Integrated Research Limited

ABN: 76 003 588 449

Half-Year Report - 31 December 2007

Contents

14 February 2008

Directors' Report

The directors present their report together with the consolidated financial report for the half-year ended 31 December 2007 and the review report thereon.

Directors

The directors of the company at any time during or since the end of the half-year are:

Principal Activities

The company's principal activities are the design, development and sale of systems and applications management computer software to provide precise performance management solutions for high-reliability computer systems. There were no significant changes in the nature of these activities during the half-year.

Half-Year Results

The following table summarises the key revenue, expense and profit results for the consolidated entity for the half-year ended 31 December 2007 compared to the previous corresponding period:

Directors' Report (continued)

The consolidated entity's revenue for the six months ended 31 December 2007 was \$20.1 million. This represents a 25% increase in revenue against the comparable period last year.

Integrated Research continued its investment in sales and product development in the first half of 2007/08 particularly for the IP Telephony platform and released a number of new versions of software to the market, as a result total expenses increased by 7% compared to the same period in the prior year. First half profit before tax was \$5.6 million which represents a 114% increase compared to the same period last year.

The first half profit after tax result was \$4.2 million which represents a 121% increase compared to the same period last year.

Currency movements reduced revenue by \$1.6 million and PAT by \$0.8 million.

For the financial year ended 30 June 2007, as detailed in the directors report in that financial year, a final dividend of 2.0 cents per share was paid to the holders of fully paid ordinary shares in September 2007.

Review of Operations

Revenue

Total revenue of \$20.1 million for the period ended 31 December 2007 was comprised of license fees representing 57% and maintenance fees 41% of the total revenue. Other revenue represented 2% of the total, the majority of which is post sales consultancy.

All geographic segments and all product lines showed revenue growth on the same period last year. New license revenue for the IP Telephony products was \$2.8 million for the first half which was an increase of 73% on the same period last year. NonStop new license revenue was \$6.8 million which represented an increase on the prior period of 32%. Windows/Unix/Linux new license revenue was \$1.9 million, an increase on the prior period of 150%.

Maintenance revenue has increased only slightly compared to the prior period, due in part to the impact of exchange rate changes (\$0.8 million) and attrition.

The IP Telephony strategy focusing on Managed Service Providers (MSP) and Systems Integrators (SI) has started to yield good results after 18 months of sales activity and is expected to yield good follow on revenue.The company will continue to focus on both direct and indirect sales to major enterprises to ensure maximum market coverage during this early phase of the market. The continued growth in Asia Pacific has been driven mainly by sales of the NonStop product. In Europe follow on sales to key IP Telephony partners were slower than anticipated. This is due to our partners' customers taking longer than expected to deploy their IPT solutions which is consistent with our experience elsewhere in the market.

In October 2007 the company released PROGNOSIS 9.1 for IT Infrastructure, PROGNOSIS 9.1 for ATM/POS and PROGNOSIS 9.5 for IP Telephony, which delivers significant new functionality across its suite of software products.

For NonStop, the growth exceeded expectations. In each region the company is seeing existing customers purchasing more capacity which is the main driver for our revenue on this platform.

Continuing sales efforts for Windows, Unix and Linux (WUL) products has resulted in a significant sale, and resulted in more than doubling the revenue on the comparable period last year.

Expenses

Total expenses for the first half period were \$14.7 million which was an overall increase of 7% on the same period last year. This reflects the company's continued investment in sales and product development, particularly in the IP Telephony products. Staff numbers at 31 December 2007 was 146 compared to 137 at 31 December 2006.

Net research and development expenses were \$4.6 million for the first half compared to \$3.5 million for the same period last year. This was mainly due to increased labour and contractors costs to develop the newly released products. Gross spending on research and development for the first half was \$6.3 million which represents a 44% increase on the comparable period last year.

Directors' Report (continued)

Cashflow

The company continues to maintain a strong financial position and remains debt free with \$8.7 million cash at bank as at 31 December 2007. Cash has decreased in the period due to lower collections, which were impacted by: the timing of sales towards the end of the period; higher payments for R&D and \$3.3 million dividend payment in September 2007.

Outlook

On a full financial year basis the consolidated entity expects both revenue and profit after tax to exceed the previous year.

Interim Dividend

The company will pay an unfranked interim dividend of 1.5 cent per share on 7 March 2008 to shareholders registered at the end of trading on Friday 22 February 2008.

Lead Auditor's Independence Declaration under Section 307C of the Corporations Act 2001

The lead auditor's independence declaration is set out on page 21 and forms part of the directors' report for the half-year ended 31 December 2007.

Rounding off

The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with the Class Order, amounts in the financial report and Directors' Report have been rounded off to the nearest thousand dollars, unless otherwise stated.

Dated at North Sydney this 14th day of February 2008.

Signed in accordance with a resolution of the directors:

Steve Killelea Mark Brayan Chairman CEO and Managing Director

Consolidated interim income statement

For the six months ended 31 December 2007 In thousands of AUD

The income statement is to be read in conjunction with the accompanying notes to the interim financial statements set out on pages 9 to 17 .

Consolidated interim statement of recognised income and expenses

For the six months ended 31 December 2007 In thousands of AUD

Other movements in equity arising from transactions with owners as owners are set out in note 3.

The statement of recognised income and expenses is to be read in conjunction with the accompanying notes to the interim financial statements set out on pages 9 to 17 .

Consolidated interim balance sheet

As at 31 December 2007

In thousands of AUD

The balance sheet is to be read in conjunction with the accompanying notes to the interim financial statements set out on pages 9 to 17 .

Consolidated interim statement of cash flows

For the six months ended 31 December 2007 In thousands of AUD

This statement of cash flows is to be read in conjunction with the accompanying notes to the interim financial statements set out on pages 9 to 17 .

Notes to the consolidated interim financial statements

Note 1. Significant accounting policies

Integrated Research Limited (the "Company") is a company domiciled in Australia. The consolidated interim financial report of the Company for the six months ended 31 December 2007 comprises the Company and its subsidiaries (together referred to as the "consolidated entity").

The consolidated interim financial report was authorised for issue by the directors on 14 February 2008.

a) Statement of Compliance

The consolidated interim financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations adopted by the Australian Accounting Standards Board ("AASB") and the Corporations Act 2001.

International Financial Reporting Standards ("IFRS") form the basis of Australian Accounting Standards adopted by the AASB, being Australian equivalents to IFRS ("AIFRS"). The interim financial report of the consolidated entity also complies with the relevant IFRS and interpretations adopted by the International Accounting Standards Board.

The consolidated interim financial report does not include all of the information required for a full annual financial report.

The interim financial report is to be read in conjunction with the most recent annual financial report, and must also be read in conjunction with any public announcements made by Integrated Research Limited during the half year in accordance with continuous disclosure obligations arising under the Corporations Act 2001.

b) Basis of Preparation

The financial report is presented in Australian dollars and is prepared on the historical cost basis, except for the revaluation of certain financial instruments.

The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with the Class Order, amounts in the financial report and Directors' Report have been rounded off to the nearest thousand dollars, unless otherwise stated.

The preparation of an interim financial report in conformity with AASB 134 Interim Financial Reporting requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses.

These estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

b) Basis of preparation (continued)

The accounting policies set out below have been applied consistently to all periods presented in these consolidated interim financial statements. Where relevant, the accounting policies applied to the comparative period have been disclosed if they differ from the current period policy.

The accounting policies have been applied consistently throughout the consolidated entity for purposes of this consolidated interim financial report.

c) Basis of consolidation

Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated interim financial report from the date that control commences until the date that control ceases.

Intragroup balances and any gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements.

d) Foreign currency

Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to Australian dollars at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to Australian dollars at foreign exchange rates ruling at the dates the fair value was determined.

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, generally are translated to Australian dollars at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations, are translated to Australian dollars at rates approximating the foreign exchange rates ruling at the dates of the transactions. Foreign exchange differences arising on retranslation are recognised directly in a separate component of equity.

e) Derivative financial instruments

The consolidated entity uses derivative financial instruments to hedge its exposure to foreign exchange risks arising from operational activities. In accordance with its treasury policy, the consolidated entity does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments.

Derivative financial instruments are recognised initially at cost. Subsequent to initial recognition, derivative financial instruments are stated at fair value. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred in equity. The gain or loss on the ineffective portion is recognised immediately in profit and loss.

During the six month period ending 31 December 2007 forward exchange contracts entered into by the consolidated entity were not designated as cash flow hedges and accordingly the gain or loss on remeasurement to fair value was recognised directly in profit and loss.

e) Derivative financial instruments (continued)

The fair value of forward exchange contracts is their quoted market price at the balance sheet date, being the present value of the quoted forward price.

f) Property, plant and equipment

Items of property, plant and equipment are stated at cost or deemed cost less accumulated depreciation and impairment losses (see accounting policy (j)). The cost of acquired assets includes (i) the initial estimate at the time of installation and during the period of use, when relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and (ii) changes in the measurement of existing liabilities recognised for these costs resulting from changes in the timing or outflow of resources required to settle the obligation or from changes in the discount rate.

Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

Depreciation

Depreciation is charged to the income statement on a straight line basis so as to write off the cost of each asset over its expected useful life to its estimated residual value. Leasehold improvements are depreciated over the period of the lease or estimated useful life, whichever is shorter, using the straight line method. The estimated useful lives in the current and comparative periods are as follows:

g) Intangible assets

Research and development

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in the income statement as an expense as incurred.

Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalised if the product or process is technically and commercially feasible and the consolidated entity has sufficient resources to complete development.

The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads. Other development expenditure is recognised in the income statement as an expense as incurred. Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses (see accounting policy (j)).

Amortisation is charged to the income statement on a straight-line basis over the estimated useful life, but no more than three years.

Intellectual property

Intellectual Property acquired from third parties is amortised over its estimated useful life.

Computer software

Computer software is stated at cost and depreciation on a straight-line basis over 2½ years.

h) Trade and other receivables

Trade and other receivables are stated at amounts due less impairment losses (see accounting policy (j)).

i) Cash and cash equivalents

Cash and cash equivalents comprises cash balances and call deposits with an original maturity of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the consolidated entity's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

j) Impairment

The carrying amounts of the consolidated entity's assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated.

For intangible assets that are not yet available for use, the recoverable amount is estimated at each balance sheet date.

Impairment of receivables is not recognised until objective evidence is available that a loss event has occurred. Significant receivables are individually assessed for impairment. Impairment testing is performed by placing non-significant receivables in portfolios of similar risk profiles, based on objective evidence from historical experience adjusted for any effects of conditions existing at each balance date.

The recoverable amount of other assets is the greater of their fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

k) Employee benefits

Superannuation

Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred. There are no defined benefit plans in operation.

Long-term service benefits

The consolidated entity's net obligation in respect of long-term service benefits, other than pension plans, is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation is calculated using expected future increases in wage and salary rates including related on-costs and expected settlement dates, and is discounted using the rates attached to the Commonwealth Government bonds at the balance sheet date which have maturity dates approximating to the terms of the consolidated entity's obligations.

Share-based payment transactions

The share option programme allows consolidated entity employees to acquire shares of the Company. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using a binomial lattice model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is only due to share prices not achieving the threshold for vesting.

Wages, salaries, annual leave, and non-monetary benefits

Liabilities for employee benefits for wages, salaries and annual leave represent present 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 as at reporting date including related on-costs, such as, workers compensation insurance and payroll tax.

l) Provisions

A provision is recognised in the balance sheet when the consolidated entity has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

m) Trade and other payables

Trade and other payables are stated at their amortised cost.

n) Revenue

The consolidated entity allocates revenue to each element in software arrangements involving multiple elements based on the relative fair value of each element. The typical elements in the multiple element arrangement are licence and maintenance fees. The company's determination of fair value is based on the price charged when the same element is sold separately.

Revenue from the sale of licences, where the consolidated entity has no post delivery obligations to perform is recognised in the income statement at the date of delivery of the licence key.

Revenue from maintenance contracts is recognised rateably over the term of the service agreement, which is typically one year. Maintenance contracts are typically priced based on a percentage of licence fees and have a one year term. Services provided to customers under maintenance contracts include technical support and supply of software updates.

Revenue from multiple element software arrangements, where the fair value of an undelivered element cannot be reliably measured are recognised over the period the undelivered services are provided.

Revenue from consulting services is recognised over the period the services are provided.

No revenue is recognised if there are significant uncertainties regarding the recovery of the consideration due, the costs incurred or to be incurred cannot be measured reliably, there is a risk of return of goods or there is continuing management involvement with the goods.

o) Expenses

Operating lease payments

Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense and spread over the lease term.

Net financing costs

Net financing costs comprise interest payable on borrowings calculated using the effective interest method, dividends on redeemable preference shares, interest receivable on funds invested, dividend income, foreign exchange gains and losses, and gains and losses on hedging instruments that are recognised in the income statement.

p) Income tax

Income tax on the income statement for the periods presented comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend.

q) Segment reporting

A segment is a distinguishable component of the consolidated entity that is engaged in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

r) Goods and Services Tax

Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), or similar taxes, except where the amount of GST incurred 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 as part of the expense.

Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable or payable is included as a current asset or liability in the balance sheet.

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 or payable are classified as operating cash flows.

Note 2. Segment reporting

The consolidated entity operates predominantly in the computer software products business segment. Segment information is presented in the consolidated interim financial statements in respect of the consolidated entity's geographic segments, which are the primary basis of segment reporting. The geographic segment reporting format reflects the consolidated entity's management and internal reporting structure.

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

Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period.

The consolidated entity is managed on a worldwide basis, but operates in the following three geographical segments:

• The Americas. Operating from the United States with responsibility for the countries in North, Central and South America.
• Europe. Operating from the United Kingdom with responsibility for the countries in Europe.
• Asia Pacific. Operating from Australia with responsibility for the countries in the rest of the world, including Head Office revenue and expenses.

In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers. Segment assets are based on the geographical location of the assets.

Geographic segments

For the six months ended 31 December In thousands of AUD

All segments are continuing operations.

Note 3. Capital and reserves

Reconciliation of movements in capital and reserves attributed to equity holders in the parent:

Share capital

The consolidated entity recorded the following amounts within shareholder's equity as a result of the issuance of ordinary shares.

Note 4. Earnings per share

Basic earnings per share

The calculation of basic earnings per share for the six months ended 31 December 2007 was based on the profit attributable to ordinary shareholders of \$4,212,000 (six months ended 31 December 2006: \$1,903,000) and a weighted average number of ordinary shares outstanding during the six months ended 31 December 2007 of 166,313,000 (six months ended 31 December 2006: 166,020,000), calculated as follows:

Profit attributable to ordinary shareholders

Diluted earnings per share

The calculation of diluted earnings per share for the six months ended 31 December 2007 was based on the above profit attributable to ordinary shareholders and a weighted average number of ordinary shares outstanding during the six months ended 31 December 2007 of 166,666,000 (six months ended 31 December 2006: 167,069,000), calculated as follows:

Weighted average number of ordinary shares (diluted)

Note 5. Employee benefits

Share-based payments

On 4 October 2000, the consolidated entity established a share option programme that entitles employees to purchase shares in the entity. The terms and conditions of the share option programme and grants made during the year ended 30 June 2007 are disclosed in the most recent annual financial report. In accordance with these programmes options are exercisable at the market price of the shares at the date of grant.

The terms and conditions of the grants made and number outstanding at 31 December 2007 are as follows:

• All option vest at the rate of 25% per annum, starting on the first anniversary of the grant date.
• The contractual life of each option is five years from the grant date.
• Exercises are settled by physical delivery of shares

Grants marked (*) include performance hurdles as conditions for vesting.

Note 6. Financial instruments

Hedging of fluctuations in foreign currency

The consolidated entity is exposed to foreign currency risk on sales and purchases that are denominated in a currency other than the AUD. The currencies giving rise to this risk are primarily USD and GBP.

The consolidated entity uses forward exchange contracts to hedge its foreign currency risk. The forward exchange contracts have maturities of less than one year after the balance sheet date. Where necessary, the forward exchange contracts are rolled over at maturity.

Note 7. Subsequent events

On 14 February 2008 the Directors declared an interim dividend of 1.5 cents per share unfranked, payable on 7 March 2008 to shareholders registered at the end of trading on 22 February 2008.

There have been no other events subsequent to the interim balance sheet date, which are expected to have a material effect on the consolidated entity's financial position.

Note 8. Contingencies and capital commitments

At 31 December 2007 the group did not have any material capital commitments and contingent liabilities or assets.

Directors' Declaration

In the opinion of the directors of Integrated Research Limited ("the company"):

1. the financial statements and notes set out on pages 5 to 17, are in accordance with the Corporations Act 2001 including:

(a) giving a true and fair view of the financial position of the consolidated entity as at 31 December 2007 and of its performance, as represented by the results of its operations and cash flows for the half-year ended on that date; and

(b) complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001; and

1. 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 14th day of February 2008.

Signed in accordance with a resolution of the directors:

Steve Killelea Mark Brayan

Chairman CEO and Managing Director

Appendix 4D

Half year report (Provided to the ASX under Listing Rule 4.2A)

Name of entity

INTEGRATED RESEARCH LIMITED

For announcement to the market

Extracts from this report for announcement to the market

Record date for determining entitlements to the dividend 22nd February 2008

This half-yearly report is to be read in conjunction with the most recent annual financial report.

Brief explanation of directional and percentage changes to profit:

The consolidated entity's revenue for the six months ended 31 December 2007 was \$20.1m. This represents a 25% increase in revenue against the comparable period last year.

Integrated Research continued its investment in sales and product development in the first half of 2007/08 particularly for the IP Telephony platform and as a result total expenses increased by 7% compared to the same period in the prior year.

The first half profit after tax result was \$4.2m. This result represents a 121% increase compared to the same period last year.

Currency movements reduced revenue by \$1.6m and profit after tax by \$0.8m, compared to the previous corresponding period.

Additional information required under Listing Rule 4.2A

NTA backing

Audit

This report is based on accounts that have been subject to review.