Exhibit 99.2
SI AUTOMATION
Consolidated Financial Statements
Ended September 30, 2006 and December 31, 2005
Ended September 30, 2006 and December 31, 2005
Table of Contents
Page | ||||
Independent Auditors’ Report | 3 | |||
Consolidated Balance Sheets | 4 | |||
Consolidated Statements of Operations | 5 | |||
Consolidated Statement of Cash Flows | 6 | |||
Notes to the consolidated financial statements | 7 |
2
Independent Auditors’ Report
The Board of Directors and Stockholders
SI Automation, S.A.
We have audited the accompanying consolidated balance sheet of SI Automation S.A (“the Company”) as of September 30, 2006 and as of December 31, 2005, and the related consolidated statements of operations and cash flows for the nine month period and the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SI Automation S.A. and subsidiaries as of September 30, 2006 and December 31, 2005 and the results of their operations and their cash flows for the nine month period and the year then ended, in conformity with generally accepted accounting principles in France.
Accounting principles generally accepted in France vary in certain significant respects from U.S. generally accepted accounting principles. Information relating to the nature and effect of such differences is presented in Note 24 to the consolidated financial statements.
/s/ KPMG S.A.
Paris La Défense, France
January 15, 2007
3
Consolidated Balance Sheets
September 30, | December 31, | |||||||
2006 | 2005 | |||||||
Assets | ||||||||
Fixed Assets: | ||||||||
Intangible Assets (Note 3) | € | 684 546 | 692 572 | |||||
Tangible Assets (Note 3) | 60 234 | 43 024 | ||||||
Deposits (Note 3) | 43 175 | 40 866 | ||||||
Total Fixed Assets | 787 955 | 776 462 | ||||||
Other Assets: | ||||||||
Accounts Receivable, Net of allowances (Note 5) | 2 172 934 | 4 976 618 | ||||||
Inventories, Net of inventory reserves (Note 4) | 23 926 | 308 515 | ||||||
Other Receivables (Note 6) | 1 630 932 | 1 130 759 | ||||||
Prepaid Expense | 88 744 | 73 890 | ||||||
Marketable Securities (Note 8) | 242 981 | 433 218 | ||||||
Cash and Cash Equivalents (Note 9) | 5 064 881 | 3 068 134 | ||||||
Total Other Assets | 9 224 398 | 9 991 134 | ||||||
Total Assets | € | 10 012 353 | 10 767 596 | |||||
Stockholders’ Equity and Liabilities | ||||||||
Stockholders’ Equity (Note 10): | ||||||||
Share Capital | € | 1 885 906 | 1 885 906 | |||||
Additional Paid-In Capital | 5 062 704 | 5 684 357 | ||||||
Opening Retained Earnings | 726 084 | (1 644 972 | ) | |||||
Foreign Currency Translation Adjustment | 1 612 | (8 656 | ) | |||||
Net Profit | (858 958 | ) | 1 744 879 | |||||
Total Stockholders’ Equity | 6 817 348 | 7 661 514 | ||||||
Provisions for Contingencies & Charges (Note 11) | 112 955 | 197 504 | ||||||
Interest-Free Loans (Note 12) | 550 000 | 430 000 | ||||||
Financial Debt (Note 13) | 409 420 | 401 529 | ||||||
Accounts Payable and Accrued Expenses (Note 14) | 1 125 174 | 595 704 | ||||||
Deferred Revenue | 113 697 | 78 243 | ||||||
Other Liabilities (Note 15) | 883 759 | 1 403 102 | ||||||
Total Liabilities | 3 195 005 | 3 106 082 | ||||||
Total Stockholders’ Equity and Liabilities | € | 10 012 353 | 10 767 596 | |||||
See accompanying notes to consolidated financial statements.
4
Consolidated Statements of Operations
Nine-month | Twelve-month | |||||||
period ended | period ended | |||||||
September 30, | December 31, | |||||||
2006 | 2005 | |||||||
Revenues | 5 458 794 | 9 917 392 | ||||||
Other Operating Income | 458 285 | 622 436 | ||||||
Total | 5 917 079 | 10 539 828 | ||||||
Purchase of Merchandise | 126 093 | 536 159 | ||||||
Other External Costs | 2 909 596 | 2 805 329 | ||||||
Personnel and Social Charges (Note 18) | 3 270 141 | 4 110 691 | ||||||
Taxes Other Than Income Tax | 200 945 | 232 280 | ||||||
Depreciation and Amortization | 244 683 | 178 899 | ||||||
Inventory Reserve Allowance | 221 536 | 340 225 | ||||||
Provisions for Contingencies and Charges | 17 066 | 87 089 | ||||||
Total | 6 990 060 | 8 290 672 | ||||||
Operating Income (Loss) | (1 072 981 | ) | 2 249 156 | |||||
Financial Income | 70 734 | 257 321 | ||||||
Financial Expense | 286 586 | 6 518 | ||||||
Net Financial Income (Loss) (Note 20) | (215 852 | ) | 250 803 | |||||
Extraordinary Income / Loss | 1 837 | 52 787 | ||||||
Income (Loss) Before Tax | (1 286 996 | ) | 2 552 746 | |||||
Income Tax Expense (Credit) (Note 7) | (428 038 | ) | 807 867 | |||||
Net Income (Loss) | (858 958 | ) | 1 744 879 | |||||
Net earnings (loss) per share | (0,456 | ) | 0,930 | |||||
Net diluted Earnings per share | (0,456 | ) | 0,930 | |||||
See accompanying notes to consolidated financial statements.
5
Consolidated Statement of Cash Flows
Nine-month | Twelve-month | |||||||
period ended | period ended | |||||||
September 30, 2006 | December 31, 2005 | |||||||
Cash flow – operating activities: | ||||||||
Net Income (loss) | € | (858 958 | ) | 1 744 879 | ||||
Adjustments to reconcile Net loss to Net cash provided by operating activities: | ||||||||
Depreciation of fixed assets | 244 683 | 178 899 | ||||||
Changes in provisions | (9 549 | ) | (91 372 | ) | ||||
Income from disposals of other assets | 0 | (175 458 | ) | |||||
Deferred tax expense (credit) | (376 208 | ) | 849 564 | |||||
Changes in working capital: | ||||||||
Inventories | 284 589 | 192 717 | ||||||
Accounts receivable | 2 803 684 | (2 329 328 | ) | |||||
Other receivables | (198 965 | ) | 371 809 | |||||
Prepaid expenses | (14 854 | ) | (14 144 | ) | ||||
Accounts payable | 529 470 | 148 227 | ||||||
Other liabilities | (519 343 | ) | 134 646 | |||||
Deferred revenue | 35 454 | 78 243 | ||||||
Net cash provided by operating activities | 1 920 003 | 1 088 682 | ||||||
Cash flow – investing activities: | ||||||||
Capital expenditures – intangible assets | (216 704 | ) | (741 663 | ) | ||||
Capital expenditures –tangible assets | (37 546 | ) | (26 644 | ) | ||||
Capital expenditures – financial assets | (2 720 | ) | (42 036 | ) | ||||
Proceeds from disposals of investments | 0 | 25 253 | ||||||
Net cash used for investing activities | (256 970 | ) | (785 090 | ) | ||||
Cash flow – financing activities: | ||||||||
Exercise of warrants | 0 | 30 400 | ||||||
Decrease of marketable securities | 190 237 | 552 411 | ||||||
Increase in financial debt | 127 891 | 580 000 | ||||||
Payment on financial debt | 0 | (243 252 | ) | |||||
Net cash provided by financing activities | 318 128 | 919 559 | ||||||
Foreign currency translation adjustment | 15 586 | 14 687 | ||||||
Change in Cash and cash equivalents | € | 1 996 747 | 1 237 838 | |||||
Cash and cash equivalents | ||||||||
Beginning | € | 3 068 134 | 1 830 296 | |||||
Ending | € | 5 064 881 | 3 068 134 | |||||
See accompanying notes to consolidated financial statements
6
Notes to the consolidated financial statements
1) | Organization and Nature of Business and Significant Events of the Period |
S.I. AUTOMATION is a FrenchSociété Anonymewith a Board of Directors subject to the provisions of the French Code of Commercial Law and to the Decree n°67-236 dated June 23, 1967 regarding commercial companies. |
The company provides a set of services and appropriate Materials and Software to optimize manufacturing control and equipment communication mainly for the semiconductor industry. These financial statements have been prepared in the context of the acquisition of SI AUTOMATION and subsidiaries (individually or collectively referred to as the “Company”).
2) | Summary of Significant Accounting Policies and Practices |
(a) | Principles of Consolidation and Consolidation Scope | ||
The consolidated financial statements of SI AUTOMATION as of and for the 9-month period ended September 30, 2006 and as of and for the year ended December 31, 2005 have been prepared in accordance with generally accepted accounting principles in France, including Rule 99-02 of the French Accounting Standards Board (CRC). | |||
Each subsidiary, in which the company holds voting rights of more than 50% has been fully consolidated. |
COMPANIES | LOCATION | Control % | Method | |||
SI AUTOMATION | MONTPELLIER | N/A | Parent Company | |||
SIA INCORPORATION | SAN FRANCISCO | 100% | Fully Consolidated |
(b) | Use of Estimates | ||
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the period. Actual results could differ from those estimates. | |||
(c) | Translation of Foreign Subsidiaries’ Financial Statements | ||
The balance sheet, statements of operations and cash flows of SI AUTOMATION Inc. whose functional currency is the US dollar, are translated into the reporting currency of SI AUTOMATION S.A (Euro) at the applicable exchange rate (i.e., the closing period-end rate for balance sheet, and the average annual rate for statement of operations and cash flow statement). Resulting translation gains and losses are recorded in foreign currency translation adjustment in stockholders’ equity. |
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(d) | Tangible and Intangible Fixed Assets | ||
Tangible and intangible fixed assets are valued at their acquisition cost. Depreciation is computed using the straight line method based on the estimated useful lives of the related assets. |
Estimated useful lives used are as follows:
Estimated useful | ||
lives | ||
Intangible Fixed Assets | ||
Patents | 5 years | |
Software | 1 year | |
Tangible Fixed Assets | ||
Transportation equipment | 5 years | |
Fixtures, fittings and improvements of buildings | 3 to 10 years | |
Office equipment | 2 to 3 years | |
Furniture | 3 to 10 years |
(e) | Inventories | ||
Materials and goods have been recorded at purchase cost. | |||
Inventories and works in progress are recorded at their production cost. | |||
(f) | Accounts Receivable | ||
Accounts receivables are recorded at their carrying value. A provision is recorded when the recoverability is not probable. | |||
(g) | Marketable Securities | ||
Marketable securities are stated at their historical cost. If, at closing date, market value is lower than historical cost, a depreciation corresponding to the difference is booked. In the case of quoted securities, the market value corresponds to the quoted market price as of the balance sheet date. | |||
(h) | Cash and Cash Equivalents | ||
Cash and cash equivalents include cash balances and short-term highly liquid investments with original maturities of three months or less at the time of purchase and are stated at cost. |
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(i) | Provisions for Contingencies and Charges | ||
Contingencies and charges arising from claims, litigations, fines, etc. are provided for when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. | |||
(j) | Revenues |
o | Revenue from sales of software licences is fully recognized at delivery of software license. | ||
o | Composite contracts include other elements than sole software license such as maintenance, installation and training. Revenue allocated to those elements is recognized as the services are performed. | ||
o | Sales of software licenses to distributors are recognized on a sell-through basis, when the software license is delivered by the distributor to the end-user. | ||
o | Revenue linked to hardware and software leasing arrangements is recognized over the term of the contract on a straight line basis. |
(k) | Research & Development Costs | ||
In the past, the company used to capitalize research & development costs with a depreciation over a 5 years period. | |||
Since 2003 research & development costs are no longer capitalized. It has been assumed that the technical feasibility of the projects was only reached at the very end of the development, therefore the amount to be capitalized is considered as not significant. Former research & development capitalized costs corresponding to cancelled projects have been written-off. | |||
(l) | Employee benefits | ||
Employee benefits consist only in retirement indemnities paid to employees, in accordance with French Law, on the basis of the length of service. The benefit is a lump sum paid at retirement and expressed as a multiple of the monthly salary. | |||
Main assumptions used in the determination of such benefits are described below: |
- | Prospective method based on legal compensation obligation for the employer; | ||
- | Salary growth rate by 1%; | ||
- | Turnover : 1% to 2% depending on staff category; | ||
- | Employee leave age : 65 years; | ||
- | Discount rate : 2,5%; | ||
- | Mortality table : French national analysis statistical institute (INSEE) mortality table. |
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(m) | Income Tax, Current and Deferred | ||
Deferred taxes are recorded in the statement of operations and the balance sheet according to the liability method of tax allocation to account for temporary differences between the book value and taxable value of certain assets and liabilities. | |||
Tax assets resulting from loss carry-forwards are recognized if it is more likely than not that they will be recovered within a foreseeable future. | |||
(n) | Stock-based Awards | ||
The company issued pre-emptive subscription rights (“BSA”) and warrants (“BSPCE”) | |||
According to French rules: |
- | The amount received by the company upon issuance of the pre-emptive subscription rights (“BSA”) is accounted for in net equity ; | ||
- | No entry is recorded in the accounts as long as the pre-emptive subscription rights (“BSA”) or the warrants (“BSPCE”) have not been exercised. |
(o) | Extraordinary items | |
Extraordinary items may : |
- | Either be ordinary items with abnormal amount and incidence; | ||
- | Or items with the following characteristics : | ||
- | Non-recurring; | ||
- | Unusual compared with the economic activity of the concern; |
(p) | Differences in exchange | ||
At period-end foreign currencies assets and liabilities are converted to closing exchange rate. Resulting gains or losses are recorded in the consolidated statement of operations. |
10
(q) | Earning per share | ||
Earnings per share corresponds to the net profit or loss divided by the weighted-average number of shares existing during the financial period (see note 10). | |||
Diluted earnings per share is the division of the net profit or loss by the sum of the weighted-average number of shares outstanding and maximal number of shares that may be issued by exercise of stock-options (see section related to stock-options). |
Weighted | ||||||||||||||||
average | Number of | |||||||||||||||
number of | outstanding | Conversion | Total potential | |||||||||||||
Period-end | shares | stock options | parity | shares | ||||||||||||
December 31, 2005 | 1 883 006 | 1 000 | 1 to 1 | 1 884 006 | ||||||||||||
September 30, 2006 | 1 885 906 | 1 000 | 1 to 1 | 1 886 906 | ||||||||||||
Average | 1 884 456 | 1 885 756 |
3) | Fixed Assets | |
Tangible and intangible fixed assets are as follows at September 30, 2006 and December 31, 2005: |
Depreciation | ||||||||||||
and | Net book | |||||||||||
September 30, 2006 (€’000s) | Gross value | Amortization | value | |||||||||
Intangible Fixed Assets | ||||||||||||
RD&E costs | 2 453 | 2 453 | 0 | |||||||||
Licence, Patents & Software | 716 | 331 | 385 | |||||||||
Goodwill | 300 | 0 | 300 | |||||||||
Other | 3 | 3 | 0 | |||||||||
Total Intangible Fixed Assets | 3 472 | 2 787 | 685 | |||||||||
Tangible fixed assets | ||||||||||||
Building improvements | 38 | 11 | 27 | |||||||||
Computer & office equipment | 126 | 93 | 33 | |||||||||
Total Tangible Fixed Assets | 164 | 104 | 60 | |||||||||
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Depreciation expense for the 9-month period ended September 30, 2006 was€ 244 683.
Depreciation | ||||||||||||
and | Net book | |||||||||||
December 31, 2005 (€’000s) | Gross value | Amortization | value | |||||||||
Intangible Fixed Assets | ||||||||||||
RD&E costs | 2 453 | 2 453 | — | |||||||||
Licence, patents & software | 501 | 108 | 393 | |||||||||
Goodwill | 300 | — | 300 | |||||||||
Other | 3 | 3 | — | |||||||||
Total Intangible Fixed Assets | 3 257 | 2 564 | 693 | |||||||||
Tangible fixed assets | ||||||||||||
Building improvements | 14 | 9 | 5 | |||||||||
Computer & office equipment | 114 | 77 | 37 | |||||||||
Total Tangible Fixed Assets | 128 | 86 | 42 | |||||||||
Depreciation expense for the year ended December 31, 2005 was€ 178 899.
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Movements on fixed assets were as follows:
At | ||||||||||||||||
December | Capital | At Sept. | ||||||||||||||
30 September, 2006 (€) | 31, 2005 | addition | Disposal | 30, 2006 | ||||||||||||
RD&E Expenditures | 2 453 114 | 0 | 0 | 2 453 114 | ||||||||||||
Licenses, patents and software | 500 898 | 216 704 | 1 750 | 715 852 | ||||||||||||
Other intangibles | 303 049 | 0 | 0 | 303 049 | ||||||||||||
Intangible assets | 3 257 061 | 216 704 | 1 750 | 3 472 015 | ||||||||||||
At | ||||||||||||||||
December | Capital | At Sept. 30, | ||||||||||||||
31, 2005 | addition | Disposal | 2006 | |||||||||||||
Building improvements | 14 327 | 25 547 | 2 455 | 37 419 | ||||||||||||
Computer and office equipment | 114 327 | 11 999 | 0 | 126 326 | ||||||||||||
Tangible assets | 128 654 | 37 546 | 2 455 | 163 745 | ||||||||||||
At | ||||||||||||||||
December | Capital | At Sept. 30, | ||||||||||||||
31, 2005 | addition | Disposal | 2006 | |||||||||||||
Deposits | 40 866 | 2 720 | 411 | 43 175 | ||||||||||||
GRAND-TOTAL | 3 426 581 | 256 970 | 4 233 | 3 678 935 | ||||||||||||
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At | At | |||||||||||||||
January 1, | Capital | December | ||||||||||||||
31 December 2005 (€) | 2005 | addition | Disposal | 31, 2005 | ||||||||||||
Start-up Costs | 4 544 | 0 | 4 544 | 0 | ||||||||||||
RD&E Expenditures | 3 537 633 | 0 | 1 084 519 | 2 453 114 | ||||||||||||
Licenses, patents and software | 513 245 | 441 663 | 454 010 | 500 898 | ||||||||||||
Other intangibles | 3 049 | 300 000 | 0 | 303 049 | ||||||||||||
Intangible assets | 4 058 471 | 741 663 | 1 543 073 | 3 257 061 | ||||||||||||
Building improvements | 26 032 | 0 | 11 705 | 14 327 | ||||||||||||
Computer and office equipment | 102 707 | 26 644 | 15 024 | 114 327 | ||||||||||||
Tangible assets | 128 739 | 26 644 | 26 729 | 128 654 | ||||||||||||
Deposits | 20 090 | 42 036 | 21 260 | 40 866 | ||||||||||||
GRAND-TOTAL | 4 207 300 | 810 343 | 1 591 062 | 3 426 581 | ||||||||||||
Main disposals in 2005 relate to:
- | Research & development costs, amounting to K€. 1 085, capitalized in the past, and linked notably to silver box development project, that has been abandoned ; | ||
- | The termination during 2005 of a K€. 450 GPC license concession agreement concluded in August 2001 and almost totally depreciated. |
Capital addition for ‘other intangibles’ amounting to K€.300 relates to the purchase, in June 2005, of an activity and related customer relationship which is expected to generate earnings in the future.
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Changes in accumulated depreciation were as follows:
At December | Depreciation | At Sept. 30, | ||||||||||||||
September 30, 2006 (€) | 31, 2005 | expense | Disposal | 2006 | ||||||||||||
RD&E Expenditures | 2 453 114 | 0 | 0 | 2 453 114 | ||||||||||||
Licenses, patents and software | 108 326 | 224 730 | 1 750 | 331 306 | ||||||||||||
Other intangibles | 3 049 | 0 | 0 | 3 049 | ||||||||||||
Intangible assets | 2 564 489 | 224 730 | 1 750 | 2 787 469 | ||||||||||||
At December | Depreciation | At Sept. 30, | ||||||||||||||
31, 2005 | expense | Disposal | 2006 | |||||||||||||
Building improvements | 8 914 | 4 060 | 2 072 | 10 902 | ||||||||||||
Computer and office equipment | 76 716 | 15 893 | 0 | 92 609 | ||||||||||||
Tangible assets | 85 630 | 19 953 | 2 072 | 103 511 | ||||||||||||
GRAND TOTAL | 2 650 119 | 244 683 | 3 822 | 2 890 980 | ||||||||||||
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At | ||||||||||||||||||||
At January | Depreciation | December | ||||||||||||||||||
December 31, 2005 | 1, 2005 | Expense | Disposal | Other | 31, 2005 | |||||||||||||||
Start-up Costs | 4 544 | 0 | 4 544 | 0 | 0 | |||||||||||||||
RD&E Expenditures | 3 537 633 | 0 | 1 084 519 | 0 | 2 453 114 | |||||||||||||||
Licenses, patents and software | 357 074 | 150 012 | 398 760 | 0 | 108 326 | |||||||||||||||
Other intangibles | 3 049 | 0 | 0 | 0 | 3 049 | |||||||||||||||
Intangible assets | 3 902 300 | 150 012 | 1 487 823 | 0 | 2 564 489 | |||||||||||||||
Building improvements | 7 109 | 8 688 | 6 883 | 0 | 8 914 | |||||||||||||||
Computer and office equipment | 64 071 | 20 199 | 9 104 | 1 550 | 76 716 | |||||||||||||||
Tangible assets | 71 180 | 28 887 | 15 987 | 1 550 | 85 630 | |||||||||||||||
GRAND TOTAL | 3 973 480 | 178 899 | 1 503 810 | 1 550 | 2 650 119 | |||||||||||||||
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4) | Inventories |
Inventories are as follows at September 30, 2006 and December 31, 2005:
Gross | Inventory | |||||||||||
September 30, 2006 (€’000s) | Value | reserve | Net Value | |||||||||
Raw materials, consumables | 232 | 232 | 0 | |||||||||
Work in progress — Services | 24 | 0 | 24 | |||||||||
Finished goods inventory | 330 | 330 | 0 | |||||||||
TOTAL | 586 | 562 | 24 | |||||||||
Inventory | ||||||||||||
December 31, 2005 (€’000s) | Gross Value | reserve | Net Value | |||||||||
Raw materials, consumables | 229 | 57 | 172 | |||||||||
Work in progress – Services | 49 | 0 | 49 | |||||||||
Finished goods inventory | 370 | 283 | 87 | |||||||||
TOTAL | 648 | 340 | 308 | |||||||||
5) | Accounts Receivable | |
Accounts receivable are as follows at September 30, 2006 and December 31, 2005: |
Sept. 30, | December | |||||||
(€’000s) | 2006 | 31, 2005 | ||||||
Billed accounts receivable | 1 758 | 1 553 | ||||||
Unbilled accounts receivable | 445 | 3 455 | ||||||
Allowance for doubtful accounts | (31 | ) | (31 | ) | ||||
2 172 | 4 977 | |||||||
As at 31 December 2005, unbilled accounts receivable mainly consist in the remaining balance of the invoice linked to the sale of the Maestria Corporate License (to ST Microelectronics) amounting to K€. 2,864, as well as related maintenance covering the 2nd half of 2005, amounting to K€. 301. These two items have been invoiced in the course of January 2006.
6) | Other Receivables | |
Other receivables were as follows at Sept. 30, 2006 and December 31, 2005: |
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September | December | |||||||
(€’000s) | 30, 2006 | 31, 2005 | ||||||
Deferred tax | 864 | 488 | ||||||
Advances to suppliers | 105 | 21 | ||||||
Sundry debtors | 662 | 622 | ||||||
1 631 | 1 131 | |||||||
Sundry debtors were as follows at September 30, 2006 and December 31, 2005:
September 30, | December 31, | |||||||
(€’000s) | 2006 | 2005 | ||||||
Income tax credit | 150 | 98 | ||||||
VAT debtor | 286 | 50 | ||||||
Other advances to suppliers | 0 | 185 | ||||||
Other Income to receive | 226 | 289 | ||||||
Total sundry debtors | 662 | 622 | ||||||
In France, companies can benefit from a tax credit based on the research and development costs. SI AUTOMATION has applied for such credits. The tax credit can be deducted from income tax liability for a period of three years, or be reimbursed by the Tax Authorities if not utilized after the three-year period. As of September 30, 2006, the R&D tax credit to be received, amounting to K€.144, is for year 2004 (K€.47) , 2005 (K€.42), and 2006 (K€.55).
7) | Income Taxes | |
The income tax expense (credit) consists of the following: |
Nine months | Year ended | |||||||
(€’000s) | September 30, 2006 | December 31, 2005 | ||||||
Current income tax | (52 | ) | (41 | ) | ||||
Deferred income tax | (376 | ) | 849 | |||||
Total | (428 | ) | 808 | |||||
September | December | |||||||
(€’000s) | 30, 2006 | 31, 2005 | ||||||
Tax losses carried forward | 930 | 582 | ||||||
Other temporary differences | (66 | ) | (94 | ) | ||||
Net deferred tax asset | 864 | 488 | ||||||
The Company believes it is more likely than not that the results of future operations will generate sufficient taxable income to allow the utilization of deferred tax assets in the short term.
As at September 30, 2006, the Company had€.2.790.733 of accumulated net operating loss carry forwards that are available to offset future taxable income which can be carried forward indefinitely.
Income tax expense for the nine-month period ended September 30, 2006 and the year ended December 31, 2005 differed from the amounts computed by applying the statutory income tax rate in France of 33.33% to the pre-tax income, as a result of the following:
18
In France, companies can benefit from tax credit based on the research and development costs of the year (Note 6). |
(€’000s) | Sept. 30, | December | ||||||
2006 | 31, 2005 | |||||||
Earnings before income tax: | (1 287 | ) | 2 553 | |||||
Expected tax expense (benefit) at French statutory tax rate | (429 | ) | 864 | |||||
Research & development tax credit | 0 | (42 | ) | |||||
Permanent Differences | 1 | 6 | ||||||
Effect of change in tax rate | 0 | 9 | ||||||
Other | 0 | (29 | ) | |||||
Income tax expense (profit) | (428 | ) | 808 | |||||
8) | Marketable Securities | |
Marketable securities consist of shares in mutual funds. Their historical value as at September 30, 2006 , and December 31, 2005 amounts to K€.243 and K€ 433, respectively. Fair value of marketable securities amounts to K€.252 and K€. 459 respectively. | ||
9) | Cash & Cash Equivalents | |
Cash & Cash Equivalents as at September 30, 2006 are composed of a K€.3 705 SIA France and a K€.100 SIA Inc. bank balances and short term marketable securities held by SIA France for an historical value of K€.1 260 considered as cash equivalents. | ||
Cash & Cash Equivalents as at December 31, 2005 are composed of a K€. 622 SIA France and a K€. 55 SIA Inc. bank balances and short term marketable securities held by SIA France for an historical value of K€.2 391 considered as cash equivalents. | ||
10) | Stockholders’ Equity | |
Changes in stockholders’ equity over the 9-month period ended September 30, 2006 and the year ended December 31, 2005 are as follows: |
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Foreign | ||||||||||||||||||||||||
Additional | Currency | Total | ||||||||||||||||||||||
Paid-In | Retained | Translation | Stockholders | |||||||||||||||||||||
Common Stock | Capital | Earnings | Adjustment | ’ Equity | ||||||||||||||||||||
Shares | € | € | € | € | € | |||||||||||||||||||
Balance at December 31, 2004 | 1 875 906 | 1 875 906 | 5 663 957 | (1 634 170 | ) | 13 149 | 5 918 842 | |||||||||||||||||
Exercise of warrants | 10 000 | 10 000 | 20 400 | 30 400 | ||||||||||||||||||||
Impact of foreign exchange | (21 805 | ) | (21 805 | ) | ||||||||||||||||||||
Impact of consolidation re-statements | (10 802 | ) | (10 802 | ) | ||||||||||||||||||||
Net loss/profit | 1 744 879 | 1 744 879 | ||||||||||||||||||||||
Balance at December 31, 2005 | 1 885 906 | 1 885 906 | 5 684 357 | 99 907 | (8 656 | ) | 7 661 514 | |||||||||||||||||
Additional paid-in capital changes (*) | (621 653 | ) | 621 653 | 0 | ||||||||||||||||||||
Impact of foreign exchange | 10 268 | 10 268 | ||||||||||||||||||||||
Impact of consolidation re-statements | 4 524 | 4 524 | ||||||||||||||||||||||
Net loss/profit | (858 958 | ) | (858 958 | ) | ||||||||||||||||||||
Balance at Sept. 30, 2006 | 1 885 906 | 1 885 906 | 5 062 704 | (132 874 | ) | 1 612 | 6 817 348 |
(*) | Following a decision from shareholders dated 24 March 2006, an amount of€. 621 653 from the caption “Additional Paid-in Capital” has been reclassified under the “Retained earnings” caption. |
General
The company was incorporated in 1987. Additional shares were issued for cash in subsequent financing rounds and through exercise of warrants. At September 30, 2006 and December 31, 2005, the issued and outstanding shares consisted of 1,885,906 ordinary shares with a par value of€.1.
Pre-emptive subscription rights
Stockholders and certain directors have pre-emptive rights to subscribe for additional shares issued by the company for cash on apro ratabasis. Stockholders may waive such pre-emptive subscription rights at an extraordinary general meeting of stockholders under certain circumstances. Pre-emptive subscription rights, if not previously waived, are transferable during the subscription period relating to a particular offer of shares.
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Warrants
The stockholders of SIAUTOMATION authorized the board of directors to grant warrants (Bons de souscription d’actions or BSA) to employees and members of the board of the French parent company. Each BSA enables the holders to subscribe one share of SIA.
September 30, 2006 | BSA 03 n°1 | |||
General assembly | 03/19/2003 | |||
Issue price | 0,01€ | |||
Strike price | 4,35€ | |||
Maturity date | 03/18/2008 | |||
Condition | None | |||
Total number of options granted | 1 000 | |||
Outstanding options at December 31, 2005 | 1 000 | |||
Exercised options through the period | 0 | |||
Void or cancelled options through the period | 0 | |||
Outstanding options at Sept. 30, 2006 | 1 000 | |||
Outstanding exercisable options at Sept. 30, 2006 | 1 000 |
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December 31, 2005 | BSA | BSPCE 2 | BSA 03 n°1 | Total | ||||||||||||
Date of the extraordinary general meeting | 04/14/2000 | 03/28/2001 | 03/19/2003 | |||||||||||||
Total number of options granted | 10 000 | 69 600 | 1 000 | 80 600 | ||||||||||||
End of contract life | 03/31/2005 | 03/28/2006 | 03/18/2008 | |||||||||||||
Issue price | € | 0.01 | — | € | 0.01 | |||||||||||
Exercise price | € | 3.04 | € | 22.71 | € | 4.35 | ||||||||||
Conditions | None | None | None | |||||||||||||
Void or cancelled options before December 31, 2004 | — | -68 800 | 0 | -68 800 | ||||||||||||
Exercised options before December 31, 2004 | — | — | — | — | ||||||||||||
Outstanding options at December 31, 2004 | 10 000 | 800 | 1 000 | 11 800 | ||||||||||||
Void or cancelled options through the period | — | -200 | — | -200 | ||||||||||||
Exercised options through the period | -10 000 | — | — | -10 000 | ||||||||||||
Outstanding options at December 31, 2005 | — | 600 | 1 000 | 1 600 | ||||||||||||
Outstanding exercisable options at December 31, 2005 | — | 600 | 1 000 | 1 600 | ||||||||||||
11) | Provisions for Contingencies and Charges | |
Provisions for contingencies and charges amount to€.112.955 as at September 30, 2006 and€.197 504 as at December 31, 2005 and pertain to the following: |
September | December | |||||||
(€’ 000s) | 30, 2006 | 31, 2005 | ||||||
Provision for guarantee commitments | 64 | 87 | ||||||
Provisions for litigations | 5 | 75 | ||||||
Provision for pension indemnities | 44 | 36 | ||||||
Total | 113 | 198 | ||||||
The provision for guarantee is linked to the twelve months period related to hardware and six months period related to software, resulting from commercial terms included in most contracts. Changes in provisions and reserves are as follows:
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At | ||||||||||||||||
December | Utilizations | At Sept. 30, | ||||||||||||||
31, 2005 | Additions | and reclass | 2006 | |||||||||||||
Inventory reserve | 340 225 | 221 537 | 0 | 561 762 |
At | ||||||||||||||||
December | At Sept. 30, | |||||||||||||||
31, 2005 | Additions | Utilizations | 2006 | |||||||||||||
Bad debt reserve | 30 572 | 0 | 0 | 30 572 |
At | ||||||||||||||||
December | Utilizations | At Sept. 30, | ||||||||||||||
31, 2005 | Additions | and reclass | 2006 | |||||||||||||
Provision for guarantee and litigation (*) | 162 089 | 8 886 | 101 919 | 69 056 | ||||||||||||
Provision for retirement indemnities | 35 415 | 8 484 | 0 | 43 899 | ||||||||||||
Provisions | 197 504 | 17 370 | 101 919 | 112 955 | ||||||||||||
(*) | Of which€.75000 has been reclassified under the caption “Other Receivables” |
12) Interest-Free Loans
Are classified in this caption advances received from a governmental agency (ANVAR) to contribute to the financing of research and development expenses linked to the Maestria software. According to the legal agreement, reimbursement will start in 2007.
13) Financial Debt
Financial debt is composed of a loan granted by BDPME in October 2005, as part of a research & development project. The first redemption date is scheduled in the end of 2006. Variable interest rate is indexed to Euribor 3 months plus a margin of 1.6 pts. Financial debt as September 30, 2006 amounts to K€.405 and interest not yet due have been accrued for K€.5.
14) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses amount to€.1.125.173 as at September 30, 2006 and are broken down as follows:
Sept. 30, | December | |||||||
(€’000s) | 2006 | 31, 2005 | ||||||
Trade accounts payable | 471 | 373 | ||||||
Trade accruals | 654 | 222 | ||||||
Total | 1 125 | 595 | ||||||
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15) Other Liabilities
Other liabilities amount to€.883.759 as at September 30, 2006 and€. 1 403 102 as at December 31, 2005 and can be broken down as follows:
Sept. 30, | December | |||||||
(€’000s) | 2006 | 31, 2005 | ||||||
Employee and tax related payable | 846 | 1 291 | ||||||
Other | 38 | 112 | ||||||
Total | 884 | 1 403 | ||||||
Employee related payable include amounts due to employees (accrued vacation and bonuses) and payroll charge accrual.
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16) Assets and Liability Maturity Date
The breakdown by maturity is as follows:
Maturity | ||||||||||||||||
Balance at | ||||||||||||||||
September | Less than 1 | More than | ||||||||||||||
(€’000s) | 30, 2006 | year | 1 to 5 years | 5 years | ||||||||||||
Deposits | 43 | 0 | 43 | 0 | ||||||||||||
Inventories | 24 | 24 | 0 | 0 | ||||||||||||
Accounts receivable | 2 172 | 2 172 | 0 | 0 | ||||||||||||
Other receivable | 1 631 | 1 631 | 0 | 0 | ||||||||||||
Prepaid expense | 89 | 89 | 0 | 0 | ||||||||||||
Total | 3 959 | 3 916 | 43 | 0 | ||||||||||||
Financial debt | 409 | 9 | 360 | 40 | ||||||||||||
Interest Free Loans | 550 | 0 | 550 | 0 | ||||||||||||
Account payable | 1 125 | 1 125 | 0 | 0 | ||||||||||||
Other liabilities | 884 | 884 | 0 | 0 | ||||||||||||
Deferred revenue | 114 | 114 | 0 | 0 | ||||||||||||
Total | 3 082 | 2 132 | 910 | 40 | ||||||||||||
Maturity | ||||||||||||||||
Balance at | ||||||||||||||||
December | Less than | 1 to 5 | More than | |||||||||||||
(€’000s) | 31, 2005 | 1 year | years | 5 years | ||||||||||||
Deposits | 41 | 0 | 41 | 0 | ||||||||||||
Inventories | 309 | 309 | 0 | 0 | ||||||||||||
Accounts receivables | 4 976 | 4 976 | 0 | 0 | ||||||||||||
Other receivable | 1 130 | 1 130 | 0 | 0 | ||||||||||||
Prepaid expense | 74 | 74 | 0 | 0 | ||||||||||||
Total | 6 530 | 6 489 | 41 | 0 | ||||||||||||
Financial debt | 402 | 2 | 260 | 140 | ||||||||||||
Account payable | 596 | 596 | 0 | 0 | ||||||||||||
Other liabilities | 1 403 | 1 403 | 0 | 0 | ||||||||||||
Deferred revenue | 78 | 78 | 0 | 0 | ||||||||||||
Total | 2 479 | 2 079 | 260 | 140 | ||||||||||||
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17) Commitments
The Company does not lease any significant facility or equipment under operating or capital lease.
18) Personnel and Social Charges
Personnel and social charges amount to €.2.289.753 and €.980.388, respectively, for the 9-month period ended September 30, 2006.
Personnel and social charges amount to €.2.859.608 and €.1.251.083, respectively, for the year ended December 31, 2005.
Average headcount is as follows:
Headcount | Headcount | |||||||
(9 months) 2006 | (12 months) 2005 | |||||||
Company Managers and Engineers | 50 | 41 | ||||||
Technical Staff | 10 | 7 | ||||||
Other staff | 0 | 0 | ||||||
Total | 60 | 48 | ||||||
19) Research and Development Costs
Research and development costs incurred by the Company for the 9-month period ended September 30, 2006 were K€.994.
Research and development costs incurred by the Company for the year ended December 31, 2005 were €.884.873.
20) Financial Income/Expense
Financial expense mainly consists of exchange losses in the amount of K€.287 as at September 30, 2006 and €.195 941 as at December 2005, 31.
21) Segment Information
Revenues by country are as follows for the 9-month period ended September 30, 2006 and the year ended December 31, 2005:
2006 | 2005 | |||||||
(€’000s) | (9 months) | (12 months) | ||||||
France | 911 | 2 281 | ||||||
Other countries | 4 548 | 7 636 | ||||||
Total | 5 459 | 9 917 | ||||||
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22) | Tax verification | |
The tax administration has verified the company’s income tax returns for the past three years. At the moment, the impact on the financial statements amounts to 4 K€ and is not material. | ||
23) | Subsequent events | |
PDF Solutions, Inc. (PDFS) has completed the acquisition of SI Automation S.A. (“SIA”) as at October 31, 2006. | ||
24) | Summary of differences between French GAAP and U.S. GAAP |
The consolidated financial statements have been prepared in accordance with French GAAP which, as applied by the Company, differ in certain significant respects from accounting principles generally accepted in the United States of America (“US GAAP”). The effects of the application of US GAAP to stockholders’ equity and net income are set forth in the tables below:
(a) | Reconciliation of Net Income to US GAAP (in €) |
Nine-month period | ||||||||
ended September | Year period ended | |||||||
30, 2006 | December 31, 2005 | |||||||
French GAAP Net Income (Loss) as reported in the Consolidated Statement of Operations | (858 958 | ) | 1 744 879 | |||||
Adjustments to conform to US GAAP | ||||||||
Revenue recognition adjustments | (1 639 000 | ) | (3 589 000 | ) | ||||
Research & development costs capitalised | — | (300 000 | ) | |||||
Tax effect | 510 274 | 1 214 159 | ||||||
(1 128 726 | ) | (2 674 841 | ) | |||||
US GAAP Net Income | (1 987 684 | ) | (929 962 | ) | ||||
September 30, 2006 | December 31, 2005 | |||||||
French GAAP Stockholders’ Equity as reported in the Consolidated Balance Sheet | 6 817 348 | 7 661 514 | ||||||
Adjustments to conform to US GAAP | ||||||||
Revenue recognition adjustments | (8 840 000 | ) | (7 201 000 | ) | ||||
Marketable securities fair valued | 9 000 | 17 062 | ||||||
Research & development costs capitalised | (300 000 | ) | (300 000 | ) | ||||
Tax effect | 2 943 372 | 2 436 098 | ||||||
(6 187 628 | ) | (5 047 840 | ) | |||||
US GAAP Stockholders’ Equity | 629 720 | 2 613 674 | ||||||
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Accounting for revenue recognition under US GAAP
The company’s contracts include some or all of the following elements: software license, and/or hardware, maintenance and support, training, installation, integration services and other services. For such arrangements including multiple elements within the scope of SOP 97-2, the SOP requires that vendor-specific objective evidence (VSOE) of fair value be available for the elements in order to separate the arrangement and to account for each element of the arrangement separately.
The company has concluded that the VSOE of maintenance could not be established. Therefore :
• | When a license is sold with maintenance during the first year of the license, the company recognizes the total contract value over the length of the maintenance which is deemed to be 12 months. | ||
• | When a license is sold without maintenance and the company intends to provide the first year maintenance for free, even if this is not specified in the sales agreement, the contract value is recognized ratably over 12 months. |
Further, the company also concluded that the VSOE of training could not be established for a contract in which a license was sold with unlimited training sessions. Therefore, the company has recognised the license ratably over the life of the software which was estimated by the company at 3 years.
For contracts including a full refund clause, the revenue is deferred fully until the contingency is resolved, when the final acceptance of the last delivered product is obtained.
Other differences between French GAAP and US GAAP
In the course of 2005, the Company acquired and capitalized components of a software to be included in a solution under development that is expected to be marketed at the end of 2006. Under US GAAP, those components have to be considered as research and development costs and therefore have to be recorded through P&L.
Under French GAAP, marketable securities are recorded at their historical cost. Under US GAAP, available for sale marketable securities are stated at their fair value and changes in fair value are recorded in equity.
Under French GAAP, no compensation expense is recognized in connection with the grant of warrants. Under US GAAP, the Company has elected to apply the intrinsic method in accordance with APB Opinion No. 25 (“Accounting for Stock Issued to Employees”), which provides that a compensation expense is recognized when the fair value of the underlying stock exceeds the exercise price of the warrants at the date of grant.
SFAS 123R is effective as of the first annual reporting period that begins after December 15, 2005. The statement has to be applied prospectively to all awards granted after the required effective date and to previous awards modified, repurchased, or cancelled after that date. As no award has been granted, modified, repurchased, or cancelled between January 1st and September 30, 2006, the application of SFAS 123R has no impact on consolidated financial statements as at 30 September 2006.
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