DATADOT TECHNOLOGY LIMITED — Management Reports 2008

Oct 21, 2008

•OCTOBER 2008

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FREE OFFER: DATADOT HOME PACKS - SEE PAGE 3

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STRATEGY PROVES PROFITABLE AT CRUCIAL TIME

DataDot Technology’s first annual net profit has been delivered at a critical time as the world’s share markets undergo the biggest convulsions since the 1930s, says Chief Executive Officer Ian Allen.

“Our company’s business is all about securing the future – for users of our technologies and for our shareholders.”

Mr Allen said the business had reduced costs, broadened its sales strategy and increased its engagement with government in anticipation of the massive shift in market sentiment that began to surface 12 months ago.

“We determined to find new markets for our products where profitability was higher and therefore less dependent on volume sales,” he said.

“As a result we’ve written contracts with businesses that are using our technology to identify and protect from theft such things as plant and heavy equipment and even building supplies such as copper wire in Australia, the US and Canada.”

He said this complemented ongoing and substantial existing business with the world’s best-known vehicle manufacturers who use DataDot to protect their vehicles from theft.

Mr Allen said the company had also learned a lot about dealing with Government and “learned some lessons in the process”.

He said changes of governments in Moldova and Romania and legal wrangling in New Zealand delayed projects that had the promise of mandating the use of DataDot technologies on hundreds of thousands of additional vehicles annually.

In spite of such frustrations the company had reported an after tax net profit of $1.3 million - a turnaround improvement in

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IAN ALLEN, CEO, WITH THE HON SANDRA NORI

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We’ve learned some lessons about dealing with government

the bottom line of $3.3 million.

The company has also engaged the Honorable Sandra Nori, a former longserving NSW Government Minister, to help negotiate and better establish expectations from Government relationships and develop new private sector business. (See interview over)

Mr Allen said the company believed that, now more than ever, its close relationship with the Australian Government’s CSIRO was key to securing the future of both its new and existing technologies.

Mr Allen said DataDot entered into a joint venture with CSIRO in late 2005 and had invested heavily to create a product that he described as a “near indestructible chemical barcode” which can be affixed to the surface of or embedded within an object to identify and authenticate it. cont page 2...

CAUTION IN FACE OF GLOBAL MARKET

Allan Farrar recognized some familiar challenges when he was appointed chairman of DataDot Technology in 2006.

“There was great potential and an enormous amount of passion in the company,” he said. “However I felt I could add some commercial thinking and experience to the process”

Mr Farrar said that like many small, innovative businesses, DataDot had expectations of quick adoption of its technology, however, he realised from past experience with public companies distributing off shore the road ahead would not be easy.

“The research and development and the time-to-market is lengthy when you’re dealing with Government and big players in big industries. They have lots of due diligence to do before they will take anything on.”

Mr Farrar said he set to work with CEO Ian Allen to sharpen the company’s focus on key markets and improve DataDot’s organizational structure. In the process, the Chairman was bringing to the company the experience of his successful career in corporate finance.

Mr Farrar described Mr Allen as not only highly skilled in sales but very technically knowledgable and highly innovative in the application of DataDot’s technology.

He said the company was seeing a growth in non-motor vehicle turnover as Mr Allen continued to develop new markets for DataDot technology such as selling it to utilities to protect copper wire supplies.

“I think we are entering a time when we will need to demonstrate extreme caution and manage our money very carefully,” said Mr Farrar of the global marketplace. “That being said, DataDot has made good in-roads into areas which should show results in the medium term.”

DATADOT DISPATCH - OCTOBER 2008

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Cont From Pg 1...

He said the product, DataTrace[DNA] , is a world patent-pending Australian technology and proved Australia’s continuing capacity for innovation to drive new exports and ultimately create new jobs

For example, AgResearch of New Zealand recently demonstrated the potential application of DataTrace[DNA] technology to new industries by using it to authenticate

In a time of heightened risk, corporate focus, continuity and strategic relationships are key

wool fabric used to make luxury fashion garments and protect them against counterfeit.

“We see this joint venture as an investment in the future of DataDot and CSIRO see it as an investment in the future of Australia.”

The “heavy lifting” on the DataTrace[DNA] technology development with CSIRO had been done and the joint-venture partners continued to streamline operations to focus on worldwide commercialisation opportunities.

Mr Allen said he believed that in a time of bewildering change and heightened risk, corporate focus, continuity and the maintenance of strategic relationships were key to securing the future.

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IGNORING GOVT NOT AN OPTION

Dealing with government can be extremely rewarding but is usually a convoluted process which can be knocked off course for reasons beyond a corporation’s control or even knowledge, says a woman who should know.

The Honorable Sandra Nori, a member of the NSW Parliament for 19 years and a Minister from 1999 until her retirement in 2007, has sat on both sides of the table and is currently an advisor to DataDot Technology Ltd.

Ms Nori served as the NSW Government’s Minister for Small Business (and Trade), Tourism Minister, Sports Minister, and Assistant Minister for State Development.

Ms Nori said that while dealing with Government can be bewildering to the private sector, on the flipside, corporations often failed to comprehend the scale and complexity of government and the continuous and competing demands on its finite resources.

Ms Nori was engaged by DataDot Technology Ltd late last year to assist the company negotiate Government relationships and develop new private sector business.

“I was excited at the Chairman’s invitation to become involved in what I quickly realized was an Australian company which ticked all my philosophical boxes,” she said.

These attributes included:

• Producing technologies that create a safer community;

• Being an Australian company involved in exports because as a nation we rely on exports to keep our economy going;

• Investing in research and development;

• Innovating in partnership with one of Australia’s global R&D icons, CSIRO.

“Dealing with Government has special complexities and it is very difficult to predict exactly when and how the relationship will translate into the bottom line,” Ms Nori explained.

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THE HON SANDRA NORI

DataDot, an Australian company, ticked all my philosophical boxes

“For example, let’s say we see an opportunity to have DataTrace[DNA] used on all Australian birth certificates as an anti-identity fraud/theft measure – seems pretty straight forward?

“We’ll here’s what could be involved:

All state Attorneys’ General would have to agree. Minsters for Commerce might also be involved. Reaching and co-ordinating that number of decision makers is a complex exercise.

“It would almost certainly require a series of tenders and/or could involve Cabinet budget sub-committee approvals for the funds. Then there can be changes of Government and/or key bureaucrats.”

Ms Nori said in her assessment DataDot has made substantial progress in developing significant Government relations and pointed to the DataTrace[DNA] joint venture with the CSIRO as immediately substantiating the company’s credentials when dealing with Government.

She said that while many companies might wish otherwise, ignoring Government is not an option: after all Governments create market frameworks as regulators, and are massive potential customers.

DATADOT’S PATH TO PROFIT

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05 06 07 08
contains $2.5m of expense for options granted following new AIFRS accounting standards
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** includes $723,000 loss from DataTrace [DNA] joint venture
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FREE OFFER: DATADOT HOME PACKS

To say ‘thank you’ for your ongoing interest in DataDot we would like to offer you a home pack of “personalised” DataDots to protect your valuable home contents. To personalise the DataDots we need you to provide one of the following personal identifiers which will be etched onto your DataDots;

Drivers licence and state of issue OR Passport number OR Pension number OR ABN or ACN OR Medicare number

To receive your “personalised” DataDot home pack simply fill out all fields in the form below. Please PRINT CAREFULLY and CLEARLY and FAX or MAIL the form back to us at;

FAX: 02 9975 4700

MAIL: PO Box 6245, Frenchs Forest D.C., NSW 2086

OR, better still, FILL IN THE FORM ONLINE at www.datadotdna.com/homepackoffer/

Shareholder entity name: _____ Your name: ___________

Home / Mailing address: ____________ Mobile: ________ Fixed Phone: _______

Fax: _______ Email: _______

Identifier: __________  Drivers licence  Passport No  Pension No  ABN/ACN  Please tick appropriate box  Medicare No Please include state of issue

DataDot Technology will use your personal information to inform you from time to time of company developments and of its products and services. We will not use your personal information for any other purpose or provide it to any third party. By providing the information requested you give your consent to us using your personal information for this purpose. If you do not want to receive further information of this kind then please tick the box and we will remove your name from the mailing list.  I WOULD LIKE MY NAME TO BE REMOVED FROM THE DATADOT DISPATCH MAILING LIST

DATADOT DISPATCH - OCTOBER 2008

DATADOT DISPATCH - OCTOBER 2008

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DATATRACE - AN MBA CASE STUDY IN WAITING

DataTrace[DNA] , could be used as an MBA case study to illustrate the complexity and opportunity of developing a great idea and taking it to market.

“Our CEO Ian Allen had a vision of extending the DataDot concept of identifying vehicle componentry with millimetre-sized dots into ‘batch identification’ of bulk materials like concrete,” says Greg Twemlow, DataDot Technology’s GM Global Sales & Marketing.

“Why would you do this? Because it would allow the construction industry, for example, to know that the right strength of concrete has been used in the construction of a freeway or load-bearing column in a building.”

An Indian company now uses DataTrace technology to authenticate tax stamps

Mr Twemlow said the company turned to the CSIRO whose molecular sciences team in Melbourne had previously developed covert forensic security for Australia’s bank notes.

As a result, DataDot Technology and the CSIRO formed a joint venture in November 2005 and DataTrace[DNA] , was born. The path since has been demanding but now the first sales contracts are being written.

DataTrace[DNA] began with intellectual property that enabled materials to be embedded with chemical particles (‘tracers’) that can be detected by readers.

“The challenge since has been twofold,” says Mr Twemlow. “One, extending the library (or number) of chemical ‘tracers’ and two, shrinking an unwieldy chemical detection reader into a small portable device.”

With those challenges in hand and the “R&D heavy lifting” now done, the company has streamlined its operations to focus on commercialising its technology and is being innovative in doing so.

The company has realised opportunities to apply its technology to industries as diverse as fabrics, plastic packaging and even taxation stamps in India.

AgResearch, New Zealand’s privatized Wool Board, has been appointed DataTrace[DNA] ’s global manufacturing and marketing partner in fabrics and recently demonstrated its use in authenticating woolen garments during New Zealand’s Fashion Week conference.

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Mr Twemlow said two other sales contracts were recently signed, one with a Turkish company that is using DataTrace[DNA ] technology in clear film packaging to authenticate consumer products.

The other is with an Indian company that uses DataTrace technology to authenticate tax stamps for an Indian State Government which consumers need to provide to retailers when buying a product.

“These are small but exciting applications which demonstrate the range of ways in which our technology can be applied in the global market place,” Mr Twemlow said.

Our long-standing client, Dolphin Products, a Melbourne based company exporting products all over the world, has just advised us they have won a project for a new casino and will be again including DataTrace[DNA] in their high-tech casino chips. Dolphin regard DataTrace[DNA] as a vital component of their products given the importance for casinos to always know genuine chips are on a gaming table.

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Time-to-market is lengthy when you’re dealing with Government and big players in big industries see DataDot Chairman Allan Farrar interview, page 1

DATADOT DISPATCH - OCTOBER 2008