies in both DataDot and DataTrace. In 2010, cash outflows from investing activities were $602,322.

Shares issued during the year

Share Purchase Plan

Between 8 November and 3 December 2010, DataDot raised $3 million in capital under an underwritten Share Purchase Plan (“Plan”) offered to eligible shareholders, being those whose address in the Share Register was Australia or New Zealand. Under the Plan eligible shareholders were invited to subscribe for ordinary shares at 4.1 cents per share, the same value used in the CSIRO-DataDot-DataTrace transaction.

Total capital raised under the Plan was $3 million, of which $2.098 million was subscribed by shareholders and the balance of $902,000 was funded under an Underwriting Agreement with KTM Capital Pty Limited. The Plan increased the number of ordinary shares on issue by 73,170,732.

Share Placement

On 15 December 2010, DataDot raised an additional $970,000 in capital by issuing 23,658,537 ordinary shares at 4.1 cents per share to Mr Collin Hwang, owner of DataDot Technology Taiwan Pte Limited (“DataDot Taiwan”). This share placement further consolidates the strategic alliance between DataDot and DataDot Taiwan, which together have formed a company to distribute both DataDot and DataTrace products in China. The company, DataDot Technology (Asia) Pte Limited, is initially funded by DataDot Taiwan but controlled by DataDot, who have appointed a majority of directors.

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Operating Results for the year (continued)

Profile of Debts

The amount of DataDot’s debt has increased by $46,626 from $516,717 at 30 June 2010 to $563,343 at 30 June 2011, due to an increase in funding for AgTechnix from IPECO Pty Limited, the 49% shareholder of AgTechnix, offset by partial repayment of the existing bank loan facility.

Capital expenditure

There has been an increase over the prior year in capital expenditure of $235,767 to $457,747 in 2011 due to the significant investment in product innovation and technological enhancements, specifically Project Thor (next generation DataDots), Beacon DataDot system, mirror image DataDots, DataDot Dry-pod system, DataDot silicone tip pen applicator, DataTrace authenticators and AuthentiCable.

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DataDot Technology Limited ABN 54 091 908 726

Appendix 4E

DataDot Technology Limited Preliminary Consolidated Statement of Financial Position As at 30 June 2011

Note	2011 2010 $ $
ASSETS Current Assets Cash and cash equivalents 5 Trade and other receivables 6 Inventories Total Current Assets Non-Current Assets Investment accounted for using the equity method Plant and equipment Intangible assets 7 Deferred tax assets Total Non-Current Assets TOTAL ASSETS LIABILITIES Current Liabilities Trade and other payables 8 Interest bearing loans and borrowings Income tax payable Provisions Other current liabilities Total Current Liabilities Non-Current Liabilities Interest bearing loans and borrowings Provisions Other non-current liabilities 9 Total Non-Current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Equity attributable to equity holders of the parent Contributed equity 10 Accumulated losses Reserves Parent interests Non-controlling interests TOTAL EQUITY	3,528,593 1,796,406 1,672,123 1,472,772 1,084,729 654,664
	6,285,445 3,923,842
	- 142,840 867,455 677,725 2,805,860 395,324 - -
	3,673,315 1,215,889
	9,958,760 5,139,731
	969,065 1,013,119 49,787 52,432 78,223 - 357,650 322,668 141,873 112,352
	1,596,598 1,500,571
	57,085 109,827 8,274 3,514 456,471 354,458
	521,830 467,799
	2,118,428 1,968,370
	7,840,332 3,171,361
	33,102,482 28,034,195 (25,857,705)(25,368,066) 689,216 505,232
	7,933,993 3,171,361 (93,661) -
	7,840,332 3,171,361

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

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DataDot Technology Limited ABN 54 091 908 726 Appendix 4E

DataDot Technology Limited Preliminary Consolidated Statement of Comprehensive Income For the Year Ended 30 June 2011

Note Continuing operations Sale of goods Rendering of services Licence fees Royalties Finance revenue Revenue Cost of sales Gross profit Other income 2 Employee benefits expense Administrative expenses Advertising and promotional expenses Occupancy expenses Travel expenses Finance costs Depreciation and amortisation expense Bad and doubtful debts Restructuring expenses Share of loss of joint venture Profit /(Loss) from continuing operations before income tax Income tax expense Net Profit/(Loss) for the period Other comprehensive income Foreign currency translation Other comprehensive income for the period net of tax TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE PERIOD	2011 2010 $ $
	6,792,336 9,003,147 282,598 655,908 93,871 152,781 218,624 181,566 99,996 17,584
	7,487,425 10,010,986 (2,548,578) (3,344,337)
	4,938,847 6,666,649 650,134 106,594 (3,128,928) (2,705,690) (1,253,244) (1,487,159) (383,713) (293,334) (473,601) (386,871) (326,300) (241,191) (22,403) (48,907) (350,387) (288,940) - (65,515) - (202,595) (111,716) (103,793)
	(461,311) 949,248 (122,088) (17,922)
	(583,399) 931,326
	35,128 105,377
	35,128 105,377
	(548,271) 1,036,703

The above Preliminary Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

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DataDot Technology Limited

Preliminary Consolidated Statement of Comprehensive Income (cont’d) For the Year Ended 30 June 2011

Note PROFIT/(LOSS) FOR THE PERIOD IS ATTRIBUTABLE TO: Non-controlling interest Owners of the parent TOTAL COMPREHENSIVE INCOME FOR THE PERIOD IS ATTRIBUTABLE TO: Non-controlling interest Owners of the parent Earnings per share for profit /(loss) from continuing operations attributable to the ordinary equity holders of the company Basic earnings/(loss) per share 3 Diluted earnings/(loss) per share Earnings per share for profit /(loss) attributable to the ordinary equity holders of the company Basic earnings/(loss) per share 3 Diluted earnings/(loss) per share	2011 2010 $ $
	(93,760) - (489,639) 931,326
	(583,399) 931,326
	(93,760) - (454,511) 1,036,703
	(548,271) 1,036,703
	Cents Cents (0.12) 0.27 (0.12) 0.27 (0.12) 0.27 (0.12) 0.27

The above Preliminary Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

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DataDot Technology Limited ABN 54 091 908 726 Appendix 4E

DataDot Technology Limited Preliminary Consolidated Statement of Changes in Equity For the Year Ended 30 June 2011

At 1 July 2010 Loss for the period Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners Issue of share capital Transaction costs on shares issued Share-based payment At 30 June 2011 At 1 July 2009 (Loss) / Profit for the period Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners Issue of share capital Transaction costs on shares issued At 30 June 2010	Attributable to equityholders ofthe parent Ordinary Shares Accumulated losses Foreign currency translation reserve Employee equity benefits reserve Total Non- controlling interest Total equity $ $ $ $ $ $ $
	28,034,195 (25,368,066) 505,232 - 3,171,361 - 3,171,361 - (489,639) - - (489,639) (93,760) (583,399) - - 35,128 - 35,128 - 35,128
	- (489,639) 35,128 - (454,511) (93,760) (548,271) 5,352,451 - - - 5,352,451 99 5,352,550 (284,164) - - - (284,164) - (284,164) - - - 148,856 148,856 - 148,856
	33,102,482 (25,857,705) 540,360 148,856 7,933,993 (93,661) 7,840,332
	28,151,106 (26,299,392) 399,855 - 2,251,569 - 2,251,569 - 931,326 - - 931,326 - 931,326 - - 105,377 - 105,377 - 105,377
	- 931,326 105,377 - 1,036,703 - 1,036,703 - - - - - - - (116,911) - - - (116,911) - (116,911)
	28,034,195 (25,368,066) 505,232 - 3,171,361 - 3,171,361

The above Preliminary Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.

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DataDot Technology Limited ABN 54 091 908 726 Appendix 4E

DataDot Technology Limited Preliminary Consolidated Statement of Cash Flows For the Year Ended 30 June 2011

Note	2011 2010 $ $
Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest paid Income tax paid Receipt of government grant Net cash provided by / (used in) operating activities 5 Cash flows from investing activities Proceeds from sale of plant and equipment Interest received Purchase of plant and equipment Purchase of intangible assets Contributions to investment accounted for using the equity method Payment for acquisition of subsidiary, net of cash acquired Proceeds/(payments) from/(to) related party loans Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Transaction costs from issue of shares Proceeds from borrowings Repayment of borrowings Payment of finance lease liabilities Net cash provided by /(used in) financing activities Net increase in cash held Cash at beginning of year Effect of exchange rate on cash holdings in foreign currencies Cash at end of year 5	8,128,266 11,059,291 (9,202,339) (9,473,585) (25,775) (19,131) (40,613) (17,922) 98,000 325,858
	(1,042,461) 1,874,511
	- 56,663 99,996 17,584 (419,765) (217,418) (466,426) (167,496) (416,742) (246,632) 189,963 - 120,151 (45,023)
	(892,823) (602,322)
	3,970,000 - (284,164) (116,911) - 150,000 (43,128) (132,765) (12,259) (121,036)
	3,630,449 (220,712)
	1,695,165 1,051,477 1,796,406 761,490 37,022 (16,561)
	3,528,593 1,796,406

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

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DataDot Technology Limited ABN 54 091 908 726 Appendix 4E

Notes to the Preliminary Consolidated Financial Statements For the Year Ended 30 June 2011

1. Summary of Significant Accounting Policies

The Preliminary Consolidated Financial Statements of DataDot Technology Limited and subsidiaries (DataDot) for the year ended 30 June 2011 have been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations and other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001.

The Preliminary Consolidated Financial Statements do not include all notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the last annual report for the year ended 30 June 2010, the half-year report for the period ended 31 December 2010 and any public announcements to the market made by DataDot during the reporting period in accordance with the continuous disclosure requirement of the Corporations Act 2001 and the listing rules of the Australian Stock Exchange.

Basis of Preparation

The Preliminary Consolidated Financial Statements have been prepared on an accrual basis and are based on historical costs modified by the revaluation of certain non-current assets, financial assets and financial liabilities for which the fair value basis of accounting has been applied.

The accounting policies adopted are consistent with those of the previous year.

2. Other income Gain on revaluation of investment in joint venture Government grants: - Export market development grants	2011 2010 $ $
	552,134 - 98,000 106,594
	650,134 106,594

The export market development grant is provided to assist the development of export sales.

There are no unfulfilled conditions or contingencies attaching to the grants.

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Notes to the Preliminary Consolidated Financial Statements (cont’d) For the Year Ended 30 June 2011

3. Earnings Per Share

Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

The following reflects the income and share data used in the basic earnings per share computations:

Net Profit / (loss) from continuing operations attributable to ordinary equity holders of the parent Net Profit / (loss) attributable to ordinary equity holders of the parent Weighted average number of ordinary shares for basic earnings per share Effect of dilution: Share rights Weighted average number of ordinary shares adjusted for the effect of dilution The following options are not treated as potential ordinary shares as their exercise price exceeds current market price There have been no transactions involving ordinary shares or potential ordinary shares that would significantly change the number of ordinary shares or potential ordinary shares outstanding between the reporting date and the date of completion of these financial statements.	2011 2010 $ $
	(489,639) 931,326 (489,639) 931,326 Number Number 415,921,639 344,028,204 9,579,452 -
	425,501,091 344,028,204 500,000 500,000

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Notes to the Preliminary Consolidated Financial Statements (cont’d) For the Year Ended 30 June 2011

4. Operating Segments

Identification of reportable segments

DataDot has identified its operating segments based on the internal reports that are reviewed and used by the executive management team (the chief operating decision makers) in assessing performance and in determining the allocation of resources.

Three of the operating segments are identified by management based on the location of the selling segment. Two of the operating segments are identified by management based on the product offerings. Discrete financial information about each of these operating businesses is reported to the executive management team on at least a monthly basis.

Types of products and services

The three geographical regions of Asia Pacific, Americas and Europe each manufacture and distribute an asset identification system that includes:

• DataDotDNA[®] - polymer and metallic microdots containing etched data that is unique to the assets to which the microdots are attached;

• DataThreadDNA - a continuous strand of DataDotDNA integrated into fine thread; and

• DataBaseDNA - a global database that records asset identification data and is accessible by law enforcement agencies and insurance investigators.

The two operating segments that are identified by product offerings managed on a global basis are:

• DataTraceDNA[®] – a high speed, high security, machine readable system for authenticating materials, products and assets; and

• AgTechnix - IntelliSeed™ by AgTechnix is a frontier patent pending technology, supporting global agriculture and protecting investments in intellectual property across a diverse spectrum of agricultural activities, including seed and plant genetics.

Accounting policies and inter-segment transactions

The accounting policies used by DataDot in reporting segments internally is the same as those contained in the prior period.

Inter segment pricing is determined on an arm’s length basis.

The following tables present the revenue, profit / (loss) before tax, assets and liabilities information regarding operating segments for years ended 30 June 2011 and 30 June 2010.

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Notes to the Preliminary Consolidated Financial Statements (cont’d) For the Year Ended 30 June 2011

4. Operating Segments (continued)

Asia Pacific Americas Europe AgTechnix DataTraceDNA Year ended 30 June 2011 $ $ $ $ $ Revenue Sales to external customers 3,416,741 800,590 1,834,256 123,278 617,471 Other revenues from external customers 586,268 8,825 - - - Inter-segment sales 651,255 128,486 - - 73,128 Total segment revenue 4,654,264 937,901 1,834,256 123,278 690,599 Inter-segment elimination Other revenue Total revenue per the statement of comprehensive income Result Segment Results 472,437 (27,484) 223,283 (187,519) 71,372 Unallocated expenses Loss before tax and finance costs Finance costs Share of loss of joint venture Loss before income tax per statement of comprehensive income Income tax expense Loss after income tax per statement of comprehensive income Assets and liabilities Segment Assets 1,044,237 481,938 1,019,648 87,857 2,044,934 Investment in joint venture Unallocated assets Total assets Segment liabilities 799,310 118,528 515,707 275,178 205,243 Unallocated liabilities Total liabilities Other segment information Capital expenditure 371,401 5,128 8,870 23,645 48,703 Depreciation 169,836 17,698 6,649 2,027 9,396 Amortisation 90,911 - - 562 56,903	Asia Pacific Americas Europe AgTechnix DataTraceDNA $ $ $ $ $	Total Operations $
	3,416,741 800,590 1,834,256 123,278 617,471 586,268 8,825 - - - 651,255 128,486 - - 73,128	6,792,336 595,093 852,869
	4,654,264 937,901 1,834,256 123,278 690,599	8,240,298 (852,869) 99,996
		7,487,425
		552,089 (879,281)
		(327,192) (22,403) (111,716)
		(461,311) (122,088)
		(583,399)
		4,678,614 - 5,280,146
		9,958,760
		1,913,966 204,462
		2,118,428
		457,747 205,606 148,376

16

DataDot Technology Limited ABN 54 091 908 726 Appendix 4E

Notes to the Preliminary Consolidated Financial Statements (cont’d) For the Year Ended 30 June 2011

4. Operating Segments (continued)

Asia Pacific Americas Europe AgTechnix DataTraceDNA Year ended 30 June 2010 $ $ $ $ $ Revenue Sales to external customers 4,466,312 819,053 3,717,782 - - Other revenues from external customers 973,389 16,866 - - - Inter-segment sales 739,951 331,051 6,172 - - Total segment revenue 6,179,652 1,166,970 3,723,954 - - Inter-segment elimination Other revenue Total revenue per the statement of comprehensive income Result Segment Results 1,982,874 (82,621) 918,416 - - Unallocated expenses Profit before tax and finance costs Finance costs Share of loss of joint venture Profit before income tax per statement of comprehensive income Income tax expense Profit after income tax per statement of comprehensive income Assets and liabilities Segment Assets 2,257,047 496,594 972,653 - - Investment in joint venture 142,840 - - - - Unallocated assets Total assets Segment liabilities 452,158 86,445 475,644 - - Unallocated liabilities Total liabilities Other segment information Capital expenditure 207,996 1,231 12,753 - - Depreciation 178,986 30,961 6,473 - - Amortisation 72,519 - - - -	Asia Pacific Americas Europe AgTechnix DataTraceDNA $ $ $ $ $	Total Operations $
	4,466,312 819,053 3,717,782 - - 973,389 16,866 - - - 739,951 331,051 6,172 - -	9,003,147 990,255 1,077,174
	6,179,652 1,166,970 3,723,954 - -	11,070,576 (1,077,174) 17,584
		10,010,986
		2,818,669 (1,716,721)
		1,101,948 (48,907) (103,793)
		949,248 (17,922)
		931,326
		3,726,294 142,840 1,270,597
		5,139,731
		1,014,247 954,123
		1,968,370
		221,980 216,420 72,519

17

DataDot Technology Limited ABN 54 091 908 726 Appendix 4E

Notes to the Preliminary Consolidated Financial Statements (cont’d) For the Year Ended 30 June 2011

5. Current Assets - Cash And Cash Equivalents

Reconciliation to statement of cash flows

	2011 2010 $ $
For the purposes of the statement of cash flows, cash and cash equivalents comprise the following at 30 June: Cash on hand and at bank Reconciliation of net profit /(loss) after tax to net cash flows from operations Profit/(loss) after income tax Add / (less) items classified as investing / financing activities: Share of joint venture loss / (profit) Interest received Add / (less) non-cash items: Depreciation and amortisation Non-cash borrowing costs Share based payments Gain on revaluation of investment Impairment of inventory Warranty provision Impairment for doubtful debts Net cash used in operating activities before change in assets and liabilities (Increase) / decrease in trade and other receivables (Increase) / decrease in other assets (Increase) / decrease in inventories (Decrease) / increase in trade and other payables (Decrease) / increase in current tax liabilities (Decrease) / increase in other liabilities (Decrease) / increase in provisions Net cash provided by /(used in) operating activities	3,528,593 1,796,406
	(583,399) 931,326 111,716 103,793 (99,996) (17,584) 353,982 288,940 25,804 29,776 148,856 - (552,134) - (63,012) - 20,000 (2,730) 65,515
	(640,913) 1,401,766 (78,927) 481,565 65,950 273,649 (106,275) (23,473) (255,407) 169,903 78,223 - (144,854) - 39,742 (428,899)
	(1,042,461) 1,874,511

18

DataDot Technology Limited ABN 54 091 908 726 Appendix 4E

Notes to the Preliminary Consolidated Financial Statements (cont’d) For the Year Ended 30 June 2011

6. Current Assets - Trade And Other Receivables

Trade receivables Allowance for impairment loss (a) Prepayments Other	2011 2010 $ $
	1,277,826 1,115,373 (9,797) (117,459)
	1,268,029 997,914 224,415 80,229 179,679 394,629
	1,672,123 1,472,772

(a) Allowance for impairment loss

Trade receivables are non-interest bearing and are generally on 30-60 day terms. A provision for impairment loss is recognised when there is objective evidence that an individual trade receivable is impaired. An impairment charge of $9,757 (2010: $65,515) has been recognised by DataDot. These amounts have been included in the bad and doubtful debt expense item.

Movements in the provision for impairment loss were as follows:

At 1 July Charge for the year Amount written off (included in bad and doubtful debt expense) At 30 June	117,459 152,784 9,797 65,515 (117,459) (100,840)
	9,797 117,459

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DataDot Technology Limited ABN 54 091 908 726 Appendix 4E

Notes to the Preliminary Consolidated Financial Statements (cont’d) For the Year Ended 30 June 2011

7. Non-Current Assets - Intangible Assets

(a) Reconciliation of carrying amounts at the beginning and end of the period

At 1 July 2010 Cost Accumulated amortisation Net carrying amount Year ended 30 June 2011 At 1 July 2010, net of accumulated amortisation Transfer from Plant & Equipment Addition of DataTraceDNA Additions Amortisation At 30 June 2011, net of accumulated amortisation At 30 June 2011 Cost Accumulated amortisation Net carrying amount	Development costs $ Patent costs $ Goodwill $ Computer software $ Total $
	485,885 337,894 - - 823,779 (376,576) (51,879) - - (428,455)
	109,309 286,015 - - 395,324
	109,309 286,015 - - 395,324 - - - 31,629 31,629 319,203 87,776 1,258,864 - 1,665,843 299,265 524,193 - 37,982 861,440 (104,286) (35,878) - (8,212) (148,376)
	623,491 862,106 1,258,864 61,399 2,805,860
	1,128,310 957,649 1,258,864 69,611 3,414,434 (504,819) (95,543) - (8,212) (608,574)
	623,491 862,106 1,258,864 61,399 2,805,860

(b) Description of the Group’s intangible assets

(i) Development costs

Development costs are carried at cost less accumulated amortisation and accumulated impairment losses. The intangible assets have been assessed as having finite lives. All intangible assets are amortised using the straight line method over a period of 3 to 5 years. The amortisation has been recognised in the statement of comprehensive income in the line item “depreciation and amortisation expense”. If an impairment indication arises, the recoverable amount is estimated and an impairment loss is recognised to the extent that the recoverable amount is lower than the carrying amount.

In 2011, $299,265 of development costs associated with development of Project Thor (next generation DataDots), Beacon DataDot system, mirror image DataDots, DataDot Dry-pod system, DataDot silicone tip pen applicator, DataTrace authenticators and AuthentiCable Beacon Dots were incurred with $104,286 of associated amortisation being expensed during the period. In addition, $319,203 of capitalised development costs from DataTrace were added as part of the acquisition of CSIRO’s half-share of DataTrace. There were no indicators that the development costs are impaired.

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DataDot Technology Limited ABN 54 091 908 726 Appendix 4E

Notes to the Preliminary Consolidated Financial Statements (cont’d) For the Year Ended 30 June 2011

7. Non-Current Assets - Intangible Assets (continued)

(ii) Patents

Patent costs are carried at cost less accumulated amortisation and accumulated impairment losses. These intangible assets have been assessed as having a finite life and are amortised using the straight line method over the period of the patent. The amortisation has been recognised in the income statement in the line item 'depreciation and amortisation expense'. If an impairment indication arises, the recoverable amount is estimated and an impairment loss is recognised to the extent that the recoverable amount is lower than the carrying amount.

In 2011, $129,178 of costs associated with the lodging, renewal and maintenance of patents were incurred with $35,878 of associated amortisation being expensed during the period. Additions to patent costs also included $395,015 of new patent costs from the assignment of the DataTrace intellectual property to DataTrace from CSIRO. In addition, $87,776 of capitalised patent costs were added as part of the acquisition of CSIRO’s half-share of DataTrace, as well as There were no indicators that the patent costs are impaired.

(iii) Goodwill

After initial recognition, goodwill acquired in a business combination is measured at cost less any accumulated impairment losses. Goodwill is not amortised but is subject to impairment testing on an annual basis or whenever there is an indication of impairment.

(iv) Impairment testing of Goodwill

Goodwill arising from the acquisition of DataTraceDNA Pty Limited has been allocated to the cash-generating unit of DataTraceDNA, which is also a discrete operating segment of DataDot.

The recoverable value of the DataTraceDNA cash-generating unit is determined based on value-in-use calculations. Value-in-use is calculated based on the present value of cash flow projections over a 5 year period with the terminal value calculated on the year 5 projected cashflows divided by the weighted average cost of capital. The cash flows are discounted using the yield of 10 year government bonds adjusted for market risk and inherent uncertainty across the periods.

Management has based the value-in-use calculations on the DataTrace budget approved by the DataDot Board. The budget uses estimated growth rates to project revenue. Costs are calculated taking into account historical gross margins as well as estimated inflation rates over the period.

21

DataDot Technology Limited ABN 54 091 908 726 Appendix 4E

Notes to the Preliminary Consolidated Financial Statements (cont’d) For the Year Ended 30 June 2011

8. Current Liabilities - Trade and Other Payables

Trade payables Sundry creditors and accruals	2011 2010 $ $
	440,650 381,300 528,415 631,819
	969,065 1,013,119

9. Non-Current Liabilities - Other

Amounts payable to other parties 456,471 354,458

Included in amounts payable to other parties is an amount of £219,684 ($336,320) which DataDot Technology (UK) Limited (DDUK) borrowed on an interest free basis in 2002 for the establishment of the UK business. The loan, which is guaranteed by DataDot, is repayable on the earlier of the termination of the DDUK shareholders agreement, the DDUK licence agreement and 15 December 2012. This financial liability is carried at amortised cost using the effective interest method.

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DataDot Technology Limited ABN 54 091 908 726 Appendix 4E

Notes to the Preliminary Consolidated Financial Statements (cont’d) For the Year Ended 30 June 2011

10. Contributed Equity

	2011	2010
Ordinary Shares	$	$
Issued and fully paid	**33,102,482 **	28,034,195
Fully paid ordinary shares carry one vote per share and carry the right to dividends.
	Number	$
Movement in ordinary shares on issue
At 1 July 2009	344,028,204	28,151,106
Shares issued:
Less cost of capital raisings
(related to 2009 share issue)	-	(116,911)
At 30 June 2010	344,028,204	28,034,195
Shares issued:
Shares issued for purchase of CSIRO 50% interest
in DataTraceDNA Pty Limited at $0.041 per share
(net of half-share of cost of independent valuation)	24,083,804	987,436
Shares issued for assignment of DataTraceDNA
intellectual property from CSIRO at $0.041 per share	9,634,523	395,015
Share purchase plan at $0.041 per share	73,170,732	3,000,000
Share placement at $0.041 per share	23,658,537	970,000
Less cost of capital raisings	-	(284,164)
At 30 June 2011	474,575,800	**33,102,482 **

11. Business Combination - Acquisition of CSIRO Interest in DataTrace DNA

On 1 December 2010, DataDot Technology Limited (DataDot) acquired Australia’s Commonwealth Scientific and Industrial Research Organisation’s (CSIRO) equity interest in the 50% of DataTrace DNA Pty Limited (DataTrace) not already owned by DataDot, so making DataTrace a wholly-owned subsidiary of DataDot. The agreed value of the 50% equity interest was $1,000,000 based on an independent valuation. Consideration of $1,000,000 (net of CSIRO’s half-share of valuation costs) was given in the form of 24,083,804 ordinary DataDot shares valued at $0.041 per share. The share price was established by reference to the volume weighted average share price of the Company’s shares over the six months to 31 August 2010.

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DataDot Technology Limited ABN 54 091 908 726 Appendix 4E

Notes to the Preliminary Consolidated Financial Statements (cont’d) For the Year Ended 30 June 2011

11. Business Combination - Acquisition of CSIRO Interest in DataTrace DNA (continued)

In addition, CSIRO assigned the DataTrace intellectual property to DataTrace, opening up access to the currency, security & identity documents, and national security markets that were previously inaccessible to DataTrace under the CSIRO-DataTrace licensing arrangements. This component of the transaction had the agreed value of $395,015. Consideration was made on the same valuation basis and given in the form of 9,634,523 ordinary shares in DataDot.

DataDot has provisionally recognised the fair values of the identifiable assets and liabilities of DataTrace based upon the best information available as of the reporting date.

	Fair value at	Carrying
	acquisition date	value
	$	$
Cash and cash equivalents	189,963	189,963
Trade and other receivables	186,374	186,374
Inventories	323,790	323,790
Plant and equipment	19,758	19,758
Intangible Assets	406,979	406,979
	1,126,864	1,126,864
Trade and other payables	211,353	211,353
Unearned revenue	174,375	174,375
	385,728	385,728
Provisional fair value of identifiable net assets	741,136
Goodwill arising on acquisition	1,258,864
Less: 50% interest in DataTrace already owned by	(1,000,000)
DataDot
Consideration	1,000,000
Acquisition-date fair-value of consideration transferred:
Shares issued, at fair value	1,000,000
Direct costs relating to the acquisition	12,564
The cash inflow on acquisition is as follows:
Net cash acquired with the subsidiary	189,963

The consolidated statement of comprehensive income includes sales revenue and net profit for the year ended 30 June 2011 of $690,599 and $71,372 respectively, as a result of the acquisition of CSIRO’s 50% share in DataTrace. DataDot’s 50% share in DataTrace for the period from 1 July 2010 until date of acquisition was accounted for as a joint venture by applying the equity method, with the share of loss for the period being $111,716. Had the acquisition of the remaining share of DataTrace occurred at the beginning of the reporting period, the consolidated statement of comprehensive income would have included revenue and a loss of $911,747 and ($152,060) respectively.

24

DataDot Technology Limited ABN 54 091 908 726 Appendix 4E

Notes to the Preliminary Consolidated Financial Statements (cont’d) For the Year Ended 30 June 2011

12. Events after the Balance Date

No matter or circumstance has arisen since 30 June 2011 that has significantly affected, or may significantly affect DataDot’s operations in subsequent financial years, the results of those operations in subsequent years or DataDot’s state of affairs in subsequent financial years.

25