For more information visit our web site at www.ir.com or email info@ir.com integrated research Integrated Research Limited ABN 76 003 588 449 Annual Report 2004 CO R P O R AT E D I R E C TO RY Directors Brian Gatfield Chairman and Independent Non-Executive Director David Boyles Independent Non-Executive Director Alex Kennedy Independent Non-Executive Director Steve Killelea Chief Executive Officer David Leighton Chief Financial Officer Ian Winlaw Independent Non-Executive Director David Leighton Level 10, 168 Walker Street North Sydney, NSW 2060 Australia Phone: (+61 2) 9966 1066 Computershare Investor Services Pty Limited KPMG 10 Shelley Street Sydney, NSW 2000 Dibbs Barker Gosling Level 8, Angel Place 123 Pitt Street Sydney, NSW 2000 Secretary Registered Office Share Registry Auditors Solicitors Bankers Westpac Banking Corporation Stock Exchange Listing Country of Incorporation Notice of Annual General Meeting Australian Stock Exchange Code IRI Integrated Research Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares The Annual General Meeting of Integrated Research Limited will be held at 3:00pm on Tuesday, 16th November 2004, at the Museum of Sydney, Corner of Phillip and Bridge Streets, Sydney u a . m o c . a d r . w w w - e v i t a e r C A D R y b d e c u d o r p d n a d e n g i s e D CONTENTS PAGE C O N T E N T S CORPORATE DIRECTORY CHIEF EXECUTIVE OFFICER’S REPORT REVIEW OF OPERATIONS AND ACTIVITIES DIRECTORS’ REPORT CORPORATE GOVERNANCE STATEMENT STATEMENTS OF FINANCIAL PERFORMANCE STATEMENTS OF FINANCIAL POSITION STATEMENTS OF CASH FLOWS NOTES TO THE FINANCIAL STATEMENTS DIRECTORS’ DECLARATION INDEPENDENT AUDIT REPORT TO MEMBERS ASX ADDITIONAL INFORMATION IFC 03 04 10 15 19 20 21 22 45 46 47 “ We are seeing strength in the global demand for our products across the board, and an accelerated uptake of VoIP, which should drive revenue over the next twelve months.” IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD 2004 > PAGE 01 PAGE 02 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD 2004 Chief Executive Officer’s Report > stronger focus on the execution of keep our company at the forefront our business plans. Our HP NonStop product line is the market leader and we continue to of the technology and to further enhance the outstanding future prospects for Integrated Research. gain large, new name accounts. We By ensuring our customer base is expect this product line to remain spread both geographically and strong and offer growth across industry verticals, Integrated opportunities in the coming years. Research has a broad foundation to Our PROGNOSIS solutions manage high-availability, high-impact develop and support growth as market dynamics change. environments. In 2004 we have Development of further growth moved further into these markets options can be well supported by with solutions to manage business- our strong balance sheet and free I am very happy to report that the critical infrastructure in specific cash reserves. company’s revenue for the year vertical industries such as banking, ended 30 June 2004 of $30.3 million telecommunications and was an increase of 8% over the prior government. Our successes include year, and that profit after tax ATM and POS networks in the increased by 316% to $4.5 million. banking sector. I have previously announced that I will be stepping down as CEO of Integrated Research at some time in the next six months, however I will continue to maintain my interest in Revenue in the second half of $16.1 million was 13% better than the first half of the financial year, while second half profit after tax was 15% greater than the first half. We see growing confidence in, and the company, both as a major uptake of, IP telephony, which shareholder and as a member of opens new opportunities for us with the board. I would like to personally organisations seeking to assess recognise and thank all Integrated and manage their IP telephony Research staff and associates The results are especially pleasing, infrastructure. IP telephony is a around the world who have given that the terms of trade adversely affected revenue by 16% compared to the 2002/03 financial year. This was due to the rapidly growing technology, yet contributed to the company’s still in its early stages of adoption. success since its founding in 1988, Integrated Research believes it is attaining its position today as well placed with the recent addition a leader in the Australian IT appreciation of the Australian dollar of major Cisco resellers to our industry, earning revenue from in 2003/04. Our maintenance renewal rate of 97% and strong channel. Additionally, the company nearly 50 countries. is setting up a US East Coast growth in IP telephony bodes well office, whose major focus will be for future performance. this market. Our success in 2004 was assisted We will continue to develop and by an improved economic environment, but driven by market the PROGNOSIS suite of products for HP NonStop, Windows, organisational improvements and a UNIX and Linux environments, to Steve Killelea Chief Executive Officer “Our HP NonStop product line is the market leader and we continue to gain large, new name accounts. We expect this product line to remain strong and offer growth opportunities in the coming years.” IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD 2004 > PAGE 03 Review of Operations and Activites > Principal activities The company’s principal activities during the period were the design, development and sale of systems and applications management computer software for high- reliability computer systems. There were no significant changes in the nature of these activities during the year. Group overview Integrated Research specialises in the development, marketing, sales and support of sophisticated The PROGNOSIS product range provides real-time integrated systems and application management across the HP NonStop, Windows, UNIX and Linux platforms, and a sophisticated set of solutions for third-party application providers. The company has developed its PROGNOSIS products around a unique core, common architecture, designed to achieve high levels of functionality, scalability, reliability and cross- platform capability, with a low total cost of ownership. systems management software. Integrated Research’s customer base Since its establishment in 1988, the consists of many of the world’s company has provided its core largest organisations and includes PROGNOSIS product suite to a range major stock exchanges, banks, credit of organisations requiring high levels of performance, availability and reliability from their systems. Integrated Research now has over 500 customers in nearly 50 countries worldwide. card companies, computer companies and hospitals. The company generates most of its revenue from upfront licence fees, Review and results of operations The consolidated net profit after tax for the twelve months ended 30 June 2004 was $4,455,000 compared to $1,072,000 in 2003. This significant increase is mainly due to strong performances in the Europe and Americas regions and, as the following chart shows, a 28% increase in revenue from licence fees and a 14% decrease in total expenses. The consolidated entity earned 76% of its revenue in US dollars (81% in 2003), and its US operations accounted for 29% of total spending (37% in 2003). The company hedges certain US dollar and UK pounds revenues throughout the year, sufficient to provide certainty to the company’s cash flow. However, revenue for 2004 has absorbed a recurring maintenance and recurring reduction of 16% due to changes in licence fees. average effective exchange rates. AU$’000 Revenue from licence fees Revenue from maintenance fees Revenue from other ordinary activities Total revenue from ordinary activities Total expenses from ordinary activities 2003 % Change 2004 15,842 13,712 778 12,396 14,456 1,297 30,332 28,149 23,159 26,884 28% -5% -40% 8% -14% 316% Net profit of the consolidated entity after income tax 4,455 1,072 PAGE 04 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD 2004 Review of Operations and Activites (continued) > compared to 2003 is mainly due to Expenses Review and results of operations (continued) Revenue from licence fees 52% of revenue for the year was earned from licence fees, compared to 44% in 2003. The company the above 16% change in effective exchange rates. Revenue from other ordinary activities Other revenue is mainly interest recognises revenue from licence fees income and post-sales consultancy, at the time of sale. The 28% increase and represented 3% of total revenue in licence fees in 2004 included a 17% increase from Windows/UNIX and IP telephony products, and sales of PROGNOSIS licences for in 2004, compared to 4% in 2003. Interest income in 2003 was unusually high, due to interest received on tax refunds in Australia NonStop products increased by 31%. that year. Total expenses from ordinary activities were $23.2 million in 2004, 14% less than 2003. Changes in the average effective exchange rates referred to above have had the effect of reducing total expenses by 7%. Headcount at 30 June 2004 was 107, a reduction from 115 at 30 June 2003. Salaries and related other employee costs, such as occupancy, travel and office costs, made up 90% of total spending in 2004, compared to 84% in 2003. Research and development expense was $5.9 million, compared to $6.2 million in 2003, representing 20% of revenue (22% in 2003) and is made up of: AU$’000 2004 2003 Software development expenses 6,482 6,429 Less amount capitalised -3,699 -3,479 Amortisation of software development 3,093 3,261 Total research and development expenses 5,876 6,211 The company made 229 new sales in 2004, compared to 191 in 2003, of which 19% were to new customers (34% in 2003). Revenue from licence fees included $576,000 from renewals of ten-year licences ($382,000 in 2003). Revenue from maintenance fees Maintenance fees, which are paid annually at 15% of the value of a customer’s licences, provided 45% of revenue in 2004, compared to 52% in 2003. Revenue from annual maintenance fees is deferred and recognised over a twelve-month period. The NonStop maintenance base retention rate in 2004 was 97%, indicating continuing reliance of customers on PROGNOSIS, an improvement on the rate of 96% renewals in 2003. The 5% reduction in revenue from maintenance fees “Integrated Research’s customer base consists of many of the world’s largest organisations and includes major stock exchanges, banks, credit card companies, computer companies and hospitals.” IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD 2004 > PAGE 05 PAGE 06 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD 2004 Review of Operations and Activites (continued) > Review and results of operations (continued) The Americas The business environment in the US has improved, and the company’s revenue from the Americas in 2004 increased over the prior year by 26% in US dollar terms. When translated to Australian dollars, the Americas revenue increased by 2%, and spending has fallen by 32%. This has enabled the Americas region to return a profit before tax in 2004 of AU$2.3 million, compared to a loss of AU$848,000 in 2003. Revenue from the Americas was 60% of total revenue for the consolidated entity, compared to 62% in 2003. Europe New business opportunities, Asia Pacific, Africa and the Middle East particularly in the UK and Eastern Sales to the telecommunications Europe, are the main reason for an industry have provided new increase in revenue from Europe of opportunities and strong revenue 91% over 2003, in UK pounds. growth in Africa. Most revenue from Currency has not had as significant the Asia Pacific, Africa and Middle an impact, with 2004 revenue East region is based in US dollars increasing by 66% over 2003 when and revenue in US dollar terms translated into Australian dollars increased by 26% over 2003. and spending increasing by 4%. The Revenue in Australian dollars resulting profit for the year was increased by 3%. This represented AU$464,000, compared to a loss last 17% of total revenue for the year of AU$622,000. Revenue from consolidated entity in 2004, Europe was 19% of total revenue for compared to 26% last year. the consolidated entity in 2004, The region returned a profit of compared to 12% in the prior year. AU$534,000 for the year, a decrease of 3% compared to the prior year profit of AU$548,000. 35 30 25 20 15 10 5 0 Revenue AU$ Millions Profit AU$ Millions 2003 2004 2003 2004 5 4 3 2 1 0 “The NonStop maintenance base retention rate in 2004 was 97%, indicating continuing reliance of customers on PROGNOSIS.” IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD 2004 > PAGE 07 Review of Operations and Activites (continued) > Financial position At the date of this report there have Further information about likely been several developments in the developments in the operations of operations of the consolidated entity the consolidated entity and the that are likely to be finalised next expected results of those operations in future financial years has not been included in this report because disclosure of the information would be likely to result in unreasonable prejudice to the consolidated entity. 2005 Outlook Business conditions have gradually improved over the past year, and are expected to continue to show improvement in the year ahead. We are seeing strength in the global demand for our products across the board, and an accelerated uptake of VoIP, which should drive revenue over the next twelve months. The company will provide further earnings guidance for 2004/05 when first quarter results are available. The consolidated entity continues to be in a strong position, with cash at 30 June 2004 of $8.5 million, compared to $5.9 million a year ago, and remains free of debt. The consolidated entity’s current ratio (ratio of current assets to current year, including: > The opening of a second office in the Americas region, in the Washington, DC area, to improve liabilities) at 30 June 2004 was 1.79, our proximity to a large sector of an improvement from 1.57 at the same time last year. Return on equity (consolidated profit after tax as a percentage of equity at the end of the period) improved to be 23.9%, compared to 7.0% in the prior year. Likely developments the prospective customer base. > Expansion of our distributor network in Europe to develop growth opportunities, particularly in Central and Eastern Europe. > Appointment of more leading distributors in the Voice over The consolidated entity will continue IP (VoIP) sector to obtain to pursue its policy of increasing the profitability and market share of its major business sectors during the next financial year. This may require further investment in areas such as the Americas and Europe which performed well in 2004 wider coverage for IP telephony products. > Release of PROGNOSIS Version 8.0 to maintain our leadership position with enhancements and new products to meet and offer sound opportunities for customer demand. future growth. PAGE 08 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD 2004 FF II NN AA NN CC II AA LL SS DIRECTORS’ REPORT CORPORATE GOVERNANCE STATEMENT STATEMENTS OF FINANCIAL PERFORMANCE STATEMENTS OF FINANCIAL POSITION STATEMENTS OF CASH FLOWS NOTES TO THE FINANCIAL STATEMENTS DIRECTORS’ DECLARATION INDEPENDENT AUDIT REPORT TO MEMBERS ASX ADDITIONAL INFORMATION 10 15 19 20 21 22 44 45 46 Since its inception in 1988, Integrated Research has built an impressive customer base that includes the “who’s who” of globally-recognised companies IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 > PAGE 09 Directors’ Report Directors’ Report > The directors present their report together with the financial report of Integrated Research Limited (“the company”) and of the consolidated entity, being the company and its controlled entities, for the year ended 30 June 2004 and the auditor's report thereon. Directors The directors of the company at any time during or since the end of the financial year are: Name and Qualifications Mr Brian PR Gatfield, FCPA Chairman Independent Non-Executive Director Mr David L Boyles, BA, MA, MBA, MAICD Independent Non-Executive Director Mr Alexander S Kennedy, M.Mgt, Dip CM, FAICD, ACIS Independent Non-Executive Director Mr Stephen J Killelea Chief Executive Officer Mr David C Leighton, MBA, FCPA, ACIS, MAICD Chief Financial Officer Mr Ian Winlaw, M.Com, FCA, FAICD Independent Non-Executive Director Age 59 55 56 54 61 65 Experience and Special Responsibilities Director and Chairman since October 2000. Chairman of the Nomination Committee, and member of the Audit Committee. Mr Gatfield has extensive experience in capital markets and is also director of a number of private companies. Appointed a Director 17 July 2003. Chairman of the Remuneration Committee. Mr Boyles has over twenty years senior management experience with US and Australian multinational companies and joined Integrated Research’s Board during the financial year. Director since May 2003. Mr Kennedy is a member of the Audit Committee and the Remuneration Committee. He has nearly 35 years of specialist and executive management experience across a broad range of industries. Director since August 1988. Mr Killelea is a member of the Remuneration and Nomination Committees. He founded the company in 1988 and has guided the development of the product architecture and evolution of the company. Director since September 1997. Mr Leighton has been company secretary since October 2000. He has over thirty years of senior financial management experience with international companies and joined Integrated Research in August 1996. Director since August 2000. Chairman of the Audit Committee and member of the Nomination Committee. Mr Winlaw has extensive financial and accounting experience. He is also a partner in Ian Winlaw & Co., and Secretary of Colloidal Dynamics Pty Ltd. PAGE 10 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Directors’ Report Directors’ Report (continued) > Directors’ meetings The numbers of meetings of the company’s board of directors and of each board committee held during the year ended 30 June 2004, and the numbers of meetings attended by each director were: Brian Gatfield David Boyles Alex Kennedy Steve Killelea David Leighton Ian Winlaw Board Meetings A 11 12 12 12 12 11 B 12 12 12 12 12 12 Audit Remuneration Committee Meetings Committee Meetings Committee Meetings Nomination A 2 - 3 - - 3 B 3 - 3 - - 3 A - 1 1 1 - - B - 1 1 1 - - A 3 - - 3 - 3 B 3 - - 3 - 3 A: Number of meetings attended. B: Number of meetings held during the time the directors held office or was a member of the committee during the year. Dividends Dividends paid or declared by the company since the end of the previous financial year were: In respect of the current financial year: Interim - Ordinary shares Final - Ordinary shares State of affairs Percent Franked - - Cents Per Share 0.75 1.0 Total Amount $’000 1,239 1,652 Date of Payment 12 Mar 2004 17 Sep 2004 In the opinion of the directors there were no significant changes in the state of affairs of the consolidated entity that occurred during the financial year under review. Environmental regulation The consolidated entity’s operations are not subject to significant environmental regulations under either Commonwealth or State legislation. Directors’ and senior executives’ remunerations The remuneration committee is responsible for making recommendations to the board on remuneration policies and packages applicable to the board members and senior executives of the company. The broad remuneration policy is to ensure the remuneration package properly reflects the person’s duties and responsibilities and level of performance; and that remuneration is competitive in attracting, retaining and motivating people of the highest quality. Senior executives may receive bonuses based on the achievement of specific goals related to the performance of the consolidated entity (including operational results). Options are also issued under the Employee Share Option Plan. Non-executive directors do not receive any performance related remuneration. PAGE 11 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Directors’ Report Directors’ Report (continued) > Details of the nature and amount of each major element of the remuneration of each director of the company and each of the five named officers of the company and the consolidated entity receiving the highest remuneration are: Base Bonuses $ $ Non-Cash Benefits $ Superannuation Contribution $ Termination Benefit $ Options Issued (A) $ Total $ Director Non-executive David Boyles Brian Gatfield Alex Kennedy Ian Winlaw Executive Steve Killelea David Leighton 43,043 90,000 45,000 45,000 354,709 188,002 - - - - - - Executive officers (excluding directors) The Company Ross Ballard Eddie Basile (B) Doug Bertinshaw David Priestley Belinda York Consolidated Ross Ballard Doug Bertinshaw Steve Douglas Casey Ives David Priestley 214,175 120,946 188,913 150,831 171,444 214,175 188,913 154,892 238,763 150,831 62,553 - 30,260 50,695 27,178 62,553 30,260 265,778 89,983 50,695 - - - - 8,024 - 8,024 - 6,199 8,024 8,024 8,024 6,199 - - 3,874 8,100 4,050 4,050 91,149 25,106 39,069 6,417 16,037 11,002 15,959 39,069 16,037 - - 8,024 11,002 - - - - - - - 59,063 - - - - - - - - - - - - - 6,562 3,129 1,182 2,258 1,638 - 3,129 2,258 1,665 4,029 1,638 46,917 98,100 49,050 49,050 453,882 219,670 326,950 187,608 243,667 222,190 222,605 326,950 243,667 422,335 332,775 222,190 (A) The estimated value disclosed above is calculated at the date of grant using a Black-Scholes model applying a 60% volatility factor. Further details of options granted during the year are set out under “Options”, below. (B) Mr Basile ceased employment on 30 January 2004. “Executive officers” are officers who are involved in, or who take part in, the management of the affairs of Integrated Research Limited and/or related bodies corporate. Remuneration for overseas-based employees has been translated to Australian dollars at the average exchange rates for the year. Options granted to directors and senior executives During or since the end of the financial year, the company granted options over unissued ordinary shares to the following director and to the following of the five or more of the most highly remunerated officers of the consolidated entity as part of their remuneration: Number of Options Granted During Year Grant date Expiration date Exercise price Market price at grant date Director David Leighton Officers Ross Ballard Eddie Basile Doug Bertinshaw Steve Douglas Casey Ives David Priestley (A) Aug 2003 Aug 2008 $0.22 $0.22 10,000 15,000 6,000 10,000 - - - (B) Feb 2004 Feb 2009 $0.26 $0.26 10,000 15,000 - - 15,000 10,000 10,000 (C) Apr 2004 Apr 2009 $0.46 $0.28 273,500 460,000 - 390,000 285,000 190,000 290,000 PAGE 12 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Directors’ Report Directors’ Report (continued) > The options were granted under the Integrated Research Limited Employee Share Option Plan. 25% of options vest and may be exercised from each of the first to fourth anniversaries of the issue date. In addition, the ability to exercise options under (c) above is conditional on the consolidated entity achieving certain performance hurdles. Unexercised options expire five years after the issue date or on termination of the employee’s employment. Directors’ interests At the date of this report, the interests of the directors in the shares of the company were: Brian Gatfield David Boyles Alex Kennedy Steve Killelea David Leighton Ian Winlaw Directly Held - 1,250,000 - 94,647,339 307,172 100,000 Ordinary Shares Beneficially Held 500,000 - 350,000 337,612 - 50,000 Total 500,000 1,250,000 350,000 94,984,951 307,172 150,000 Options Number of Options - - - - 400,000 - Unissued shares under option Unissued ordinary shares of Integrated Research Limited under option at the date of this report are as follows: Expiry Date Exercise Price Number of Shares Mar 2005 Sep 2005 May 2006 Aug 2006 Dec 2006 Feb 2007 May 2007 July 2007 Nov 2007 Feb 2008 Jun 2008 Aug 2008 Sep 2008 Feb 2009 Apr 2009 May 2009 $0.08 $0.10 $1.20 $0.54 $0.51 $0.62 $0.63 $0.57 $0.25 $0.24 $0.12 $0.22 $0.22 $0.26 $0.46 $0.33 86,393 145,907 173,500 391,000 168,900 421,500 252,500 379,000 100,000 474,500 351,000 507,000 10,000 551,000 2,288,500 493,500 6,794,200 Options do not entitle the holder to participate in any share issue of the company or any other body corporate. PAGE 13 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Directors’ Report Directors’ Report (continued) Shares issued on the exercise of options > During or since the end of the financial year, the company issued ordinary shares as a result of the exercise of options as follows (there were no amounts unpaid on the shares issued): Number of Shares Amount Paid on Each Share 15,000 3,000 $0.24 $0.12 Indemnification and insurance of directors and officers Indemnification The company has agreed to indemnify the directors of the company on a full indemnity basis to the full extent permitted by law, for all losses or liabilities incurred by the director as an officer of the company including, but not limited to, liability for negligence or for reasonable costs and expenses incurred, except where the liability arises out of conduct involving a lack of good faith. Insurance During the financial year Integrated Research Limited paid a premium of $31,000 to insure the directors and officers of the consolidated entity and related bodies corporate. The liabilities insured include costs and expenses that may be incurred in defending civil or criminal proceedings that may be brought against officers in their capacity as officers of the consolidated entity. Rounding of amounts to nearest thousand dollars The company is of a kind referred to in Class Order 98/100 issued by the Australian Securities & Investments Commission, relating to the “rounding off ” of amounts in the directors’ report and financial report. Amounts in the directors’ report and financial report have been rounded off to the nearest thousand dollars or in certain cases to the nearest dollar, in accordance with that Class Order. Dated at North Sydney this 10th day of August 2004. Signed in accordance with a resolution of the directors. Brian Gatfield Chairman Stephen Killelea Director PAGE 14 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Corporate Governance Statement > Corporate Governance Statement This statement outlines the main corporate governance practices that were in place throughout the financial year, which comply with the ASX Corporate Governance Council recommendations, unless otherwise stated. Board of directors and its committees Role of the board The board’s primary role is the protection and enhancement of long-term shareholder value. To fulfil this role, the board is responsible for the overall corporate governance of the consolidated entity including formulating its strategic direction, approving and monitoring capital expenditure, setting remuneration, appointing, removing and creating succession policies for directors and senior executives, establishing and monitoring the achievement of management goals and ensuring the integrity of internal control and management information systems. It is also responsible for approving and monitoring financial and other reporting. Details of the board’s charter is located on the company’s website (www.ir.com). Board process To assist in the execution of its responsibilities, the board has established a number of board committees including a Nomination Committee, a Remuneration Committee and an Audit Committee. These committees have written mandates and operating procedures, which are reviewed on a regular basis. The board has also established a framework for the management of the consolidated entity including a system of internal control, a business risk management process and the establishment of appropriate ethical standards. The full board currently holds twelve scheduled meetings each year, plus strategy and budget meetings and any extraordinary meetings at such other times as may be necessary to address any specific matters that may arise. The agenda for its meetings is prepared in conjunction with the chairman, chief executive officer and company secretary. Standing items include the Chief Executive Officer’s report, financial reports, strategic matters, governance and compliance. Submissions are circulated in advance. Executives are regularly involved in board discussions and directors have other opportunities, including visits to operations, for contact with a wider group of employees. Director education The consolidated entity follows an induction process to educate new directors about the nature of the business, current issues, the corporate strategy and expectations of the consolidated entity concerning performance of directors. Directors also have the opportunity to visit consolidated entity facilities and meet with management to gain a better understanding of business operations. Directors are given access to continuing education opportunities to update and enhance their skills and knowledge. Independent advice and access to company information Each director has the right of access to all relevant company information and to the company’s executives and, prior to consultation with the chairman, may seek independent professional advice from a suitably qualified adviser at the consolidated entity’s expense. A copy of the advice received by the director is made available to all other members of the board. Composition of the board The names of the directors of the company in office at the date of this Statement are set out in the Directors’ Report on page 10 of this report. The company’s constitution provides for the board to consist of between three and twelve members. At present there are four independent non-executive directors, one of whom is chairman, and two executive directors. At each Annual General Meeting one-third of directors, any director who has held office for three years and any director appointed by directors in the preceding year must retire, then being eligible for re-election. The chief executive officer is not required to retire by rotation. The composition of the board is reviewed on a regular basis to ensure that the board has the appropriate mix of expertise and experience. When a vacancy exists, through whatever cause, or where it is considered that the board would benefit from the services of a new director with particular skills, the Nomination Committee will, in conjunction with the board, determine the selection criteria for the position based on the skills deemed necessary for the board to best carry out its responsibilities. The committee would then select a panel of candidates and the board would then appoint the most suitable candidate who must stand for election at the next general meeting of shareholders. Remuneration Committee The Remuneration Committee reviews and makes recommendations to the board on remuneration packages and policies applicable to the chief executive officer, senior executives and the directors themselves. It is also responsible for share option schemes, incentive performance packages, superannuation entitlements, retirement and termination entitlements, fringe benefits policies and professional indemnity and liability insurance policies. PAGE 15 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Corporate Governance Statement > Corporate Governance Statement (continued) Remuneration levels are competitively set to attract and retain the most qualified and experienced directors and senior executives. The Remuneration Committee obtains independent advice on the appropriateness of remuneration packages, given trends in comparative companies and industry surveys. Remuneration packages include a mix of fixed remuneration, performance-based remuneration and equity-based remuneration. The members of the Remuneration Committee during the year were: David Boyles (Chairman) - Independent Non-Executive Alex Kennedy - Independent Non-Executive Steve Killelea - Chief Executive Officer The Remuneration Committee meets at least once a year and as required. The Committee met once during the year under review. Total remuneration for all non-executive directors last voted upon at a special meeting of shareholders in October 2000 is not to exceed $500,000 per annum. Director’s base fees are presently $45,000 per annum plus compulsory superannuation. The chairman receives the base fee by a multiple of two. Directors fees cover all main board activities and committee memberships. Nomination Committee The Nomination Committee was first convened in 2003 and oversees the appointment and induction process for directors. It reviews the composition of the board and makes recommendations on the appropriate skill mix, personal qualities, expertise and diversity. When a vacancy exists or there is a need for particular skills, the committee in consultation with the board determines the selection criteria based on the skills deemed necessary. The committee identifies potential candidates with advice from an external consultant. The board then appoints the most suitable candidate who must stand for election at the next general meeting of shareholders. The Nomination Committee is also responsible for the selection, appointment and succession planning process of the company’s chief executive officer and for reviewing the effectiveness of the board, its committees, individual directors and senior executives. The Nomination Committee comprised the following members during the year: Brian Gatfield (Chairman) - Independent Non-Executive Ian Winlaw - Independent Non-Executive Steve Killelea - Chief Executive Officer The Nomination Committee meets as required and met three times during the year. The terms and conditions of the appointment of non-executive directors are set out in a letter of appointment, including expectations for attendance and preparation for all board meetings, expected time commitments, procedures with dealing with conflicts of interest, and the availability of independent professional advice. Further details of the Nomination Committee’s charter and policies are available on the company’s website. Audit Committee The Audit Committee has a documented charter, approved by the board. All members must be non-executive directors with a majority being independent. The chairman may not be the chairman of the board. The committee advises on the establishment and maintenance of a framework of internal control and appropriate ethical standards for the management of the consolidated entity. The members of the Audit Committee during the year were: Ian Winlaw (Chairman) - Independent Non-Executive Brian Gatfield - Independent Non-Executive Alex Kennedy - Independent Non-Executive The external auditor, chief executive officer and chief financial officer are invited to Audit Committee meetings at the discretion of the committee. The committee met three times during the year. The external auditor met with the audit committee/board three times during the year, two of which included time without the presence of executive management. The chief executive officer and the chief financial officer declared in writing to the board that the company’s financial reports for the year ended 30 June 2004 present a true and fair view, in all material respects, of the company’s financial condition and operational results and are in accordance with relevant accounting standards. This statement is required annually. The Audit Committee’s charter is available on the company’s website and includes information on procedures for selection and appointment of the external auditor, and for rotation of external audit engagement partners. The main responsibilities of the Audit Committee include: > Reviewing the annual and half-year financial reports and other financial information distributed externally, including new accounting policies to ensure compliance with Australian Accounting Standards and generally accepted accounting principles. > Assisting the board in monitoring corporate risk assessment processes. The board has not delegated risk management to the Audit Committee, which is retained as part of the full board charter. PAGE 16 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Corporate Governance Statement > Corporate Governance Statement (continued) > Reviewing the company’s policies and procedures for convergence with International Financial Reporting Standards for the reporting period beginning on 1 July 2005. > Considering whether non-audit services provided by the external auditor are consistent with maintaining the external auditor’s independence. The external auditor provides an annual declaration of independence. > Reviewing the nomination and performance of the external auditor. The external auditors were appointed at the annual general meeting held on 8 November 2001. > Monitoring the establishment of an appropriate internal control framework, and appropriate ethical standards. > Monitoring the procedures to ensure compliance with the Corporations Act 2001 and ASX Listing Rules and all other regulatory requirements. > Addressing any matters outstanding with auditors, Australian Tax Office, overseas tax authorities, Australian Securities and Investments Commission and financial institutions. The full board has retained responsibility for monitoring the corporate risk assessment processes and fraud control. The Audit Committee reviews the performance of the external auditors on an annual basis and normally meets with them during the year as follows: > To discuss the external audit plans, identifying any significant changes in structure, operations, internal controls or accounting policies likely to impact the financial statements and to review the fees proposed for the audit work to be performed. > Prior to announcement of results: > To review the half-year and preliminary final report prior to lodgement with the ASX, and any significant adjustments required as a result of the auditor’s findings. > To recommend the board approval of these documents. > To finalise half-year and annual reporting: > Review the results and findings of the auditor, the adequacy of accounting and financial controls, and to monitor the implementation of any recommendations made. > Review the draft financial report and recommend board approval of the financial report. > As required, to organise, review and report on any special reviews or investigations deemed necessary by the board. Risk management The board reviews the status of business risks to the consolidated entity through integrated risk management programs ensuring risks are identified, assessed and appropriately managed. Major business risks arise from such matters as actions by competitors, government policy changes and the impact of exchange rate movements. Comprehensive policies and procedures are established such that: > Capital expenditure above a certain size requires board approval. > Financial exposures are controlled, including the use of forward exchange contracts. > Risks are identified and managed, including internal audit, privacy, insurances, business continuity and compliance. > Business transactions are properly authorised and executed. The chief executive officer and the chief financial officer have declared, in writing to the board that the company’s financial reports are founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the board. Internal control framework The board is responsible for the overall internal control framework, but recognises that no cost effective internal control system will preclude all errors and irregularities. The board has instigated the following internal control framework: > Financial reporting - Monthly actual results are reported against budgets approved by the directors and revised forecasts for the year are prepared monthly. > Continuous disclosure - Identify matters that may have a material effect on the price of the Company’s securities, notify them to the ASX and post them to the Company’s website. > Quality and integrity of personnel - Formal appraisals are conducted at least annually for all employees. > Operating unit controls - Operating units are required to confirm compliance with financial controls and procedures including information systems controls detailed in procedures manuals. > Investment appraisals - Guidelines for capital expenditure include annual budgets, detailed appraisal and review procedures and levels of authority. PAGE 17 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Corporate Governance Statement > Corporate Governance Statement (continued) Internal audit The company does not have an internal audit function but utilises its financial resources as needed to assist the board in ensuring compliance with internal controls. Ethical standards All directors, managers and employees are expected to act with the utmost integrity and objectivity, striving at all times to enhance the reputation and performance of the consolidated entity. Every employee has a nominated supervisor to whom they may refer any issues arising from their employment. Conflict of interest Directors must keep the board advised, on an ongoing basis, of any interest that could potentially conflict with those of the company. Where the board considers that a significant conflict exists the director concerned does not receive the relevant board papers and is not present at the meeting whilst the item is considered. The board has developed procedures to assist directors to disclose potential conflicts of interest. Details of director related entity transactions with the company and consolidated entity are set out in Note 26. Code of conduct The consolidated entity has advised each director, manager and employee that they must comply with the code of conduct. The code aligns behaviour of the board and management with the code of conduct by maintaining appropriate core values and objectives. It may be reviewed on the company’s website and includes: > Responsibility to the community and fellow employees to act with honesty and integrity, and without prejudice. > Compliance with laws and regulations in all areas where the company operates, including employment opportunity, occupational health and safety, trade practices, fair dealing, privacy, drugs and alcohol, and the environment. > Dealing honestly with customers, suppliers and consultants. > Ensuring reports and other information are accurate and timely. > Proper use of company resources, avoidance of conflicts of interest and use of confidential or proprietary information. Trading in company securities by directors and employees Directors and employees may acquire shares in the company, but are prohibited from dealing in company shares whilst in possession of price sensitive information, and except in the periods: > From 24 hours to 28 days after the release of the company’s half-yearly results announcement or following the wide dissemination of information on the status of the corporation and current results. > From 24 hours after the release of the company’s annual results announcement to a maximum of 28 days after the annual general meeting. Directors must obtain the approval of the chairman of the board and notify the company secretary before they buy or sell shares in the company, subject to board veto. The company advises the ASX of any transactions conducted by directors in shares in the company. The consolidated entity’s trading policy may be reviewed on the company’s website. Communication with shareholders The board provides shareholders with information using a comprehensive continuous disclosure policy which includes identifying matters that may have a material effect on the price of the company’s securities, notifying them to the ASX, posting them on the company’s website, and issuing media releases. Disclosures under this policy are in addition to the periodic and other disclosures required under the ASX Listing Rules and the Corporations Act. More details of the policy are available on the company’s website. The chief executive officer and the chief financial officer are responsible for interpreting the company’s policy and where necessary informing the board. The company secretary is responsible for all communication with the ASX. The board encourages full participation of shareholders at the Annual General Meeting to ensure a high level of accountability and identification with the consolidated entity’s strategy and goals. Important issues are presented to the shareholders as single resolutions. The external auditor is requested to attend the Annual General Meetings to answer any questions concerning the audit and the content of the auditor’s report. Copies of the Constitution are available to any shareholder who requests it. PAGE 18 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Financial Report Financial Report > Statements of financial performance For the year ended 30 June 2004 $’000 Notes 2004 2003 2004 2003 Consolidated The Company Revenue from ordinary activities: Revenue from licence fees Revenue from maintenance fees Revenue from consulting and other services Interest received Government grants 15,842 13,712 518 260 - 12,396 14,456 658 561 78 10,069 8,021 128 201 - 8,143 8,333 314 523 78 Total revenue from ordinary activities 3 30,332 28,149 18,419 17,391 Expenses from ordinary activities: Research and development Sales and marketing General and administration Total expenses from ordinary activities Profit from ordinary activities before related income tax expense Income tax expense Net Profit Non-owner transaction changes in equity: Net decrease in retained profits on the initial adoption of AASB 1028 “Employee Benefits” Total changes in equity other than those resulting from transactions with owners as owners Basic earnings per share (cents) Diluted earnings per share (cents) 4 5 21 22 34 34 5,876 13,790 3,493 23,159 7,173 -2,718 4,455 6,211 16,106 4,567 26,884 1,265 -193 1,072 5,876 5,846 2,300 6,211 5,804 2,641 14,022 14,656 4,397 -1,689 2,708 2,735 -566 2,169 - -22 - -22 4,455 1,050 2,708 2,147 2.70¢ 2.69¢ 0.65¢ 0.65¢ The statements of financial performance are to be read in conjunction with the notes to the financial statements set out on pages 22 to 43. PAGE 19 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Financial Report Financial Report (continued) > Statements of financial position As at 30 June 2004 $’000 Current assets Cash assets Receivables Other Total current assets Non-current assets Receivables Investments Property, plant and equipment Deferred tax assets Intangible assets Total non-current assets Total assets Current liabilities Payables Current tax liabilities Provisions Other Total current liabilities Non-current liabilities Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Contributed equity Retained profits Total equity Consolidated The Company Notes 2004 2003 2004 2003 5,909 7,632 5,462 4,423 6,725 3,082 4,533 5,887 4,019 19,003 14,230 14,439 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 8,510 10,433 4,006 22,949 196 - 988 1,618 8,302 11,104 413 - 992 1,910 7,696 11,011 34,053 30,014 2,636 960 988 8,225 12,809 2,339 261 2,600 15,409 18,644 427 18,217 18,644 3,473 - 996 7,627 12,096 2,227 267 2,494 14,590 15,424 423 15,001 15,424 196 54 578 1,170 8,290 10,288 24,518 1,199 - 643 4,651 6,493 2,336 261 2,597 9,090 15,428 427 15,001 15,428 - 54 553 1,754 7,684 10,045 24,484 3,072 - 702 4,268 8,042 2,220 267 2,487 10,529 13,955 423 13,532 13,955 The statements of financial position are to be read in conjunction with the notes to the financial statements set out on pages 22 to 43 PAGE 20 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Financial Report Financial Report (continued) > Statements of cash flows For the year ended 30 June 2004 $’000 Notes 2004 2003 2004 2003 Consolidated The Company Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Interest paid Income taxes paid Withholding tax payment Foreign tax credit refund for WHT 27,525 -21,816 260 - -1,791 - - Net cash provided by operating activities 33 4,178 Cash flows from investing activities Payments for property, plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from issuing of shares Payment of dividend Net cash used in financing activities Net increase (decrease) in cash held Cash at the beginning of the reporting period Effects of exchange rate changes on cash Cash at the end of the reporting period -366 -366 4 -1,239 -1,235 2,577 5,909 24 8,510 23 6 30,358 -24,682 561 -331 -1,643 -2,093 2,326 4,496 -591 -591 - -2,892 -2,892 1,013 5,111 -215 5,909 16,206 -12,925 201 - -2,046 - - 1,436 -311 -311 4 -1,239 -1,235 -110 4,533 - 4,423 15,300 -13,333 523 - -347 - 2,326 4,469 -364 -364 - -2,892 -2,892 1,213 3,320 - 4,533 The statements of cash flows are to be read in conjunction with the notes to the financial statements set out on pages 22 to 43. PAGE 21 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Financial Report Financial Report (continued) > Notes to the Financial Statements For the year ended 30 June 2004 Note 1. Statement of significant accounting policies The significant policies, which have been adopted in the preparation of this financial report are: a) Basis of preparation The financial report is a general purpose financial report which has been prepared in accordance with Accounting Standards, Urgent Issues Group Consensus Views, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. It has been prepared on the basis of historical costs and except where stated, does not take into account changing money values or fair values of non-current assets. The accounting policies have been consistently applied by each entity in the consolidated entity and, except where there is a change in accounting policy set out in Note 2, are consistent with those of the previous year. b) Principles of consolidation Controlled entities The financial statements of controlled entities are included in the consolidated financial statements from the date control commences until the date control ceases. Transactions eliminated on consolidation Unrealised gains and losses and inter-entity balances resulting from transactions with or between controlled entities are eliminated in full on consolidation. c) Taxation The consolidated entity adopts the income statement liability method of tax effect accounting. Income tax expense is calculated on operating profit adjusted for permanent differences between taxable and accounting income. The tax effect of timing differences, which arise from items being brought to account in different periods for income tax and accounting purposes, is carried forward in the statement of financial position as a future income tax benefit or a provision for deferred income tax. Future income tax benefits are not brought into account unless realisation of the asset is assured beyond reasonable doubt. Future income tax benefits relating to tax losses are only brought to account when their realisation is virtually certain. d) Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST) (or similar taxes in controlled entities), except where the amount of GST is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or part of the expense. Receivables and payables are stated with the amounts of GST included. The amount of GST recoverable from, or payable to, the taxation authorities is included as a current asset or current liability in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the taxation authorities are classified as operating cash flows. e) Foreign currency Transactions Foreign currency transactions are translated to Australian currency at the rates of exchange ruling at the dates of the transaction. Amounts receivable and payable in foreign currencies at reporting date are translated at the rates of exchange ruling on that date. Exchange differences relating to amounts payable and receivable in foreign currencies are brought to account as exchange gains or losses in the statement of financial performance in the financial year in which the exchange rates change. Hedges Transactions are designated as a hedge of the anticipated specific sale only when they are expected to reduce exposure to the risks being hedged, are designated prospectively so that it is clear when an anticipated transaction has or has not occurred and it is probable the anticipated transaction will occur as designated. Gains or losses on the hedge arising up to the date of the anticipated transaction, together with any costs or gains arising at the time of entering into the hedge, are deferred and included in the measurement of the anticipated transaction when the transaction has occurred as designated. Any gains or losses on the hedge transaction after that date are included in the statement of financial performance. PAGE 22 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Financial Report Financial Report (continued) > The net amounts receivable or payable under forward foreign exchange contracts and the associated deferred gains or losses are recorded on the statement of financial position from the date of inception of the hedge transaction. When recognised, the net receivables or payables are revalued using the foreign currency at the reporting date. Refer to Note 24. If the hedge transaction is not expected to occur as originally designated, or if the hedge is no longer expected to be effective, any previous deferred gains or losses are recognised as revenue or expense accordingly. Foreign operations The assets and liabilities of foreign operations that are integrated are translated using the temporal method. Monetary assets and liabilities are translated into Australian dollars at rates of exchange current at reporting date, while non-monetary items and revenue and expense items are translated at exchange rates current when the transaction occurred. Exchange differences arising on translation are brought to account in the statement of financial performance. f ) Acquisition of assets All assets acquired, including property, plant and equipment and intangibles other than goodwill are initially recorded at their cost of acquisition at the date of acquisition, being the fair value of the consideration provided plus incidental costs directly attributable to the acquisition. g) Receivables The collectibility of debts is assessed at reporting date and specific provision is made for any doubtful debts. Standard trade terms are 30 days, but may be extended up to 90 days in response to competitive situations. Trade debtors are carried at amounts due. Terms granted for greater than one year are carried at the amount due and reported as non-current. h) Revenue recognition Revenue is recognised net of returns or discounts, for the major business activities as follows: Product licence fees A sale is recorded and revenue is recognised when control of the product passes to the customer, being the time of shipment of the licence key to the customer following receipt of a valid purchase order or contract. Product maintenance fees Invoices are raised in the month prior to the renewal date, and revenue recognition is deferred and taken to the statement of financial performance over the period the service is provided. Training and consulting A sale is recorded and revenue is recognised at the time the service is provided. Interest revenue Interest revenue is recognised as it accrues, taking into account the effective yield of the financial asset. i) Recoverable amount of non-current assets The recoverable amount of an asset is the net amount expected to be recovered through the net cash inflows 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. The expected net cash flows included in determining recoverable amounts of non-current assets are not discounted to their present values. j) Depreciation of property, plant and equipment Depreciation is calculated on a reducing balance method to write off the cost of each item of property, plant and equipment over its expected useful life. Estimates of remaining useful lives are made on a regular basis, with annual reassessment for major items. The expected useful lives are as follows: Computer equipment Furniture and fittings Computer software 4 years 8 years 2.5 years k) Capitalised computer software development costs Software development projects are defined as being systemic and experimental activities that involve innovation and high levels of technical risk. The basic purpose of the activity must be to acquire new knowledge or create new or improved materials, products, devices, processes or services. Individual timesheets are maintained by development personnel, and hours assigned to development projects are costed using each employee’s hourly rate, uplifted for normal salary on-costs and department overheads, and are capitalised only to the extent that they are expected beyond any reasonable doubt to be recoverable. PAGE 23 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Financial Report Financial Report (continued) > Capitalised costs, net of any R&D grant received, are amortised from the commencement of commercial production of the product to which they relate on a straight-line basis over the period of the expected benefit, but no more than three years. Research costs are expensed as incurred. Third party software intellectual property rights and patents and trademarks are amortised on a straight line basis over the period of expected benefit, but no more than 10 years and 16 years respectively. l) Trade and other creditors These amounts represent liabilities for goods and services provided to the consolidated economic entity prior to the end of the financial year and which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. m) Provisions A provision is recognised when there is a legal, equitable or constructive obligation as a result of a past event and it is probable that a future sacrifice of economic benefit will be required to settle the obligation, the timing or amount of which is uncertain. Dividends A provision for dividends payable is recognised in the reporting period in which the dividends are declared. Warranties The standard warranty period on new licences sold extends for three months. Rectification claims are settled by corrective action, at the discretion of the company. Provision for warranty expense is made for claims expected to be received in relation to sales made prior to the reporting date, based on historic claim rates. n) Maintenance and repairs Maintenance, repair costs and minor renewals are charged as expenses as incurred. o) Employee entitlements Wages and Salaries, and Annual Leave Liabilities for employee benefits for wages, salaries and annual leave expected to be settled in the next twelve months of the year-end represent obligations resulting from employees’ services provided to reporting date, calculated at undiscounted amounts based on remuneration wage and salary rates that the consolidated entity expects to pay after the reporting date including related on-costs. Long Service Leave The provision for employee benefits to long service leave represents the present value of the estimated future cash outflows to be made resulting from employees’ services provided to reporting date. The provision is calculated using expected future increases in wage and salary rates including related on-costs and expected settlement dates based on turnover history. Superannuation The company contributes to a defined contribution superannuation plan. There are no defined benefit plans in operation. Employee Share Option Plan The Company has granted options to certain employees under an Employee Share Option Plan. Further information is set out in the directors’ report to the financial report and Note 29. No accounting entries are made in relation to the Integrated Research Limited Employee Share Option Plan until options are exercised, at which time the amounts receivable from employees are recognised in the statement of financial position as share capital. p) Cash For the purposes of the statement of cash flows, cash includes deposits at call, which are readily convertible to cash on hand, and are subject to an insignificant risk of changes in value, net of outstanding bank overdrafts. Deposits at call have terms of no more than twelve months. q) Leases Operating lease payments are charged to the statement of financial performance in the periods in which they are incurred, as this represents the pattern of benefits derived from the leased assets. r) Earnings per share Basic earnings per share (EPS) is calculated by dividing the net profit attributable to members of the company for the reporting period, excluding any cost of servicing equity by the weighted average number of ordinary shares of the company. Diluted EPS is calculated by dividing the basic EPS earnings by the weighted average number of ordinary shares and dilutive potential ordinary shares. PAGE 24 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Financial Report Financial Report (continued) > s) Segment reporting The primary reporting segment has been identified on the basis of geographic groups subject to similar risks and returns. The geographic segments reported are: Americas, Europe and Asia Pacific. Note 2. Changes in accounting policies There have been no changes in accounting policies of the consolidated entity during the year to 30 June 2004. Note 3. Revenue from ordinary activities $’000 Revenue from ordinary activities: Sales revenue Interest received Government grants Consolidated The Company 2004 2003 2004 2003 30,072 27,510 18,218 16,790 260 - 561 78 201 - 523 78 30,332 28,149 18,419 17,391 Note 4. Profit from ordinary activities before income tax expense $’000 Profit from ordinary activities before income tax includes the following specific net gains and expenses: Net gains Interest revenue Expenses Software development expenses Less amount capitalised Amortisation of software development Depreciation of plant and equipment Interest expense related to payment of amended withholding tax - 331 Net exchange difference on translation of foreign operations Rental expense relating to operating leases Provision for bad and doubtful debts Provision for employee entitlements 39 1,114 -21 -77 -318 1,098 540 5 Consolidated The Company 2004 2003 2004 2003 260 561 201 523 6,482 -3,699 2,783 3,093 370 6,429 -3,479 2,950 3,261 409 6,482 -3,699 2,783 3,093 286 - 36 871 41 -65 6,429 -3,479 2,950 3,261 272 - -99 845 165 48 PAGE 25 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Financial Report Financial Report (continued) > Note 5. Taxation $’000 The income tax expense for the financial year differs from the amount calculated on the profit from ordinary activities before tax expense. The difference is reconciled as follows: Profit from ordinary activities Income tax calculated at 30% Tax-effect of permanent differences: Non-deductible expenses Research and development concessions Foreign-sourced income in accounts (net of expenses) Income tax adjusted for permanent differences Effect of higher/(lower) tax rates on overseas income Reduction to FDT offset (see below) Under/(over) provision in prior year Income tax expense attributable to profit from ordinary activities Consolidated The Company 2004 2003 2004 2003 7,173 2,152 23 -438 -1 1,736 158 806 18 2,718 1,265 380 60 -408 68 100 -69 - 162 193 4,397 1,319 13 -438 - 894 - 806 -11 1,689 2,735 820 15 -408 - 427 - - 139 566 Franking deficit tax offset In March 2004, the Australian Taxation Office notified the company of retrospective changes in franking deficit tax (FDT) legislation (Taxation Laws Amendment Act (No. 8) 2003) that reduced the value of the company’s deferred tax assets by an amount of $806,000. Accordingly, the company has written down the value of its deferred tax assets by $806,000 in the 30 June 2004 financial report. The company understands that Treasury is considering amending the FDT legislation to include remission provisions and has obtained advice that, in such an event, the Company has strong prospects of either full or substantial remission of the adjustment. The value of deferred tax assets will be reviewed in 2004/05 once the necessary legislative amendments are substantially enacted and the related application for remission has been agreed with the Australian Taxation Office. The Taxation Laws Amendment Act (No. 8) 2003 received Royal Assent on 21 October 2003. Had the write-down of deferred tax assets been affected in the company’s half-year financial report for the period ended 31 December 2003, the reported tax expense would have increased by $806,000 to $1,664,000 and operating profit after tax would have been reduced by the same amount to $1,269,000. Note 6. Cash assets $’000 Cash at bank and on hand Consolidated The Company 2004 8,510 2003 5,909 2004 4,423 2003 4,533 PAGE 26 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Financial Report Financial Report (continued) > Note 7. Current receivables $’000 Trade debtors Less: Provision for doubtful debts Receivable from controlled entities Other debtors Other debtors Consolidated The Company 2004 10,695 -312 10,383 - 50 2003 8,207 -584 7,623 - 9 10,433 7,632 2004 1,782 -250 1,532 5,190 3 6,725 2003 1,883 -209 1,674 4,204 9 5,887 These amounts generally arise outside of the usual operating activities of the consolidated entity, and are interest free. Collateral is not normally obtained. Note 8. Other current assets $’000 Dividend franking tax benefit Income taxes receivable Other prepayments Unrealised FX gain Deposits Note 9. Non-current receivables $’000 Trade debtors Note 10. Investments Consolidated The Company 2004 1,404 852 403 - 1,347 4,006 2003 1,335 2,235 405 152 1,335 5,462 2004 1,404 - 343 - 1,335 3,082 2003 1,335 866 349 152 1,317 4,019 Consolidated The Company 2004 196 2003 413 2004 196 2003 - $’000 Shares in controlled entities at cost (refer Note 31) Consolidated The Company 2004 - 2003 - 2004 54 2003 54 PAGE 27 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Financial Report Financial Report (continued) > Note 11. Property, plant and equipment $’000 Plant and equipment at cost Less: Accumulated depreciation Reconciliation Consolidated The Company 2004 3,851 -2,863 988 2003 3,485 -2,493 992 2004 2,615 -2,037 578 2003 2,304 -1,751 553 Reconciliation of the carrying amounts of plant and equipment at the beginning and end of the current and previous financial year are set out below: $’000 Carrying amount at start of year Additions Disposals Depreciation expense (refer Note 4) Carrying amount at end of year Note 12. Deferred tax assets $’000 Future income tax benefit Dividend franking tax benefit Note 13. Intangible assets $’000 Software development costs Less: Accumulated amortisation Third party software intellectual property rights at cost Less: Accumulated amortisation Patents and trademarks at cost Less: Accumulated amortisation Consolidated The Company 2004 992 366 - -370 988 2003 810 591 - -409 992 2004 553 311 - -286 578 2003 461 364 - -272 553 Consolidated The Company 2004 882 736 1,618 2003 558 1,352 1,910 2004 434 736 1,170 2003 402 1,352 1,754 Consolidated The Company 2004 12,282 -4,192 8,090 556 -356 200 33 -21 12 2003 10,912 -3,461 7,451 556 -323 233 33 -21 12 2004 12,282 -4,192 8,090 556 -356 200 - - - 2003 10,912 -3,461 7,451 556 -323 233 - - - 8,302 7,696 8,290 7,684 PAGE 28 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Financial Report Financial Report (continued) > Note 14. Payables $’000 Payable to controlled entities Franking deficit tax payable Trade and other creditors Note 15. Current tax liabilities $’000 Income tax provision Note 16. Current provisions $’000 Employee benefits Warranty Other Reconciliation Consolidated The Company 2004 - 647 1,989 2,636 2003 - 2,687 786 3,473 2004 1 647 551 1,199 2003 3 2,687 382 3,072 Consolidated The Company 2004 960 2003 - 2004 - 2003 - Consolidated The Company 2004 843 55 90 988 2003 919 55 22 996 2004 588 55 - 643 2003 647 55 - 702 Reconciliation of the carrying amount of warranty provision at the beginning and end of the current and previous financial year is set out below: $’000 Carrying amount at beginning of year Provision made during the year Carrying amount at end of year Note 17. Other current liabilities $’000 Deferred revenue Unrealised FX loss Note 18. Deferred tax liabilities $’000 Deferred income tax liability Consolidated The Company 2004 2003 2004 2003 55 - 55 - 55 55 55 - 55 - 55 55 Consolidated The Company 2004 8,096 129 8,225 2003 7,627 - 7,627 2004 4,522 129 4,651 2003 4,268 - 4,268 Consolidated The Company 2004 2,339 2003 2,227 2004 2,336 2003 2,220 PAGE 29 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Financial Report Financial Report (continued) > Note 19. Non-current provisions $’000 Employee benefits Note 20. Contributed equity Fully paid ordinary shares Movements in ordinary share capital Consolidated The Company 2004 261 2003 267 2004 261 2003 267 The Company Shares (‘000) The Company $’000 2004 165,244 2003 165,226 2004 427 2003 423 Movements in ordinary share capital during the current and previous financial year are set out below: Balance No activity Balance Options exercised Options exercised 30 Jun 2002 Jul 2002 - Jun 2003 30 Jun 2003 27 May 2004 27 June 2004 30 June 2004 Terms and conditions Ordinary Shares 165,225,903 - 165,225,903 9,000 9,000 165,243,903 $’000 423 - 423 2 2 427 a) b) Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of 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. Note 21. Retained profits $’000 Retained profits at the beginning of the financial year Consolidated The Company Notes 2004 15,001 2003 15,191 2004 13,532 2003 12,625 Net profit attributable to members of Integrated Research Limited Net effect of initial adoption of: Revised AASB 1028 “Employee Benefits” AASB 1044 “Provisions, Contingent Liabilities and Contingent Assets” Dividends provided for or paid 23 Retained profits at the end of the financial year 4,455 1,072 2,708 2,169 - - -1,239 18,217 -22 1,652 -2,892 15,001 - - -1,239 15,001 -22 1,652 -2,892 13,532 PAGE 30 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Financial Report Financial Report (continued) > Note 22. Equity $’000 Total equity at the beginning of the financial year Total changes in equity recognised in the statement of financial performance Net effect of initial adoption of: AASB 1044 “Provisions, Contingent Liabilities and Contingent Assets” Transactions with owners as owners: Contributions of equity Dividends provided for or paid 23 Total equity at the end of the financial year Note 23. Dividends $’000 Dividends: Unfranked interim dividend of 0.75 cents per share paid March 2004 (unfranked dividend of 0.75 cents per share paid in March 2003) Net effect of initial adoption of AASB 1044 “Provisions, Contingent Liabilities and Contingent Assets” Total dividends paid $’000 Franking credits available for the subsequent financial year based on a tax rate of 30%. Consolidated The Company Notes 2004 15,424 2003 15,614 2004 13,955 2003 13,048 4,455 1,050 2,708 2,147 - 4 -1,239 18,644 1,652 - -2,892 15,424 - 4 -1,239 15,428 1,652 - -2,892 13,955 The Company 2004 2003 1,239 1,239 - 1,239 1,653 2,892 The Company 2004 2003 - - The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: a) b) Franking credits that will arise from the payment of the current tax liability, and Franking credits that may be prevented from being distributed in subsequent financial years. The consolidated entity received refunds for foreign tax credits in Australia of $2,326,000 in the financial year ended 30 June 2003. These credits relate to adjustments to foreign tax payments and have resulted in debits to its franking account. The entity’s dividend payments in 2004/05 are unlikely to be fully franked. Subsequent event Since the end of the financial year, the directors declared an unfranked final dividend of $1,652,000 (1.0 cent per share) to be paid on 17 September 2004. PAGE 31 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Financial Report Financial Report (continued) > Note 24. Financial instruments a) Foreign exchange risks The consolidated entity enters into forward foreign exchange contracts to hedge a portion of anticipated sales commitments denominated in certain foreign currencies (US dollars and UK pounds). The amount of anticipated future sales is forecast in light of current conditions in foreign markets, commitments from customers and experience. All sales in a period are designated as being hedged until all hedge contracts for the period are fully utilised. Note 1(e) sets out the accounting treatment of these hedges. The following table sets out the gross value to be received under foreign currency contracts, the weighted average contracted exchange rates and the settlement periods of outstanding contracts for the consolidated entity: Sell US dollars: Maturity 0-12 months Sell UK pounds: Maturity 0-12 months b) Credit risk exposures Buy Australian Dollars Average Exchange (‘000) Rate 2004 2003 2004 2003 2,819 3,925 0.713 0.6496 478 528 0.4078 0.3975 The credit risk on the financial assets of the consolidated entity, which have been recognised on the statement of financial position is the carrying amount less any provision for doubtful debts. c) Interest rate exposures The consolidated entity’s exposure to interest rate risk and the weighted average interest rates are set out below: 2004 $’000 Financial assets Cash and deposits Receivables Other financial assets Income taxes receivable and dividend franking tax benefit Weighted average interest rate Financial liabilities Trade and other creditors Current tax liability Employee entitlements Floating Fixed Interest Interest Rate Maturing in 1 Year or Less Non-Interest Bearing Total Notes 6 7,9 8 8,12 14 15 16,19 8,424 - - - 8,424 2.64% - - - - 50 - 1,335 - 1,385 5.35% - - - - 36 10,629 12 2,992 13,669 2,636 960 1,104 4,700 8,969 8,510 10,629 1,347 2,992 23,478 2,636 960 1,104 4,700 18,778 Net financial assets 8,424 1,385 PAGE 32 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Financial Report Financial Report (continued) > Floating Fixed Interest Interest Rate Maturing in 1 Year or Less Non-Interest Bearing Total 2003 $’000 Financial assets Cash and deposits Receivables Other financial assets Income taxes receivable and dividend franking tax benefit Weighted average interest rate Financial liabilities Trade and other creditors Current tax liability Employee entitlements Notes 6 7,9 8 8,12 14 14,15 16,19 4,533 - - - 4,533 3.03% - - - - 950 - 1,317 - 2,267 4.49% - - - - Net financial assets 4,533 2,267 Note 25. Reconciliation of net financial assets to net assets $’000 Net financial assets as above Non-financial assets and liabilities: Other current assets Property, plant and equipment Intangibles Deferred tax assets Provisions Other liabilities Net assets per statements of financial position Net fair value of financial assets and liabilities Notes 8 11 13 12 16,18 17 426 8,045 18 4,922 13,411 786 2,687 1,186 4,659 8,752 5,909 8,045 1,335 4,922 20,211 786 2,687 1,186 4,659 15,552 Consolidated 2004 18,778 403 988 8,302 882 -2,484 -8,225 18,644 2003 15,552 557 992 7,696 558 -2,304 -7,627 15,424 The net fair value of cash and cash equivalents, non-interest bearing monetary financial assets and financial liabilities and off balance sheet derivative instruments of the consolidated entity approximates their carrying value. PAGE 33 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Financial Report Financial Report (continued) Note 26. Directors and executive disclosures Remuneration of specified directors and executives by the consolidated entity > Remuneration levels are competitively set to attract and retain appropriately qualified and experienced directors and senior executives. The Remuneration Committee obtains independent advice on the appropriateness of remuneration packages, given trends in comparative companies both locally and internationally. Remuneration packages include a mix of fixed remuneration, performance-based remuneration, and equity-based remuneration. Non-executive directors do not receive any performance related remuneration. Executive directors and senior executives may receive bonuses based on the achievement of specific performance hurdles, which are linked to the consolidated entity’s annual budget. Options are issued under the Employee Share Option Plan, which is explained under Note 29, below. Total remuneration for all non-executive directors last voted upon at a special meeting of shareholders in October 2000 is not to exceed $500,000 per annum. Director’s base fees are presently $45,000 per annum plus compulsory superannuation. The chairman receives the base fee by a multiple of two. Director’s fees cover all main board activities and committee memberships. The following table provides the details of all directors of the company (“specified directors”) and the five or more executives of the consolidated entity with the greatest authority (“specified executives”) and the nature and amount of their remuneration for the year ended 30 June 2004. Salary & Fees $ Primary Post-employment Equity Other Bonus Non-monetary Superannuation Benefits Benefits Value of Options Termination Benefit $ $ $ $ $ Specified directors Non-executive Brian Gatfield 90,000 David Boyles (Note A) 43,043 Alex Kennedy Ian Winlaw Executive 45,000 45,000 Steve Killelea (CEO) 354,709 David Leighton (CFO) 188,002 Total, all specified directors: 765,754 - - - - - - - - - - - 8,024 - 8,100 3,874 4,050 4,050 91,149 25,106 - - - - - 6,562 8,024 136,329 6,562 (Note A): Mr Boyles was appointed a director on 17 July 2003. Specified executives Ross Ballard (GM sales & marketing) 214,175 62,553 8,024 39,069 3,129 - - - - - - - - Total $ 98,100 46,917 49,050 49,050 453,882 219,670 916,669 326,950 Eddie Basile (GM development) 120,946 - - 6,417 1,182 59,063 187,608 Doug Bertinshaw (GM global operations) 188,913 30,260 6,199 16,037 2,258 Steve Douglas (Sales manager Europe; Integrated Research UK Ltd) 154,892 265,778 Casey Ives (Executive VP Americas; Integrated Research, Inc.) 238,763 89,983 - - - - 1,665 4,029 150,831 50,695 8,024 11,002 1,638 David Priestley (Mgr Asia Pacific) Total, all specified executives: - - - - 243,667 422,335 332,775 222,190 1,068,520 499,269 22,247 72,525 13,901 59,063 1,735,525 PAGE 34 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Financial Report Financial Report (continued) > Equity instruments All options refer to options over ordinary shares of Integrated Research Limited, which are exercisable on a one-for-one basis under the Employee Share Option Plan (ESOP). Options granted as remuneration During the reporting period, the following options over ordinary shares were granted and vested under the ESOP: Grant date Expiration date Exercise price Market price at grant date Specified director David Leighton Specified executives Ross Ballard Eddie Basile Doug Bertinshaw Steve Douglas Casey Ives David Priestley Number of Options Granted During Year Number of Options Vested During Year (A) (B) (C) Aug 2003 Feb 2004 Apr 2004 Aug 2008 Feb 2009 Apr 2009 $0.22 $0.22 $0.26 $0.26 $0.46 $0.28 10,000 10,000 273,500 26,625 15,000 6,000 10,000 - - - 15,000 460,000 - - 15,000 10,000 10,000 - 390,000 285,000 290,000 290,000 2,500 7,500 - - 25,000 - No options have been granted to specified directors or specified executives since the end of the financial year. The options were provided at no cost to the recipient and normally expire on the earlier of their expiry date or termination of the individual’s employment. 25% of the options are exercisable annually on the anniversary of the grant date. The ability to exercise options under (C) above is also conditional on the consolidated entity achieving certain performance hurdles. No shares were issued to specified directors or specified executives during the reporting period. Further details regarding options are in Note 29. Option holdings The movement during the reporting period in the number of options over ordinary shares in Integrated Research Limited held, directly, indirectly or beneficially, by each specified director and specified executive, including their personally-related entities is as follows: Held at Granted as 1 July 2003 Remuneration Exercised Other Changes Held at Vested and 30 June 2004 Exercisable at 30 June 2004 Specified director David Leighton Specified executives Ross Ballard Eddie Basile (A) Doug Bertinshaw Steve Douglas Casey Ives David Priestley 106,500 293,500 10,000 78,000 - - 100,000 - 490,000 6,000 400,000 300,000 300,000 300,000 - - - - - - - - - -84,000 - - - - 400,000 48,375 500,000 2,500 - 400,000 300,000 400,000 300,000 - - - 25,000 - (A) Mr Basile ceased employment on 30 January 2004. His options were not exercised and have lapsed. No options held by specified directors or specified executives are vested but not exercisable. PAGE 35 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Financial Report Financial Report (continued) > Equity holdings and transactions The movement during the reporting period of ordinary shares of Integrated Research Limited held directly, indirectly or beneficially, by each specified director and specified executive, including their personally-related entities is as follows: Held at 1 July 2003 Purchases Received on Exercise of Options Sales Held at 30 June 2004 Specified directors Non-executive Brian Gatfield David Boyles Alex Kennedy Ian Winlaw Executive Steve Killelea David Leighton Specified executives Ross Ballard David Priestley 500,000 - - 1,250,000 150,000 150,000 94,984,951 307,172 200,000 - - - - 150,000 50,000 - - - - - - - - - - - - - - - 500,000 1,250,000 350,000 150,000 94,984,951 307,172 150,000 50,000 - - Other transactions with the company or its controlled entities There were no other transactions between the specified directors or specified executives, or their personally-related entities, and the company or its controlled entities. Note 27. Remuneration of auditors Remuneration for audit and review of the financial reports of the Company or any entity in the consolidated entity: Audit services: Auditors of the company - KPMG Consolidated The Company 2004 2003 2004 2003 $ $ $ $ Audit and review of financial reports 154,600 140,000 104,000 94,000 Remuneration for other services by the auditors of the Company or any entity in the consolidated entity: Taxation services: Auditors of the company - KPMG 63,000 162,800 32,600 63,200 PAGE 36 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Financial Report Financial Report (continued) > Note 28. Commitments for expenditure Operating leases $’000 Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Within one year Later than one year but not later than five years Later than five years Commitments not recognised in financial statements Note 29. Employee benefits $’000 Employee benefit liabilities Provision for employee benefits Current (Note 16) Non-current (Note 19) Aggregate employee benefit liability Employee numbers Number of employees at 30 June Consolidated The Company 2004 2003 2004 2003 1,355 2,061 - 3,416 1,288 3,316 - 4,604 1,052 1,881 - 2,933 1,001 2,828 - 3,829 Consolidated The Company 2004 2003 2004 2003 843 261 1,104 919 267 1,186 588 261 849 647 267 914 Consolidated The Company 2004 2003 2004 2003 107 115 74 81 Integrated Research Limited Employee Share Option Plan The establishment of the Integrated Research Limited Employee Share Option Plan (ESOP) was approved by special resolution at a meeting of members of the company held on 4 October 2000. All employees (including executive directors) of Integrated Research Limited and its controlled entities are eligible to participate in the ESOP at the invitation of the board. The number of options which may be granted under the ESOP is limited so that the number of shares issued if all options granted or offered under the ESOP were exercised, together with the number of shares issued under any employee share or option scheme established by the company in the previous five years, must not exceed 7.5 percent of the then total number of shares on issue. Options are granted under the ESOP for no consideration. Options are granted for a five-year period, and 25% of each new tranche becomes exercisable after each of the first four anniversaries of the date of the grant. Each option is convertible into one ordinary share at an exercise price set at least as high as the market value of the Shares at the date of the grant of the options, based on the weighted average price at which the Company’s shares are traded on the Australian Stock Exchange during the five trading days immediately before the options are granted. Under the terms of an employee share option plan dated 1 March 1998 and an amendment to the plan dated 1 January 1999, which was superseded by the current ESOP, all existing options vested and were exercisable on the date of the Company’s listing in December 2000. No options were exercised and no shares were issued under this plan in the year ended 30 June 2004. A total of 232,300 of these options granted to three employees at an average price of $0.09 had not been exercised at 30 June 2004. PAGE 37 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Financial Report Financial Report (continued) Set out following are summaries of options granted under both plans: > Grant Date Expiry Date Consolidated and Company - 2004 Old plan (prior to December 2000) May 2001 Aug 2001 Dec 2001 Feb 2002 May 2006 Aug 2006 Dec 2006 Feb 2007 May 2002 May 2007 Jul 2002 Nov 2002 Feb 2003 Jun 2003 Aug 2003 Sep 2003 Feb 2004 Apr 2004 Jul 2007 Nov 2007 Feb 2008 Jun 2008 Aug 2008 Sep 2008 Feb 2009 Apr 2009 May 2004 May 2009 Total Consolidated and Company - 2003 Old plan (prior to December 2000) Feb 2001 May 2001 Aug 2001 Dec 2001 Feb 2002 Feb 2006 May 2006 Aug 2006 Dec 2006 Feb 2007 May 2002 May 2007 Jul 2002 Nov 2002 Feb 2003 Jun 2003 Total Jul 2007 Nov 2007 Feb 2008 Jun 2008 Exercise Price Balance at Start of the Year Issued During the Year Exercised During the Year Lapsed During the Year Balance at End of the Year $0.09 $1.20 $0.54 $0.51 $0.62 $0.63 $0.57 $0.25 $0.24 $0.12 $0.22 $0.22 $0.26 $0.46 $0.33 $0.09 $3.33 $1.20 $0.54 $0.51 $0.62 $0.63 $0.57 $0.25 $0.24 $0.12 232,300 217,500 500,500 212,820 514,000 333,500 514,000 100,000 593,500 464,500 - - - - - - - - - - - - - - - 597,000 10,000 574,000 2,288,500 493,500 - - - - - - - - 15,000 3,000 - - - - - - 232,300 44,000 109,500 43,920 92,500 81,000 135,000 - 104,000 110,500 90,000 - 173,500 391,000 168,900 421,500 252,500 379,000 100,000 474,500 351,000 507,000 10,000 23,000 551,000 - - 2,288,500 493,500 3,682,620 3,963,000 18,000 833,420 6,794,200 232,300 300,000 246,000 559,000 296,820 625,000 415,500 - - - - - - - - - - - 709,500 100,000 610,500 464,500 2,674,620 1,884,500 - - - - - - - - - - - - - 232,300 300,000 28,500 58,500 84,000 111,000 82,000 195,500 - 17,000 - - 217,500 500,500 212,820 514,000 333,500 514,000 100,000 593,500 464,500 876,500 3,682,620 Options exercised during the financial year and number of shares issued to employees on the exercise of options: Exercise date Fair value of shares at issue date 2004 number 2003 number Consolidated and Company May 2004 June 2004 June 2004 Total $0.24 $0.24 $0.12 9,000 6,000 3,000 18,000 - - - - PAGE 38 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Financial Report Financial Report (continued) > The fair value of shares issued on the exercise of options is the closing price at which the Company’s shares were traded on the Australian Stock Exchange at the end of the month that the options were exercised. Options vested at the reporting date (number) Aggregate proceeds received from employees on the exercise of options and recognised as issued capital Note 30. Non-director related parties Wholly-owned group Consolidated and Company 2004 1,305,500 $ 3,960 2003 731,255 $ - The wholly-owned group consists of Integrated Research Limited and its wholly-controlled entities, Integrated Research, Inc and Integrated Research UK Limited. Ownership interests in these controlled entities are set out in Note 32. Transactions between Integrated Research Limited and related parties in the wholly-owned group during the years ended 30 June 2004 and 2003 consisted of: a) Inter-Company sales of products and services by Integrated Research Limited; b) The payment to Integrated Research Limited for the above products and services; and c) The payment of dividends to Integrated Research Limited. The above transactions were made on normal commercial terms and conditions and at market rates. The aggregate amounts included in the determination of operating profit before income tax that resulted from transactions with related parties in the wholly-owned group were as follows: $’000 Inter-Company sales The Company 2004 11,467 2003 9,984 Aggregate amounts receivable from and payable to subsidiaries in the wholly-owned group at balance date were as follows: $’000 Current receivables (inter-Company sales) Current payables Note 31. Investments in controlled entities Name of entity Integrated Research, Inc Integrated Research UK Ltd Note 32. Segment information Geographic segments The Company 2004 5,190 1 2003 4,204 3 Equity Holding Country of Incorporation USA England Class of Shares Ordinary Ordinary 2004 % 100 100 2003 % 100 100 The consolidated entity’s principal activities are organised on a global basis operating in three geographical areas: a) The Americas. Operating from the United States with responsibility for the countries in North and South America. b) Europe. Operating from the United Kingdom with responsibility for the countries in Europe. c) Asia Pacific. Operating from Australia with responsibility for the countries in the rest of the world. In presenting information on the basis of geographic segments, segment revenue is based on the geographical location of customers. Segment assets are based on the geographical location of the assets. PAGE 39 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Financial Report Financial Report (continued) > Primary reporting segments Americas Europe Asia Pacific Unallocated Eliminations Consolidated $’000 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 Sales to customers outside the consolidated entity Inter-segment sales Other revenue 17,762 17,362 5,559 3,344 5,622 5,469 1,129 1,335 - - 30,072 27,510 - - - - - - - - - - - 11,467 9,984 -11,467 -9,984 - - - 260 639 - - 260 639 Total segment revenue 17,762 17,362 5,559 3,344 5,622 5,469 12,856 11,958 -11,467 -9,984 30,332 28,149 Total revenue 30,332 28,149 Segment results 2,312 -848 464 -622 534 548 3,863 2,187 - - 7,173 1,265 Profit from ordinary activities before income tax Income tax expense Profit from ordinary activities after income tax 7,173 1,265 -2,718 -193 4,455 1,072 Depreciation and amortisation 33 105 51 32 31 27 3,348 3,506 - - 3,463 3,670 Segment assets 14,208 11,298 4,149 1,853 2,498 2,353 22,019 23,421 -8,821 -8,911 34,053 30,014 Consolidated total assets 34,053 30,014 Segment liabilities 11,459 9,951 3,628 1,677 2,324 2,044 6,764 9,775 -8,766 -8,857 15,409 14,590 Consolidated total liabilities Acquisition of plant and equipment Consolidated acquisitions of plant and equipment Secondary reporting segment 30 113 25 114 8 29 303 335 - - 366 591 15,409 14,590 366 591 The consolidated entity operates predominantly in the computer software products business segment. The consolidated entity provides systems and applications management software for high-reliability computer systems. PAGE 40 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Financial Report Financial Report (continued) > Note 33. Reconciliation of profit from ordinary activities after income tax to net cash provided by operating activities Consolidated The Company $’000 Profit from ordinary activities after income tax Depreciation and amortisation Provision for doubtful debts Net exchange differences Change in operating assets and liabilities (Increase)/decrease in trade debtors (Increase)/decrease in future income tax benefit (Increase)/decrease in other operating assets Increase/(decrease) in trade creditors Increase/(decrease) in other operating liabilities Increase/(decrease) in provision for income taxes payable Increase/(decrease) in provision for deferred income taxes Increase/(decrease) in other provisions 2004 4,455 3,463 -21 -39 -2,534 493 -3,583 1,824 613 -590 112 -15 2003 1,072 3,670 540 318 3,145 8 -3,552 -356 1,214 2004 2,708 3,379 41 -36 -1,047 774 -3,559 814 391 -1,635 -2,080 -3 75 116 -65 2003 2,169 3,533 165 99 1,313 -24 -3,396 -2,346 648 2,239 -3 72 Net cash provided by operating activities 4,178 4,496 1,436 4,469 Note 34. Earnings per share Classification of securities: (i) Ordinary shares have been included in basic earnings per share. (ii) Options outstanding under the Employee Share Option Plan have been classified as potential ordinary shares and included in diluted earnings per share only. Earnings reconciliation $’000 Net profit Basic and diluted earnings Weighted average number of shares used as the denominator (Number) Number for basic earnings per share: Ordinary shares Effect of employee share options on issue Number for diluted earnings per share Consolidated 2004 4,455 4,455 2003 1,072 1,072 Consolidated 2004 2003 165,226,653 165,225,903 589,699 35,841 165,816,352 165,261,744 4,074,900 employee share options have not been included in the 2004 calculation of diluted EPS as they are not dilutive (2,985,820 in 2003). PAGE 41 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Financial Report Financial Report (continued) > Note 35. Events subsequent to reporting date Dividends For dividends declared after 30 June 2004 see Note 23. International financial reporting standards For reporting periods beginning on or after 1 July 2005, the consolidated entity will comply with International Financial Reporting Standards (IFRS) as issued by the Australian Accounting Standards Board. The financial report has been prepared in accordance with Australian accounting standards and other financial reporting requirements (Australian GAAP). The differences between Australian GAAP and IFRS identified to-date as potentially having a significant effect on the consolidated entity’s financial performance and financial position are summarised below. The summary should not be taken as an exhaustive list of all the differences between Australian GAAP and IFRS. No attempt has been made to identify all disclosure, presentation or classification differences that would affect the manner in which transactions or events are presented. The consolidated entity has not yet completed the quantification of the effects of the differences discussed below. Accordingly, there can be no assurances that the consolidated financial performance and financial position as disclosed in this financial report would not be significantly different if determined in accordance with IFRS. Regulatory bodies that promulgate Australian GAAP and IFRS have ongoing projects that could affect the differences between Australian GAAP and IFRS described below and the impact of these differences relative to the consolidated entity’s financial reports in the future. The potential impacts on the consolidated entity’s financial performance and financial position of the adoption of IFRS, including system upgrades and other implementation costs which may be incurred, have not been quantified as at the transition date of 1 July 2004 due to the short timeframe between finalisation of the IFRS and the date of preparing this report. The impact in future years will depend on the circumstances prevailing in those years. The board has established a formal project reporting to the Audit Committee and managed by the CFO, to prepare the consolidated entity for the introduction of IFRS. This project commenced in mid-2002 with an objective of achieving transition to IFRS reporting, beginning with the half-year ended 31 December 2005. The company’s implementation project consists of three phases as described below. Assessment and planning phase The assessment and planning phase produced a high level overview of the impacts of conversion to IFRS reporting on existing accounting and reporting policies and procedures, systems and processes, business structures and staff. The results of this phase included: > High level identification of the key differences in accounting policies and disclosures that are expected to arise from adopting IFRS; > Assessment of new information requirements affecting management information systems, as well as the impact on the business and its key processes; > Evaluation of the implications for staff, for example training requirements; and > Preparation of a conversion plan for expected changes to accounting policies, reporting structures, systems, accounting and business processes and staff training. The company considers the assessment and planning phase to be complete in most respects as at 30 June 2004. Design phase The design phase aims to formulate the changes required to existing accounting policies and procedures and systems and processes in order to transition to IFRS. > Formulating revised accounting policies and procedures for compliance with IFRS reporting periods prior to adoption of IFRS; > Developing revised IFRS disclosures; > Designing accounting and business processes to support IFRS reporting obligations; > Identifying and planning required changes to financial reporting and business source systems; and > Developing training programs for relevant staff. The company has commenced its design phase, with work progress in each of the areas described above. The design phase is expected to be completed by December 2004. PAGE 42 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Financial Report Financial Report (continued) > Implementation phase The implementation phase will include implementation of the identified changes to accounting and business procedures, processes and systems and operational training for staff. It will enable the company to generate the required disclosures of AASB1 as it progresses through its transition to IFRS. Except for certain training that has been given to operational staff, the company has not yet commenced the implementation phase. However, the company expects this phase to be substantially complete by 30 June 2005. The key potential implications of the conversion to IFRS on the consolidated entity are as follows: IFRS difference identified Nature of the IFRS impact Financial instruments must be recognised in the statement of financial position and all derivatives and most financial assets must be carried at fair value. Integrated Research has a number of hedging instruments in place to manage exchange rate exposures. AASB1 provides an election whereby IAS39 and IAS32 dealing with financial instruments are not required to be applied to the first IFRS comparative year rather first time adoption of these standards will apply from 1 July 2005. Increase in total assets and total liabilities due to the recognition of hedge instruments and related debt at fair value. No material impact on net assets or reported profit. Income tax will be calculated based on the “balance sheet” approach, which will result in more deferred taxes and liabilities and, as tax effects follow the underlying transactions, some tax effects will be recognised in equity. Increase in total assets and total liabilities as more deferred taxes and liabilities are recognised. No material impact on net assets or reported profit. Internally generated intangible assets (except development phase expenditure in certain circumstances) will not be recognised in the statement of financial position. Decrease in net assets and equity as previously capitalised research and development costs that do not meet the IFRS criteria are adjusted to equity. Integrated Research capitalises research and development expenses if they are recoverable beyond any reasonable doubt and amortises them from the commencement of commercial production of the product to which they relate on a straight-line basis over the period of the expected benefit, but no more than three years. Under IFRS, research costs must be expensed as incurred and development costs may only be capitalised if stringent criteria are met. Equity-based compensation in the form of shares and options will be recognised as expenses in the periods during which the employee provides related services. The company’s revenue recognition policies appear to be consistent with IFRS but there is an absence of IFRS application guidance in relation to software. Global software industry accounting practices are significantly influenced by US GAAP and the company is monitoring the application of IFRS by the software industry to determine whether revisions to existing policies are appropriate. Changes in accounting policies will be recognised by restating comparatives rather than making current year adjustments with note disclosure of prior year effects. No material impact on reported profit as the differences between the amounts capitalised and amortised in the comparative year are expected to be similar. Based on current share options in place, no material impact on reported profit or equity. Possible deferral of revenue, decreasing net assets and equity. No material impact on reported profit as the differences between the amounts deferred on new contracts and amounts recognised from prior period contracts are expected to be similar. No material impact on net assets or reported profit. PAGE 43 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Financial Report Directors’ Declaration > In the opinion of the directors of Integrated Research Limited (“the Company”): a) the financial statements and notes, set out in pages 22 to 43, are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the financial position of the Company and consolidated entity as at 30 June 2004 and of their performance, as represented by the results of their operations and their cash flows, for the year ended on that date; and (ii) complying with Accounting Standards in Australia and 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. Dated at North Sydney this tenth day of August 2004. Signed in accordance with a resolution of the directors: Brian Gatfield Chairman Stephen Killelea Director PAGE 44 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 Independant Audit Report Independent Audit Report to Members > Independent audit report to members of Integrated Research Limited Scope The financial report and directors’ responsibility The financial report comprises the statements of financial position, statements of financial performance, statements of cash flows, accompanying Notes (1 to 35) to the financial statements, and the directors’ declaration set out on pages 22 to 44 for both Integrated Research Limited (the “Company”) and Integrated Research Limited Group (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 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 judgement, selective testing, the inherent limitations of internal control, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee 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, Australian 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 Integrated Research 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 their performance for the financial year ended on that date; and (ii) complying with Accounting Standards in Australia and the Corporations regulations 2001; and b) Other mandatory professional reporting requirements in Australia. KPMG Sydney 10 August 2004 John Wigglesworth Partner PAGE 45 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 ASX Additional Information ASX Additional Information > Shareholder information Analysis of numbers of equity security holders by size of holding at 31 July 2004: 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Class of Equity Security Ordinary Shares Shares 94 1,392 789 886 71 3,232 Options - 4 5 53 18 80 PAGE 46 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 ASX Additional Information > ASX Additional Information (continued) Equity security holders Twenty largest quoted equity security holders The names of the twenty largest holders of quoted equity securities as at 31 July 2004 are listed below: 1 Stephen John Killelea 2 National Nominees Limited 3 Andrew Rhys Rutherford 4 Westpac Custodian Nominees Limited 5 David Leroy Boyles and Patricia Lynn Boyles 6 J P Morgan Nominees Australia Limited 7 HSBC Custody Nominees (Australia) Limited 8 Farvex Corporation Pty Limited 9 Vicki Maree Lewis and David William Lewis 10 Gregory Charles Anderson and Karen Rosina Anderson 11 Lembridge Pty Ltd (Gatfield Super Fund a/c) 12 Chiatta Pty Ltd 13 Merrill Lynch (Australia) Nominees Pty Ltd 14 Citicorp Nominees Pty Limited 15 Robin Ravenscroft Barttelot 16 Bipeta Pty Ltd 17 Mark Lamkin 18 David Charles Leighton 19 Robert Bruce Woodland and Erika Woodland 20 Cameron Peter Leopold Number Held 94,647,339 9,215,211 5,986,589 3,416,583 1,250,000 817,762 744,351 715,882 700,000 500,000 500,000 460,589 426,124 380,100 357,648 337,612 307,172 307,172 275,000 258,502 Ordinary Shares Percentage of Issued Shares 57.28 5.58 3.62 2.07 0.76 0.49 0.45 0.43 0.42 0.30 0.30 0.28 0.26 0.23 0.22 0.20 0.19 0.19 0.17 0.16 121,603,636 73.59 PAGE 47 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 ASX Additional Information ASX Additional Information (continued) > Unquoted equity securities Options issued under the Integrated Research Limited Employee Option Plan to take up ordinary shares 6,794,200 80 *Number of unissued ordinary shares under the options. No person holds 20% or more of these securities. Number on issue * Number of holders On-market buy-back There is no current on-market buy-back. Substantial holders Substantial holders in the Company are set out below: Stephen John Killelea Voting rights Number held 94,647,339 Percentage 57.28 The voting rights attaching to each class of equity securities are set out below: 1. Ordinary shares. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. 2. Options. No voting rights. Other information Integrated Research Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares. PAGE 48 > IINNTTEEGGRRAATTEEDD RREESSEEAARRCCHH LLIIMMIITTEEDD && IITTSS CCOONNTTRROOLLLLEEDD EENNTTIITTIIEESS 2004 CO R P O R AT E D I R E C TO RY Directors Brian Gatfield Chairman and Independent Non-Executive Director David Boyles Independent Non-Executive Director Alex Kennedy Independent Non-Executive Director Steve Killelea Chief Executive Officer David Leighton Chief Financial Officer Ian Winlaw Independent Non-Executive Director David Leighton Level 10, 168 Walker Street North Sydney, NSW 2060 Australia Phone: (+61 2) 9966 1066 Computershare Investor Services Pty Limited KPMG 10 Shelley Street Sydney, NSW 1213 Dibbs Barker Gosling Level 8, Angel Place 123 Pitt Street Sydney, NSW 2000 Secretary Registered Office Share Registry Auditors Solicitors Bankers Westpac Banking Corporation Stock Exchange Listing Country of Incorporation Notice of Annual General Meeting Australian Stock Exchange Code IRI Integrated Research Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares The Annual General Meeting of Integrated Research Limited will be held at 3:00pm on Tuesday, 16th November 2004, at the Museum of Sydney, Corner of Phillip and Bridge Streets, Sydney u a . m o c . a d r . w w w - e v i t a e r C A D R y b d e c u d o r p d n a d e n g i s e D For more information visit our web site at www.ir.com or email info@ir.com integrated research Integrated Research Limited ABN 76 003 588 449 Annual Report 2004