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Chairman's Report to Beam International Limited Shareholders

It gives me great pleasure to release this first half-yearly report to the Company's shareholders.

Financial results
The summary of financial results is as follows:

For the period 1/7/1996 - 31/12/1996
($'000s)
Total Revenue 2,890
Expenses 1,990
Profit before interest (*)
and tax (EBIT) 900
Interest expense (*) 89
Tax expense 0
Net Profit 811
(*) In order to maintain consistency with the information provided in the Prospectus, Interest Expense has been calculated as Actual Interest Expenses Paid less Interest Received other than Interest Income from R&D Term Deposits.
The figures show a very satisfactory profit for the period. The EBIT profit for the first half of the year as a public company is comparable to the full previous financial year's profit results. The profit is equivalent to earnings of 1.9 cents per share for the period.
The Board is therefore confident of achieving the projected full year profit result of $2.2 million EBIT as projected in the Prospectus (5.3 cents per share), as we expect stronger second half earnings due to sales of new releases.

Publishing activities
Shareholders will recall that the principal application for funds raised in the Initial Public Offering was to enable the Company to concentrate more of its efforts on its publishing activities.
No new titles were published in the first half of this financial year, but significant new releases have occurred in this second half-year.
We have already released 'Cricket 97' in January 1997 in Australia, and this title is currently the No. 1 best-selling sports title in Australia and the No. 3 best-selling title in Australia overall! (Source: Australian Computer Entertainment Review)
This title will be released in the UK in April in time for the start of the cricket season there, where we also expect it to do exceptionally well. We expect in excess of 50,000 units of 'Cricket 97' to be shipped before the end of the financial year. This is a very strong result in light of the limited geographical market for this title.
We are very excited to announce that our major title for this financial year, 'KKnD', was released in the United States last week on March 4, in Australia on March 7 and will be released in all European territories by March 21.
This title will be released in the original English version as well as French, German, Spanish and Mandarin. Electronic Arts, the world's leading games publisher and distributor will be distributing the title in all major territories. This will be the first time that Electronic Arts will be releasing a title in all these languages. Agreement has also been reached with publishers for distribution in Poland, Italy, Greece, Israel, Korea and Russia.
In all, we expect in excess of 200,000 units of 'KKnD' to be shipped before the end of the financial year. The Company's Prospectus included projections of sales of 226,660 units for 2 titles in the first financial year, so it can be seen that 'KKnD' is expected to return above average returns to the Company over its lifetime sales.
With respect to contract development work, we are extremely pleased that we have signed a contract with Microsoft to develop the sequel to last year's 'NBA Full Court Press' basketball title. Sales reported to the Company indicate that 'NBA Full Court Press' was one of 1996's best-selling titles. Beam is extremely proud to be among the few international development studios to be working with Microsoft.
Targets for new contract development work has not met budget expectations, as a result of a shake-up of the computer entertainment publishing industry in the United States. This has resulted in a consolidation of the industry, and fewer titles placed for development. The Company has used this situation as an opportunity to increase its own level of publishing activities.
Our web site, www.beam.com.au, is enjoying significant interest from game players from all over the world, and is receiving about 50,000 hits per day, making it one of the top entertainment sites in Australia.

Other activities
The Company has also continued its plans to diversify its activities into other related areas, leveraging off its technology base, as detailed below.
This diversification is expected to contribute to the Company's future growth and earnings potential.

Educational multimedia
Our educational multimedia series, 'Languages for Kids', is being especially well received. This is a series of titles designed to teach a second language to children of ages 5 - 9. The languages covered by the series include English as a second language, major Asian languages (Japanese, Mandarin, Korean, and Indonesian), and major European languages.
The lead title, 'Michio teaches Japanese', received the 1996 Australian ATOM multimedia award for 'Best Primary School Resource', and the extension to an additional 10 languages is being jointly funded by the Australian Multimedia Enterprise.
The entire series of 11 titles is scheduled to be completed by the end of 1997. The Board expects that the educational multimedia division will grow to represent 10% - 20% of the Company's revenues and earnings.

Research & Development
Our R&D syndication project, 'Facial Motion Capture', is showing excellent promise and marketing of this system will commence in the next financial year.
The 'Facial Motion Capture System' allows for more realistic animation of 3-D faces than is presently available with significant cost reductions. This technology has obvious application in games, advertising, television and films.
The Company continues to invest in new technology, which contributes significantly to its competitive advantage.

Internet tools
Our Internet web authoring program is currently in beta test phase, and commercialisation is expected to commence in the second quarter 1997. This product allows easy access to web page creation for Internet, Intranet and HTML mail use by non-programmers.
The Company is currently developing a strategy to most cost-effectively market and launch this new Internet product. The product has the potential to capture a significant market share of the Internet applications market, but sales income from this product is not included in the Company's financial projections.

Summary
In summary, the prospects for the Company are excellent, and the Board is confident of meeting its profit projections for the current financial year, and sees continuing growth for the Company for the following financial year.

Alfred Milgrom
Chairman
Press release:- Tuesday 11 March 1997