SEQUOIA FINANCIAL GROUP LTD — Annual Report 2004

Sep 28, 2004

CommSoft Group Limited

ABN 90 091 744 884

Annual Report

for the year ended 30 June 2004

Corporate Information

Directors

Mr Jeff Zulman (Chairman) Mr Jack Marcuson Mr Garth Grundy

Company Secretary

Mr Jeff Zulman

Registered Office

Suite 221, Level 2 111 Harrington Street Sydney NSW 2000

Ph: +61 2 9251 7947 Fax: +61 2 9251 7948 E-mail: commsoft@coyne.biz

Share Registry

Computershare Investor Services Pty Limited Level 3, 60 Carrington Street Sydney NSW 2000

Auditors

BDO

CommSoft Group Limited and controlled entities Directors' Report

Your Directors present their report on CommSoft Group Limited ('Company') and the entities it controlled as at the end of, or during, the year ended 30 June 2004.

Directors

The names and details of the company's directors in office during the financial year and until the date of the report are as follows. Directors were in office for this entire period unless otherwise stated.

Anthony Howard (non executive director and chairman – resigned 28 November 2003) Jeff Zulman (non executive director and chairman) Garth Grundy (non executive director) Jack Marcuson (non executive director – appointed 28 November 2003)

Directors have been in office since the start of the financial year to the date of this report unless otherwise stated.

Corporate Structure

Commsoft Group Limited is a company limited by shares that is incorporated and domiciled in Australia. Commsoft Group Limited has prepared a consolidated financial report incorporating the entities that it controlled during the financial year.

Principal Activities

For the year ended 30 June 2004, the Group has not traded.

Employees

The consolidated entity had nil employees as at 30 June 2004 (2003 : nil)

Dividends

No dividends have been paid or proposed during the period $(2003 : \text{nil})$

Review and Results of Operations

The consolidated entity has incurred a loss of $250,594 for the year ended 30 June 2004 (2003: loss of $198,526). Expenses incurred include administration fees, listing fees of ASX and NZX, audit fees and other administrative expenses.

On 22 July 2003, it was announced that the Deed of Company Arrangement, entered into on 28 April 2003, had been wholly effectuated and Commsoft Group Limited was placed back into the control of the Directors.

Significant Changes in the State of Affairs

There have been no significant changes in the state of affairs during the year.

Significant Events after Balance Date

There have been no significant events after balance date.

Likely Developments and Expected Results

Currently the Directors are considering various strategies to realise value from the Group and in particular are seeking a suitable businesses to acquire which would benefit from CommSoft's dual listings on the ASX & NZSE and its carried forward tax losses. The Directors would like to re-list its shares as soon as practical.

CommSoft Group Limited and controlled entities Directors' Report

Environmental Regulation

The consolidated entity is not subject to any specific environmental regulations.

Directors' Qualifications, Experience and Interests

Director	Experience	Particulars ofDirectors'interests in Sharesand Options
Jeff Zulman	Jeff Zulman was appointed a non-executive director in May 2002. He iscurrently the Managing Director of Coyne Holdings Pty Limited, amanagement and investment consultancy firm and KHATZ Capital Limited, aprivately owned venture capital fund.He has a strong track record of commercial success in business development,management and investment banking, gained in New York and London withGoldman Sachs and in Australia with Audant Investments. Mr. Zulman holdsa BA in law and a Dip. Jurisprudence, having completed studies at OxfordUniversity (UK), Sydney University (Australia) and the University ofWitwatersrand (South Africa).	Ordinary Shares:34,356,753Options:NilConvertibleNotes:22,100There was nomovement in theseholdings during orsince the yearended 30 June2004. The 2003figures differ dueto a prior yeardisclosure errorfollowing the June2003 conversion of23,261 notes intoshares.
Garth Grundy	Garth Grundy was appointed a non-executive Director in October 2002. He iscurrently the prinicipal of Lumen Corporate, a management and investmentconsultancy firm. Mr Grundy is a qualified CA and has a strong financialbackground both as an auditor and as a corporate financier.	Ordinary Shares:NilOptions:NilConvertibleNotes:Nil
Jack Marcuson	Jack Marcuson was appointed a non-executive Director in November 2003.He is a retired Chartered Secretary and Cost Accountant. Prior to hisretirement he had held the position of finance and administration director forthree overseas publicly listed companies.	Ordinary Shares:30,764,092Options:NilConvertibleNotes:7,500During the year,12,500 notes wereconverted.

CommSoft Group Limited and controlled entities Directors' Report

Directors' Meetings

The numbers of Directors meeting held during the year, and the number of meetings attended by each Director were:

Directors	Directors' Meeings
	Held	Attended
Anthony Howard
Jeff Zulman
Garth Grundy
Jack Marcuson

The directors were in regular dialogue with each other throughout the year regarding restoration of the company's listed status.

Emoluments of Directors

The Directors have waived any directors', committees' and any other fees or benefits for the year ended 30 June 2004

In 2003, Mark Lunt (Managing Director) received a base salary of $112,500 and no other benefits.

Share Options granted to Directors and the most highly remunerated Officers

There are no share options outstanding to directors and executives as at the year ended 30 June 2004.

Insurance of Officers

During the financial year, the Company did not take out insurance on the Directors, Secretaries and other Executive Officers of the Company and its controlled entities.

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

Jeff Zulman Chairman

Sydney 28 September 2004

CommSoft Group Limited and controlled entities Corporate Governance Statement

Corporate Governance Statement

The Board of Directors of Commsoft Group Limited is responsible for the corporate governance of the consolidated entity. The Board guides and monitors the business affairs of Commsoft Group Limited on behalf of the shareholders by whom they are elected and to whom they are accountable.

Commsoft Group Limited is currently a non-trading entity and the Board is considering various strategies to realise value from the Group, in particular seeking a suitable business to acquire and re-list.

Consequently, the Board has chosen not to adopt the ASX Corporate Governance Council's Principles and Best Practice Recommendations until such time as the entity is trading again.

Contents	Page
Statement of Financial Performance	6
Statement of Financial Position	7
Statement of Cash Flows	8
Notes to the Financial Statements	9
Directors' Declaration	24
Independent Audit Report	25
ASX Additional Information	27

CommSoft Group Limited and controlled entities Statement of Financial PerformanceFor the year ended 30 June 2004

		Consolidated		Parent Entity
	Notes	2004S	2003$	2004S	2003$
Revenue from ordinary activities	3	10,214	2,282,795	10,214	1,270,282
Cost of sales of goods	4		(101, 507)
Employee benefits expense		(32, 283)	(802, 172)	(32, 283)
Borrowing costs	4		(46,696)		(46, 418)
Management charge
Depreciation and amortisation expenses	4		(243,769)		(180,000)
Write off of asset due to liquidation ofsubsidiaries	4(a)		(398, 137)
Write off of assets and liabilities due to theDeed of Company arrangement	4(a)		(23, 238)		(1,784,271)
Communication costs			(144, 632)
Rental cost	4		(19, 884)		(215)
Administrators expenses		(94, 745)		(60, 586)
Legal expenses		(10, 170)	(183, 854)	(10, 170)	(100, 902)
Consultancy expenses		(63, 155)	(202, 146)	(63, 155)	(84,290)
Accounting and audit fees		(28, 526)	(143, 860)	(28, 526)	(42,056)
Share Registry fees		(19,630)		(19,630)
Other expenses from ordinary activities	4	(12, 299)	(171, 426)	(12,299)	(126, 775)
Loss from ordinary activities beforeincome tax expense		(250, 594)	(198, 526)	(216, 435)	(1,094,645)
Income tax expense	5
Net Loss attributable to members ofCommSoft Group Limited		(250, 594)	(198, 526)	(216, 435)	(1,094,645)
Valuation adjustments recorded directly inequity
Total changes in equity other than thoseresulting from transactions with owners asowners		(250, 594)	(198, 526)	(216, 435)	(1,094,645)
Basic earnings per share (cents per share)	24	(0.06)	(0.06)
Diluted earnings per share (cents per share)	24	(0.06)	(0.06)

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

CommSoft Group Limited and controlled entitiesStatement of Financial PositionAs at 30 June 2004

		Consolidated		Parent Entity
	Notes	2004$	2003$	2004$	2003$
Current assets
Cash assets	6	137,443	83,216	137,443	49,057
Receivables	7		295,000		295,000
Other	8	275	51,048	275	51,048
Total current assets		137,718	429,264	137,718	395,105
Non-current assets
Property, plant and equipment	9
Other financial assets	10		1		L
Total non-current assets		w	1	w	$\mathbf{I}$
TOTAL ASSETS		137,718	429,265	137,718	395,106
Current liabilities
Payables	$\boldsymbol{H}$	24,040	64,993	24,040	64,993
Total current liabilities		24,040	64,993	24,040	64,993
Non-current liabilities
Interest bearing liabilities	12	1,492,748	1,483,148	1,492,748	1,483,148
Total non-current liabilities		1,492,748	1,483,148	1,492,748	1,483,148
TOTAL LIABILITIES		1,516,788	1,548,141	1,516,788	1,548,141
NET LIABILITIES		(1,379,070)	(1,118,876)	(1,379,070)	(1, 153, 035)
Equity
Contributed equity	13	26,610,714	26,620,314	26,610,714	26,620,314
Accumulated losses	l4	(27,989,784)	(27, 739, 190)	(27,989,784)	(27, 773, 349)
NET DEFICIENCY INSHAREHOLDERS FUNDS		(1,379,070)	(1,118,876)	(1,379,070)	(1, 153, 035)

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

CommSoft Group Limited and controlled entities Statement of Cash FlowsFor the year ended 30 June 2004

		Consolidated		Parent Entity
	Notes	2004S	2003$	2004T	2003T
Cash flows from operating activities
Receipts from customers			731,162		17,197
Interest received		222		222
Payments to suppliers and employees		(204, 567)	(1,806,755)	(170, 408)	(1, 173, 578)
Interest paid		(46, 420)		(46, 420)
Net cash used in operating activities	22	(250, 765)	(1,075,593)	(216,606)	(1,156,381)
Cash flows from investing activities
Proceeds from sale of property, plant andequipment.			255,000		255,000
Proceeds from sale of intellectual property		295,000		295,000
Proceeds from sale of investments		9,992		9,992
Net cash generated by investing activities		304,992	255,000	304,992	255,000
Cash flows from financing activities
Proceeds from issues of shares			778,286		778,286
Proceeds from convertible notes			116,000		116,000
Payments for share issue transaction costs			(55,386)		(55,386)
Net cash inflows generated by financingactivities			838,900		838,900
Net increase/(decrease) in cash held		54,227	18,307	88,386	(62, 481)
Cash at beginning of the financial period		83,216	64,909	49,057	111,538
Cash at end of the financial period	6	137,443	83,216	137,443	49,057

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

Note 1. Summary of significant accounting policies

This general-purpose financial report has been prepared in accordance with Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Consensus Views and the Corporations Act 2001.

It is prepared in accordance with the historical cost convention. Unless otherwise stated, the accounting policies adopted are consistent with those of the previous year.

(a) Basis of preparation of financial statements

The Economic entity has experienced an operating loss and the economic entity has experienced negative cash flows during the year ended 30 June 2004. As at 30 June 2004, the economic entity has a deficiency in net assets of $1,356,970 and has incurred a loss of $250,594 during the year. The financial result accords with the business recovery plan established by the Board of Directors.

The financial report has been prepared on the basis of a going concern on the following assumptions:-

• (i) That budgets, business plans and cashflow forecasts will be met:
• (ii) That trading activities will produce positive cashflows:
• (iii) That funding will be available from investors;

and that the convertible note holders cannot call for the repayment of the $1,492,748 of convertible notes until such time that the company has sufficient funds to make such payment.

The directors believe that these assumptions will be met and on that basis the financial statements have been prepared on a going concern basis.

(b) Principles of consolidation

The consolidated financial statements incorporate the assets and liabilities of all entities controlled by CommSoft Group Limited as at 30 June 2004 and the results of all controlled entities for the year then ended. CommSoft Group Limited and its controlled entities together are referred to in this financial report as the Consolidated entity. The effects of all transactions between entities in the Consolidated entity are eliminated in full. Outside equity interests in the results and equity of controlled entities, where applicable, are shown separately in the consolidated statement of financial performance and statement of financial position respectively.

Where control of an entity is obtained during a financial period, its results are included in the consolidated statement of financial performance from the date on which control commences. Where control of an entity ceases during a financial period its results are included for that part of the period during which control existed.

(c) Income tax

Tax effect accounting procedures are followed whereby the income tax expense in the statement of financial performance is matched with the profit/(loss) from ordinary activities after allowing for permanent differences. The future tax benefit relating to tax losses and net timing differences is not carried forward as an asset unless the benefit is virtually certain of realisation. Income tax on cumulative timing differences which result in a deferred income tax balance are recorded at the rates which are expected to apply when those timing differences reverse.

(d) Foreign currency translation

(i) Transactions

Foreign currency transactions are initially translated into Australian currency at the rate of exchange at the date of the transaction. At balance date amounts payable and receivable in foreign currencies are translated to Australian currency at rates of exchange current at that date. Resulting exchange differences are recognised in determining the profit or loss for the year.

(ii) Foreign controlled entities

As the foreign controlled entities are integrated with the activities of CommSoft Group Ltd, the assets, liabilities and equity of the foreign controlled entities are consolidated into CommSoft Group Ltd using the temporal method of translation. Under this method, non-monetary assets and liabilities and equity items, including revenue and expenses, are translated using historical rates of exchange, and monetary assets and liabilities are translated using rates of exchange current at the reporting date. Any resultant exchange differences are recorded as revenue or expense by the Consolidated entity.

Note 1. Summary of significant accounting policies (continued)

(e) Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. Amounts disclosed as revenue are net of returns, trade allowances and duties and taxes paid. Revenue is recognised when the following has occurred:

• (i) A purchase order has been received
• (ii) Goods have been shipped in accordance with the customers instructions and
• (iii) Collection of the contract price is probable

Under the terms of the distribution agreement with Techtel in the United Kingdom, revenue from UK sales is recognised when the cash is received by the Company.

(f) Receivables

All trade debtors are recognised at the amounts receivable as they are due for settlement, with credit terms varying from 30 days to 90 days. Collectibility of trade debtors is reviewed on an ongoing basis. Debts, which are known to be uncollectible, are written off. A provision for doubtful debts is raised when some doubt as to collection exists. Receivables from the UK distributor are only due for settlement, when the customer has paid the distributor.

$(g)$ Recoverable amount of non-current assets

The recoverable amount of an asset is the net amount expected to be recovered through the cash inflows and outflows arising from its continued use and subsequent disposal.

Where the carrying amount of a non-current asset is greater than its recoverable amount, the asset is written down to its recoverable amount. Where net cash inflows are derived from a group of assets working together, recoverable amount is determined on the basis of the relevant group of assets. The decrement in the carrying amount is recognised as an expense in net profit or loss in the reporting period in which the recoverable amount write-down occurs. The expected net cash flows included in determining recoverable amounts of non-current assets are undiscounted.

(h) Depreciation of property, plant and equipment

Depreciation is calculated on a straight-line basis to write off the net cost of each item of plant and equipment over its expected useful life to the Consolidated entity. Estimates of remaining useful lives are made on a regular basis for all assets, with annual reassessments for major items. The expected useful lives are as follows:

Office equipment $3 - 5$ years

Trade and other creditors $(i)$

These amounts represent liabilities for goods and services provided to the Consolidated entity prior to the end of the financial period and which are unpaid.

(j) Interest bearing liabilities

Loans and debentures, where applicable, are carried at their principal amounts, which represent the present value of future cash flows associated with servicing the debt. Interest is accrued over the period it becomes due and is recorded as part of other creditors.

(k) Employee entitlements

(i) Wages and salaries, annual leave and sick leave

Liabilities for wages and salaries, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in other creditors 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.

(ii) Long service leave

The liability for long service leave expected to be settled within 12 months of the reporting date is recognised in the provision for employee benefits and is measured in accordance with (i) above. The liability for long service leave expected to be settled more than 12 months from the reporting date is recognised in the provision for employee benefits and 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

Note 1. Summary of significant accounting policies (continued)

discounted using interest rates on national government guaranteed securities with terms to maturity that match, as closely as possible, the estimated future cash outflows.

(iii) Superanmuation

Contributions are charged as an expense as the contributions are paid or become payable.

(iv) Employee benefit on-costs

Employee benefit on-costs, including payroll tax, are recognised and included in employee benefit liabilities and costs when the employee benefits to which they relate are recognised as liabilities.

(I) Borrowing costs

Borrowing costs, where applicable, are recognised as expenses in the period in which they are incurred.

Borrowing costs, when incurred include:

• interest on bank overdrafts and short-term and long-term borrowings (including Convertible Notes)
• amortisation of discounts or premiums relating to borrowings
• $\bullet$ amortisation of ancillary costs incurred in connection with the arrangement of borrowings
• finance lease charges, and
• certain exchange differences arising from foreign currency borrowings.

$(m)$ Cash

For purposes of the statement of cash flows, cash includes cash on hand, deposits at call which are readily convertible to eash on hand and are subject to an insignificant risk of changes in value, net of outstanding bank overdrafts.

(n) Earnings per share

(i) Basic earnings per share

Basic earnings per share is determined by dividing net profit after income tax attributable to members of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial period, adjusted for bonus elements in ordinary shares issued during the period.

(ii) Diluted earnings per share

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

(o) Cost of sale of goods

Costs comprise direct materials, freight, installation fees and direct labour costs. In the prior year, direct labour included the annual amortisation of capitalised research and development costs, incurred in the development of the Company's and Consolidated entity's software solutions. The Consolidated entity does not produce or hold inventory.

(p) Comparative figures

Where required by Accounting Standards comparative figures have been adjusted to conform with changes in presentation for the current financial year.

Note 2. Segment information

Primary Reporting - Industry Segments

During 2004, the consolidated entity did not trade. During 2003, the consolidated entity was organised on a global basis developing and marketing Communication Management Systems and Customer Relationship Management software solutions.

Secondary Reporting - Geographical Segments

During 2004, the consolidated entity did not trade. During 2003, although the consolidated entity's divisions were managed on a global basis they operated in the following countries:

Note 2. Segment information (continued)

Australia

The home country of the Parent Entity which was also the main operating entity. The areas of operation were principally the provision of Communication Management Systems and Customer Relationship Management software solutions. This operating entity went into liquidation on 24 March 2003, and ceased operation as at that date.

United Kingdom $\ddot{\bullet}$

The areas of operation were principally the provision of Communication Management Systems and Customer Relationship Management solutions. The United Kingdom operation was operated via an exclusive distributor agreement.

New Zealand

New Zealand provided the majority of services for management, research and development and production to the Parent Entity. It also provided to end users and resellers Communication Management Systems and Customer Relationship Management solutions. This operation went into liquidation on 24 March 2003, and ceased operation as at that date.

South Africa $\ddot{\bullet}$

The areas of operation were principally the provision of Communication Management Systems and Customer Relationship Management solutions. This operation was operated via an exclusive distributor agreement.

Geographic segments:

2004

The consolidated entity did not trade.

There were no acquisition of property, plant and equipments and intangibles during the year ended 30 June 2004.

2003

	New Zealand12 monthsÆ.	South Africa12 monthsY.	Australia12 monthsX.	UK.12 months	Inter SegmentEliminations	Intal12 monthsS
Sales to customersoutside theconsolidated equity	244,646		247,856			491,564
Other Revenue	493,523	43,573	1,253,197			1,790,293
Total SegmentRevenue	738,169	43.573	1,501,653		u.	2,282,795
Segment Assets			378,217			378,217

CommSoft Group Limited and controlled entities Notes to Financial Statements As at 30 June 2004

Note 3. Revenue

	Consolidated		Parent Entity
	2004S	2003S	2004S	2003S
Revenue from operating activities
Sale of goods		492,502		7,528
Interest received – other persons/corporations	222	938	222	938
Proceeds of disposal of investment	9,992		9,992
Total revenue from operating activities	10,214	493,440	10,214	493,440
Revenue from outside the operatingactivities
Proceeds on sale of non-current assets (i)		550,000		550,000
Gain on debt defeasance (ii)	$\overline{\phantom{a}}$	1,239,355		711,816
		1,790,293		1,262,754
Revenues from ordinary activities	10,214	2,282,795	10,214	1,270,282
Net Gain on sale of non-current assets	9,991	550,000	9.991	550,000

This is the sale of the company's intellectual property on 29 January 2003 to an external third party. $(i)$

On 28 April 2003, an agreement was reached with the creditors of the parent company to forgive its outstanding debts. $(ii)$

Loss from ordinary activities Note 4.

		Consolidated		Parent Entity
	2004S		2003s	2004£.	2003S
Loss from ordinary activities before income taxexpense includes the following specific netgains and expenses:
Expenses
Cost of sales – Refer to note $1(s)$ for a
description of the costs associated with the saleof goods.			101,507
Borrowing costs			46,696		46,418
Depreciation-plant and equipment			63,769
Amortisation
Goodwill			180,000		180,000
Total amortisation		ă.	180,000	w	180,000
Rental expenditure relating to operating leases			19,884		215
Foreign exchange losses			93,316		5,213
(a) Individually significant items
Write off of investment in subsidiaries					959,132
Write off of inter-company balances					801,901
Write off of other assets due to the Deed ofCompany Arrangement			23,238		23,238
Assets written-off due to liquidation ofsubsidiaries		a.	398,137
Total write off of Assets and Liabilities		L.	421,375	L,	1,784,271

CommSoft Group Limited and controlled entities Notes to Financial Statements As at 30 June 2004

Note 5. Income Tax

		Consolidated		Parent Entity
		2004S	2003s	2004$	2003S
(a).	The income tax expense for the financialperiod differs from the amount calculatedon the loss from ordinary activities. Thedifferences are reconciled as follows:
	Prima facie tax payable on loss fromordinary activities before income tax at30% (2002: 30%)	(75, 178)	(59, 558)	(64,931)	(328, 394)
	Tax effect of permanent differences
	Non-deductible amortisation		54.000		54,000
	Intangible assets and liabilitieswritten-off		(245, 394)		310,525
	Tax losses and timing differences notbrought to account	(75, 178)	250,952	(64,931)	(36, 131)
	Income tax expense

The future income tax benefit for tax losses will only be obtained if:-

• $(i)$ the consolidated entity derives future assessable income of a nature and of an amount sufficient to enable the benefit from deductions for losses to be realised, or
• $(ii)$ the losses are transferred to an eligible entity in the consolidated entity, and
• $(iii)$ the consolidated entity continues to comply with the conditions for deductibility imposed by tax legislation, and
• no changes in tax legislation adversely affects the consolidated entity in realising the benefit from the $(iv)$ deductions for the losses.

Note 6. Current assets - Cash assets

Cash at bank and on hand		137,444	83,216	137,444	49,057
Note 7.	Current assets - Receivables
Trade debtors		w	295,000	a.	295,000
Less: Provision for doubtful debts		$\bullet$	m
		$\overline{\phantom{a}}$	295,000		295,000
Note 8.	Current assets - Other
Sundry Receivables		275	51.048	275	51,048

Non-current assets - Property, plant and equipment Note 9.

		Parent Entity
2004s	2003s	2004S	2003S
	213,640
	(63,769)
	(149, 871)
		Consolidated

Note 10. Non-current assets - Investment in controlled entities and other Financial Assets

(a) Other Investment

As a result of the sale of intellectual property in January 2003, the company has gained a 20% interest in the newly formed distribution company co-owned with the new owners of CommSoft Intellectual property. CommSoft had no control or significant influence over the new company. This investment was sold on 23 January, 2004.

Note 11. Current liabilities - Payables

		Consolidated		Parent Entity
	2004s	2003S	2004	2003s
Trade creditors	17,040	18,573	17,040	18,573
Sundry accruals	7.000	46.420	7,000	46,420
	24,040	64.993	24,040	64,993

Note 12. Non-current liabilities - Interest bearing

	Consolidated		Parent Entity
	2004	2003	2004	2003s
Convertible Notes (secured)	1.492.748	.483,148	1.492.748	1.483,148

The convertible notes bear interest at 10% per annum, calculated on the issue price however note holders have agreed to waive any further entitlement to interest.

The number of ordinary shares to be issued to a note holder on exercise of the right of conversion will be calculated in accordance with the following formula:

• $\bullet$ If the note holder elects to convert any convertible notes within 12 calendar months after the subscription date, the number of ordinary shares of the Company to be issued for each $1.00 convertible note shall be the greater number determined by:
• Dividing $1.00 by the weighted average closing price of the ordinary shares of the Company for the 15 business days $\ddot{\bullet}$ immediately preceding the nominated date of the conversion, less 25%; or
• Dividing $1.00 by $0.15 (i.e. 6.67). $\bullet$

If the Subscriber elects to convert the convertible notes on a date between 13 and 24 calendar months after the subscription date, the number of ordinary shares of the Company to be issued for each $1.00 convertible note shall be the greater number determined by:

• Dividing $1.00 by the weighted average closing price of ordinary shares of the Company for the 15 business dates $\bullet$ immediately preceding the nominated date of the conversion, less 25%; or
• Dividing $1.00 by $0.30 (i.e. 3.33).

The company on the second anniversary will redeem all convertible Notes, which have not been converted.

Under the Deed of Company Arrangement that was entered into 28 April 2003, the Convertible Note Holders will not call for the repayment of the convertible notes on their due date until such time as the company has sufficient funds.

Note 13. Contributed equity

	Parent Entity
	Notes	2004Shares	2003Shares	2004S	2003S
Share Capital
Ordinary shares fully paid	(a),(b)	406.524.494	389,857,557	26.610,714	26.620,314
Contributed Equity		406,524,494	389,857,557	26.610,714	26.620,314

(a) Ordinary shares

Ordinary shares entitle the holder to participate in dividends and in 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.

(b) Movements in ordinary share capital

	Parent Entity2004No. of Shares	Parent Entity2004S
Opening paid up capital at 1 July 2003	389,857,557	26,620,314
In April 2004, conversion of convertible notes issued at $0.00075Adjustment to correct error in conversion rate applied to June 2003 conversion of	16,666.937	12.500
notes to shares		(22,100)
Closing paid up capital at 30 June 2004	406.524.494	26,610,714

Note 14. Accumulated losses

	Consolidated		Parent Entity
	2004S	2003S	2004S	2003S
Accumulated losses at the beginningof the financial year	(27, 739, 190)	(27,540,664)	(27, 773, 349)	(26, 678, 704)
Net loss attributable to members ofCommSoft Group Limited	(250, 594)	(198, 526)	(216, 435)	(1,094,645)
Accumulated losses at the end of thefinancial year	(27,989,784)	(27, 739, 190)	(27,989,784)	(27, 773, 349)

Note 15. Dividends

No dividends were paid or declared during the year (2003: Nil).

Note 16. Financial instruments

(a) Interest rate risk exposures

The consolidated entity's exposure to interest rate risk and the effective weighted average interest rate by maturity periods is set out in the following table. For interest rates applicable to each class of asset or liability refer to individual notes to the financial statements. Exposures arise predominantly from assets and liabilities bearing variable interest rates as the Consolidated entity intends to hold fixed rate assets and liability to maturity.

June 2004	Notes	Floatinginterest rate$	Fixed interestrateS	Non-interestbearing	TotalS
Financial assets
Cash and deposits	6			137,443	137,443
Receivables	7
Other	8			275	275
		$\tilde{\phantom{a}}$		137,718	137,718
Weighted average interest rate
Financial liabilities
Payables	12, 14			(24,040)	(24,040)
Convertible Notes	15		ă.	(1, 492, 748)	(1, 492, 748)
Net financial assets / (liabilities)			ă.	(1,516,788)	(1,516,788)
Weighted average cost
June 2003	Notes	Floatinginterest rate$	Fixed interestrateS	Non-interestbearingS	Total$

		S	S	S	S
Financial assets
Cash and deposits	6	83,216			83,216
Receivables	7	$\overline{\phantom{a}}$		295,000	295,000
Other	8	$\blacksquare$		51,048	51,048
		83,216		346,048	429,264
Weighted average interest rate		4.5%
Financial liabilities
Payables	12, 14	$\overline{\phantom{a}}$		(64,993)	(64,993)
Convertible Notes	15	$\overline{\phantom{a}}$		(1, 483, 148)	(1,483,148)
Net financial assets / (liabilities)				(1, 548, 141)	(1, 548, 141)
Weighted average cost

(b) Credit risk exposure

The credit risk on financial assets of the consolidated entity, which have been recognised in the statement of financial position, other than investments in shares, is generally the carrying amount, net of any provision for doubtful debts.

Note 16. Financial instruments (continued)

(c) Net fair value of financial assets and liabilities - On Statement of Financial Position

The net fair value of cash and cash equivalents and non-interest bearing monetary financial assets and financial liabilities of the consolidated entity approximates their carrying amounts.

The net fair value of other monetary financial assets and financial liabilities is based upon market prices where a market exists or by discounting the expected future cash flows by the current interest rates for assets and liabilities with similar risk profiles.

For non-trade equity investments, the net fair value is an assessment by the directors based on the underlying net assets, future maintainable earnings and any special circumstances pertaining to a particular investment.

Note 17. Remuneration of directors and executives

All directors and executives of the consolidated entity waived any salary, fees or other benefits during the year ended 30 June 2004.

During the year ended 30 June 2003, the following remuneration was paid to directors and executives:

	Base Salary	Total
Director
Mark Lunt (Managing Director)	112,500	112,500
Executives
Mark Godfrey (Chief Financial Officer)	135,000	135,000

Note 18. Remuneration of auditors

	Consolidated		Parent Entity
	2004S	2003S	2004S	2003S
Remuneration for audit or review of thefinancial reports of the Parent Entity or anyentity in the Consolidated entity -BDO	10,000	15,000	10,000	15,000
Remuneration for audit or review of thefinancial reports of the Parent entity or anyentity in the Consolidated entity $-$Other auditor		1.767		1,767
Remuneration for other services:
Auditor of the parent entity - BDO		8,907		8,907
Other auditor of the parent entity		11.160		11,160
Related practices of the other auditor of theparent entity (including overseas associatedfirms)
	10,000	21,834	10,000	21,384

Note 19. Contingent liabilities

The directors are unaware of any contingent liabilities impacting the consolidated entity as at the date of this report.

Note 20. Employee entitlements

	Consolidated		Parent Entity
	2004S	2003S	2004$	2003S
Employee entitlement liabilities
Provision for employee entitlements		$\bullet$	$\ddot{}$
Employee numbers
Average umber of employees during thefinancial year.		12	$\check{}$	٠

Employee Share Option Plan

On 2 August 2000 the Company established the CommSoft Employee Share Option Plan. The plan authorised the directors to offer options to employees and consultants to the group. The options are only exercisable subject to performance hurdles to be met by consolidated group and the option holder remains as employees, consultants or directors to the consolidated entity. These options will lapse if they remain unexercised five years after the date of issue. There were no options on issue as at 30 June 2004 (2003: nil).

Note 21. Related parties

Directors

The names of persons who were Directors of CommSoft Group Limited at any time during the financial year are as follows: Anthony Howard (resigned 28 November 2003) Jeff Zulman Garth Grundy Jack Marcuson (appointed 28 November 2003)

Related party transactions

Jeff Zulman is a Director of Coyne Holdings Pty Limited, which provides advisory and consulting fees to the Company for a fixed monthly fee of $5,000.

Wholly Owned Group

The economic entity consists of CommSoft Group Limited and the following wholly-owned controlled entities

• CommSoft Australasia Limited (in liquidation)
• CommSoft (Europe) Limited (in liquidation)
• CommSoft South Africa Pty Limited (in liquidation) $\bullet$

Ownership interests in these controlled entities are set out in note 11.

Controlling entities

The ultimate parent entity in the wholly owned group is CommSoft Group Limited.

Place of Incorporation New Zealand United Kingdom South Africa

Note 22. Reconciliation of loss from ordinary activities after income tax to net cash outflow from operating activities

	Consolidated		Parent Entity
	2004S	2003S	2004S	2003S
Loss from ordinary activities after-income taxAdjusted for non-cash items	(250, 594)	(198, 526)	(216, 435)	(1,094,645)
Depreciation and amortisation	÷	243,769		180,000
Write-off of assets of UK operations	$\overline{\phantom{a}}$	398.137
Write-off of assets and liabilities due to theDeed of Company arrangement	$\tilde{\phantom{a}}$	23,238		1,746,899
Profit on sale of assets	(9,991)	(550,000)	(9,991)	(550,000)
Gain on debt defeasance	$\frac{1}{2}$	(1, 239, 355)		(711, 816)
Change in operating assets and liabilities net ofeffects from purchase of controlled entities
(Increase)/decrease in trade debtors andother receivables	(50, 773)	261.108	(50, 773)	(41, 379)
Decrease in payables and other operatingliabilities	(40, 953)	(13.965)	(40,953)	(685, 440)
Net cash used in operating activities	(250, 765)	(1,075,593)	(216,606)	(1, 156, 381)

Note 23. Non cash financing and investing activities

Conversion of convertible note instruments to
ordinary shares	12.500	175.375	12.500	175.375
	12.500	75.375	12.500	175.375

Note 24. Earnings per share

	Consolidated2004Cents	Consolidated2003cents
Basic earnings per share	(0.06)	(0.06)
Diluted earnings per share	(0.06)	(0.06)
Weighted average number of ordinary shares outstanding during the period used on
the calculations of basic earnings per share.	393.967.213	337,588,425

Impact of Adopting AASB Equivalents to IASB Standards Note 25.

The company has conducted an impact assessment to isolate key areas that will be impacted by the transition to IFRS. Given the company is currently not trading and possess few assets and liabilities, the directors do not anticipate IFRS to have any impact on the results of the company.

As mentioned in the Directors' Report, the Directors are seeking a suitable business to acquire and would like to re-list the company's shares as soon as practical. At such time, a reassessment of the impact of IFRS would be performed on the new business.

CommSoft Group Limited and controlled entities Directors' Declaration

The directors declare that the financial statements and notes set out on pages 6 to 23.

• (a) comply with Accounting Standards, the Corporation Regulations 2001 and other mandatory professional reporting requirements; and
• (b) give a true and fair view of the Company's and the consolidated entity's financial position as at 30 June 2004 and of their performance, as represented by the results of their operations and their cash flows for the financial year ended on that date.

In the directors' opinion:

• (a) the financial statements and notes are in accordance with the Corporations Act 2001, 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.

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

Jeffrey Zulman Chairman

Sydney

Date 28 September 2004

563 Bourke Street Melbourne 3000 DX 30937 Stock Exchange Melbourne Telephone (03) 9615 8500 Facsimile (03) 9615 8700 Email: bdomel@bdomel.com.au www.bdo.com.au

AUDITORS' REPORT TO THE MEMBERS OF COMMSOFT GROUP LIMITED ABN 90 091 744 884 YEAR ENDED 30 JUNE 2004

Scope

The Financial Report and Directors' Responsibility

The financial report comprises the statements of financial position, performance, cash flows, accompanying notes to the financial statements, and the directors' declaration for both CommSoft Group Limited (the company) and the consolidated entity, for the year ended 30 June 2004. The consolidated entity comprises both the company and the entities it controlled during that year.

The directors of the company are responsible for the preparation and true and fair presentation of the financial report in accordance with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial report.

Audit Approach

We have conducted an independent audit in order to express an opinion to the members of the company. Our audit was conducted in accordance with Australian Auditing Standards in order to provide reasonable assurance as to whether the financial report is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgment, selective testing, the inherent limitations of internal control, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot quarantee that all material misstatements have been detected.

We performed procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001, including compliance with Accounting Standards and other mandatory financial reporting requirements in Australia, a view which is consistent with our understanding of the company's and the consolidated entity's financial position, and of their performance as represented by the results of their operations and cash flows.

We formed our audit opinion on the basis of these procedures, which included:

examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the financial report, and

assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant accounting estimates made by the directors.

While we considered the effectiveness of management's internal controls over financial reporting when determining the nature and extent of our procedures, our audit was not designed to provide assurance on internal controls.

Independence

In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001.

Audit Opinion

In our opinion, the financial report of CommSoft Group Limited is in accordance with:

• (a) 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 2004 and of its performance for the year ended on that date; and
  • complying with Accounting Standards in Australia and the Corporations Regulations 2001: and $(ii)$
• (b) other mandatory financial reporting requirements in Australia.

Inherent Uncertainty regarding Going Concern

Without qualification to the opinion expressed above, attention is drawn to the following matter.

As noted in Note 1(a) to the financial report, the financial statements are prepared on a going concern basis on the assumptions listed in that note. As the assumptions relate to prospective financial information, there is an inherent uncertainty that they will be met and therefore whether it is appropriate to prepare the financial report on a going concern basis.

If the group is unable to continue as a going concern it may be required to realise assets and extinguish liabilities other than in the normal course of business and at amounts different from those stated in the financial report.

In our opinion, knowledge of the economic entity's ability to continue as a going concern is necessary for a proper understanding of the financial report.

BDQ

BDO Chartered Accountants

CMJBRYAN Partner

Melbourne: 29th September 2004

CommSoft Group Limited and controlled entities ASX Additional Information

Additional information required by the Australian Stock Exchange Limited and not shown elsewhere in this report is as follows. The information is current as at 22 September 2004.

Distribution of Equity Securities

Size category of holding	Number of holders	Number of shares held
1-1.000	853	396,795
1,001-5,000	618	1,632,820
5,001-10,000	222	1,756,751
10,001-100,000	592	23,659,024
$100,001$ and over	320	379,079,104
Total	2605	406,524,494
The number of shareholders holding lessthan a marketable parcel of shares are:	2,427	50,308,571

Twenty Largest Shareholders

The names of the twenty largest holders of quoted shares are:

Name	Number of Shares	Percentage of ordinary shares
Coyne Holdings Pty Ltd	34,356,753	8.45%
Golden Words Pty Ltd	32,052,520	7.88%
Mr David Mark Marcuson	30,764,092	7.57%
Invia Custodian Pty Limited(WAM Equity Fund A/C)	17,407,887	4.28%
Invia Custodian Pty Limited(WAM Capital Limited A/C)	17,343,147	4.27%
National Nominees Limited	12,350,000	3.04%
Custodial Services Limited	11,663,101	2.87%
Mr Jeffrey Charles Birk	10,850,000	2.67%
Arton No 001 Pty Ltd	10.026.260	2.47%
Permanent Trustee Australia Limited(MMC0002 A/C)	7,962,338	1.96%
Tasomen Pty Ltd(GJG Superannuation Fund A/C)	7,300,000	1.80%
Zoobaba Pty Limited	6,000,000	1.48%
Mr Trevor Neil Hay	5,132,252	1.26%
KHATZ Capital Limited	4,502,780	1.11%
Forbar Custodians Limited (Account 9193)	4.000,000	0.98%
Mrs Karen Sutherland	4.000,000	0.98%
Dagger Nominees Limited	3,900,000	0.96%
Mr Robert Albert Boas	3,837,000	0.94%
Mr Colin Diamond	3,600,00	0.89%
Mr Martin John Searancke &Mr Graeme Milton-Smith & Mr Ian Baxter	3,482,400	0.56
Total	230,530,530	56.71%

CommSoft Group Limited and controlled entities ASX Additional Information

Substantial Shareholders

The names of the substantial shareholders who have notified the company in accordance with Section 671B of the Corporations Act 2001 are:

	Number of Shares
Coyne Holdings Pty Limited	34.356,753
Golden Words Pty Limited	32,052,520
Mr David Marcuson	30,764,092

Voting Rights

All ordinary shares (whether fully paid or note) carry one vote per share without restriction.

Changes to Appendix 4E

Upon confirmation of shareholdings, it was discovered that convertible notes had been converted into equity resulting in a reduction in total liabilities of $12,500 and a corresponding reduction in net deficiency in shareholders funds. As a result of conversion of these convertible notes, Net Tangible Assets per Share is now (0.34c) compared with (0.35c) as reported in Appendix 4E. Earnings per Share is consistent with the figure reported in the Appendix 4E of (0.06) cents per share.