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Prophecy Reports Improved Results

Released 05 March 2002

During the 6 months ending 31 December 2001, Prophecy International Holdings Pty Limited (Prophecy) achieved a 30% improvement in before tax result when compared to the same period last year. Expenditures have been well controlled as planned with a 14% reduction against the same period last year.

Cash reserves remain very strong with $8.3m on hand at the end of December. Cash flows from the operating activities were a positive $0.58m for the half. Details of the financials are listed below.

Operations summary
As forecast by the Chief Executive during the annual general meeting in October 2001, Prophecy secured significant contracts and progressed significant projects during the period ending 31 December 2001.

Amongst these were:

· A significant partnership agreement with Office Technology Systems of Colorado USA,
· A joint marketing agreement with SUN Microsystems of California USA for global promotion of Prophecy's new Java product, Velatte
· A licensing and development systems development agreement with Department of Water Resources in South Australia for approximately $2 million.
· Completion of a rapid application development project utilising our unique Framework technology to produce a substantial computer software system for the US Education Department

These projects reinforce the growing acceptance of Prophecy's capabilities in our global markets.

Throughout this period Prophecy has continued to improve its business on a daily basis.

Actions have been taken to reduce the expense base as announced at the end of last financial year which have resulted in significant recurrent expenditure savings.

A number of appointments have also been made to improve Prophecy's management capability and growth prospects.

These appointments have included:
· David Levin as General Manager of Prophecy Europe
· Peter Barzen as Executive Vice President of Prophecy Americas, and
· Burrell Landes as Vice President of Sales for Prophecy Americas.

Significant investment was made in the development of Prophecy's new Java based product, Velatte, during the period.

Velatte is poised to revolutionise the development of large software systems in Java with substantial cost and time savings over traditional development processes. This effort will culminate in the release of the product to all global markets during March 2002.

Velatte was launched to the world markets during the World Congress of IT in Adelaide on 27/28 Feb 2002. Prophecy was a proud sponsor of this major international forum.

Velatte is possibly the most innovative product of its type in the world today and Prophecy has applied for patent protection of this technology.

Velatte will be exhibited to the world at SUN's JAVA One conference in San Francisco in March. This is the largest gathering of Java software developers anywhere in the world and is an ideal venue for the US launch of our Velatte product.

In addition we have been invited to present the Velatte product at the major IBM developers conference in San Francisco in May.

Negotiations are being conducted with a major international computer company that may result in a global distribution agreement for this product.

Notwithstanding the potential of Velatte, the delayed release date will result in lower than planned revenues in the current financial year.

Financial Summary
For the period ending 31 December 2001, Prophecy reported a modest increase in sales revenue to $4.2m ($4.0m in previous comparable period).

During the period a before tax loss of $1.6m was incurred but this compares most favourably with the loss of $2.2m suffered in the previous comparable period. The result showed a 30% improvement.

The company decided in June 2001 that it would no longer recognise deferred tax assets that related to tax losses, and as a consequence the tax loss in the half year has not been tax effected, whereas in the previous comparable period it was.

The cash reserves at 31 December 2002 were over $8m and have been maintained at this level since 30 June 2001.

No interim dividend payment will be made.

Executive retirement
During the period, a long serving executive of the company, Ed Reynolds elected to retire from his executive role. Ed will remain as a non-executive director and the Chairman of Prophecy recognised his contribution during a recent Board meeting.

Outlook Summary
The Board expects improved trading conditions in all of our global markets during the next 6-18 months.

The release of Velatte will offer the potential for substantial new revenue streams with exciting interest already expressed from major world players.

The trading conditions over the past 6 months have been difficult with IT expenditures generally reduced. Considerable effort and resources have been applied to bring Velatte to market and the product is now ready for launch.

As a result, the Board expects a further modest increase in revenues for the full year.

The success of Velatte is expected to produce substantial revenue and profit growth in 02/03.


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