SECURITIES EXCHANGE AND COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 30, 1997
ZITEL CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA
(State or other jurisdiction of incorporation)
0-12194 94-2566313
(Commission File No.) (IRS Employer Identification No.)
47211 BAYSIDE PARKWAY,
FREMONT, CALIFORNIA 94538-6517
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (510) 440-9600
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On June 30, 1997, Zitel Corporation ("Zitel" or the "Company") acquired the
businesses of three companies.
(a) DATAMETRICS SYSTEMS CORPORATION. A wholly-owned subsidiary of the
Company acquired the assets and certain liabilities of Datametrics Systems
Corporation ("Datametrics") for cash consideration of approximately
$9,200,000. There were no material relationships between Datametrics and its
affiliates, on the one hand, and the Company and its affiliates, on the other
hand. The purchase price and terms of the purchase were determined by
arm's-length negotiation between the parties. The purchase price was paid
out of the Company's working capital.
Datametrics, headquartered in Fairfax, Virginia, is engaged in the
development, marketing and sales of single-system and multi-system measurement
and modeling software used to optimize performance in client server
environments. The Company plans to continue the operations of Datametrics. The
assets of Datametrics were used in the described business and the Company plans
to continue such use.
(b) PALMER & WEBB SYSTEMS LIMITED AND PALMER & WEBB SYSTEMS B.V. Two
different wholly-owned subsidiaries of the Company acquired (i) the assets and
certain liabilities of Palmer & Webb Systems Limited (and a related company,
Moebius Business Training Limited) (collectively, "Limited") for cash
consideration of $800,000 and (ii) the outstanding stock of Palmer & Webb
Systems B.V. ("B.V.") for cash consideration of $1,000,000 and 61,401 shares of
the Company's common stock ("Common Stock"). There were no material
relationships between Limited and B.V. and their affiliates, on the one hand,
and the Company and its affiliates, on the other hand. The purchase prices and
terms of the purchases were determined by arm's-length negotiations between the
parties. The cash portions of the purchase prices were paid out of the
Company's working capital. Limited, headquartered in England, is engaged in the
distribution of Datametrics software in the United Kingdom. B.V., headquartered
in the Netherlands, markets Datametrics software in the Netherlands and provides
contract facilities maintenance in the Netherlands for the users of the
mainframe computer systems of a leading computer company. The assets of Limited
and B.V. were used in the described businesses and the Company intends to
continue such use.
The Company plans to combine the operations of the three acquired companies
with its existing performance and modeling software business in a division that
will operate under the Datametrics name. In conjunction with the acquisitions,
the Company expects to sustain a one-time, non-recurring, after-tax charge to
earnings for the write-off of acquired in-process research and development of
approximately $4.8 million, or $.31 per share, for the quarter ended June 30,
1997.
2.
ITEM 5. OTHER EVENTS - RISK FACTORS
RECENT LEVELS OF NET SALES; DEPENDENCE ON ROYALTY REVENUE
In recent years the Company has not generated net sales sufficient to
produce an operating profit and has relied on a stream of royalty payments under
an agreement with IBM to support its activities. These royalties amounted to
$15,421,000 in fiscal 1995 and $14,473,000 in fiscal 1996. In late 1996 IBM
introduced a new version of the royalty bearing device with substantially
greater capacity and royalty revenue declined to $2,318,000 in the first quarter
of fiscal 1997 and $1,196,000 in the quarter ended March 31, 1997. The Company
believes that IBM is transitioning to a device which does not require royalty
payments to the Company, and that as a result royalty revenue will continue to
decline. The Company has sustained operating losses and net losses in the
quarters ended December 31, 1996 and March 31, 1997. In the most recent quarter
the Company realized a negative net margin on net sales. The Company must
generate substantial additional net sales of its hardware products in order to
restore gross margins on those products, must generate profitable revenue from
its recently acquired software businesses and must generate revenue from its new
systems solutions division in order to remain a viable operating entity. There
is no assurance that the Company can achieve those objectives.
FLUCTUATIONS IN QUARTERLY RESULTS
The Company's quarterly operating results have in the past varied and may
in the future vary significantly depending on a number of factors, including:
the level of competition, the size, timing, cancellation or rescheduling of
significant orders; product configuration and mix; market acceptance of new
products and product enhancements; new product announcements or introductions by
the Company's competitors; deferrals of customer orders in anticipation of new
products or product enhancements; changes in pricing by the Company or its
competitors; the impact of price protection measures and return privileges
granted by the Company to its distributors and value added resellers (VARs); the
ability of the Company to develop, introduce and market new products and product
enhancements on a timely basis; hardware component costs and availability,
particularly with respect to hardware components obtained from sole source
suppliers; hardware supply constraints; the Company's success in expanding its
sales and marketing programs; technological changes in the market for the
Company's products, product mix and the mix of sales among the Company's sales
channels; levels of expenditures on research and development; changes in the
Company's strategy; personnel changes; general economic trends and other
factors.
Sales for any quarter are not predictable with any significant degree of
certainty. The Company generally operates with limited order backlog because
its products typically are shipped shortly after orders are received. Sales
to a single customer in a quarter have affected and may affect net sales and
operating margins. As a result, sales in any quarter are generally dependent
on orders booked and shipped in that quarter. Sales are also difficult to
forecast because the Company has not as yet generated significant sales of
its products incorporating cache activated storage device (CASD) technology.
Due to the typical timing of customer orders, the Company often ships
3.
products representing a significant portion of its net sales for a quarter
during the last month of that quarter. Any significant deferral of these sales
could have a material adverse effect on the Company's results of operations in
any particular quarter. To the extent that the Company completes significant
sales earlier than expected, operating results for subsequent quarters may be
adversely affected. The Company's expense levels are based, in part, on its
expectations as to future sales. As a result, if sales levels are below
expectations, net income may be disproportionately affected.
The mix of the products marketed by the Company has been evolving over the
last three years, and the Company's net sales have declined over that period.
Due to all of the foregoing factors, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as an indicator of future performance. It is possible
that in some future quarter the Company's operating results may be below the
expectations of public market analysts and investors. In such event, the price
of the Company's Common Stock would likely be materially and adversely affected.
INVESTMENT IN MATRIDIGM
The Company has invested $5,588,000 to acquire an approximate 30% interest
in MatriDigm Corporation ("MatriDigm"), a private company organized to provide
software maintenance and re-engineering services for users of IBM mainframe
computer systems. MatriDigm has initially focused on development of a set of
automated tools to identify and specifically modify dates within IBM COBOL
programs to bring them into compliance with the Year 2000 requirements and to
test the modified programs. MatriDigm in February 1997 announced commercial
availability of an automated tool set for a pac-binary solution for programs
written in ANSI COBOL 85 and, to respond to market demand, has recently
announced commercial availability of a windowing solution. MatriDigm intends to
continue to refine its current tool set and to extend its tool set to modify
other COBOL languages as well as other computer languages widely used to write
programs for IBM mainframe computers. Industry sources report a multi-billion
dollar demand for services such as those being developed by MatriDigm and an
automated tool set should provide greater profit margins than can be realized
using other available methods. However, MatriDigm has not realized revenue as
yet, and there is no assurance that it can successfully market its automated
tool set, develop extensions for other computer languages or generate
substantial revenue and profits. During the course of development, the Company
has made additional investments in MatriDigm and may be required to make
additional investments in the future.
VOLATILITY OF STOCK PRICE
The price of the Company's Common Stock has been subject to extreme
volatility over the past nine months, as the closing bid price has ranged
between a low of 5-1/8 and a high of 61-1/4, with a recent price of 19. The
Company believes that the principal reasons for this volatility are rumored
progress of and rumored problems in the product development program of
MatriDigm. MatriDigm, which expects to provide an automated solution to the
Year 2000 problem, is a private company and the principal vehicle for public
participation in ownership of
4.
MatriDigm is indirectly through ownership of Common Stock of the Company.
MatriDigm has been unable or unwilling to provide public information on a
regular basis about the status of its development effort, and as a result an
opportunity is presented for third parties to initiate rumors which result in
significant swings in the price of the Company's Common Stock. Until MatriDigm
successfully develops a solution and generates significant sustained revenue, it
will remain difficult for investors to apply standard methods of analysis to the
value of the Company's investment in MatriDigm and the pattern of volatility
should be expected to continue.
COMPETITION
The data storage market is intensely competitive, with technological
advances fueling continuous erosion of prices for data storage capacity. The
Company competes with much larger independent companies such as EMC Corp and
Data General Corporation as well as manufacturers of computer systems such as
Unisys Corporation, Sun Microsystems, Inc. and Hewlett-Packard Corporation.
Many of its competitors have substantially greater financial resources and
installed bases than the Company and, on account of their substantially higher
level of purchases, are able to achieve significantly lower prices from
suppliers of component parts. While the Company believes that its CASD products
are currently superior to competitive products, unless it can significantly
increase the level of net sales and additional cost savings on component
purchases, it will be unable to generate adequate gross margins on its CASD
products. There can be no assurance that the Company will be able to generate
the level of net sales to achieve adequate gross margins.
The market for Year 2000 services is intensely competitive, with services
being provided by a number of national, regional and local firms, many of which
have existing relationships and contractual arrangements with customers. Many
of these competitors have substantially greater financial, technical and
marketing resources than the Company and MatriDigm. The ability of the Company
and MatriDigm to compete in this market will depend on the ability of MatriDigm
to develop a successful automated solution and as yet there can be no assurance
that MatriDigm will be successful in this effort. In addition, the Company must
attract and retain qualified personnel in which are also highly sought by its
competition and must successfully leverage its own resources with contract and
partnering relationships with other companies, including companies which are
also competitors.
The market for system management tools in which the Company's software
products division competes is intensely competitive. Many of the companies with
which the Company competes, such as Hewlett-Packard Corporation, Computer
Associates and BGS, Inc. have substantially larger installed bases and greater
financial resources than the Company.
DEPENDENCE ON NEW PRODUCTS; RAPID TECHNOLOGICAL CHANGE
The markets in which the Company operates are characterized by rapid
technological change, changing customer needs, frequent new product
introductions and evolving industry standards. The introduction of products
embodying new technologies, increased storage capacities by the Company's
competitors and the emergence of new industry standards could
5.
render the Company's existing hardware products obsolete and unmarketable. The
Company's future success will depend upon its ability to develop and to
introduce new products on a timely basis that keep pace with technological
developments and emerging industry standards and address the increasingly
sophisticated needs of its customers. The Company has not as yet realized
significant sales of its CASD products. There can be no assurance that the
Company will be successful in generating significant sales of these products.
The failure of the Company to achieve significant net sales from these products
could have a material adverse effect on the Company's business, operating
results and financial condition. There can be no assurance that the Company
will be successful in developing and marketing any other products that respond
to technological changes or evolving industry standards, that the Company will
not experience difficulties that could delay or prevent the successful
development, introduction and marketing of new products, or that its new
products will adequately meet the requirements of the marketplace and achieve
market acceptance. If the Company is unable, for technological or other
reasons, to develop and introduce new products in a timely manner in response to
changing market conditions or customer requirements, the Company's business,
operating results and financial condition will be materially and adversely
affected.
PRODUCT LIABILITY
The Company's standard warranty provides that, if the Company's product
does not function to published specifications, the Company will repair or
replace the defective component without charge. Although to date the Company's
suppliers of hardware components have generally covered the warranty costs
associated with such components, there can be no assurance that such
manufacturers will continue to be willing or able to cover such costs, and their
failure to do so would result in such costs being borne by the Company. There
can be no assurance that the Company's warranty costs will not be significant in
the future. Significant warranty costs could have a material adverse effect on
the Company's business, operating results or financial condition.
The Company's agreements with its customers typically contain provisions
intended to limit the Company's exposure to potential product liability claims.
It is possible that the limitation of liability provisions contained in the
Company's agreements may not be effective. Although the Company has not
received any product liability claims to date, the sale and support of products
by the Company and the incorporation of products from other companies may entail
the risk of such claims. A successful product liability claim against the
Company could have a material adverse effect on the Company's business,
operating results and financial condition.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company's success depends significantly upon its proprietary
technology. The Company currently relies on a combination of patent, copyright
and trademark laws, trade secrets, confidentiality agreements and contractual
provisions to protect its proprietary rights. The Company seeks to protect its
software, documentation and other written materials under trade secret and
copyright laws, which afford only limited protection. The Company has
registered its Zitel, CASD, VAM and Datametrics trademarks and will continue to
evaluate the
6.
registration of additional trademarks as appropriate. The Company generally
enters into confidentiality agreements with its employees and with key vendors
and suppliers. The Company currently has eight United States patents associated
with its CASD technology. There can be no assurance that these patents will
provide the Company with any competitive advantages or will not be challenged by
third parties, or that the patents of others will not have a material adverse
effect on the Company's ability to do business. The Company believes that the
rapidly changing technology in the computer storage industry makes the Company's
success depend more on the technical competence and creative skills of its
personnel than on patents.
There has also been substantial litigation in the computer industry
regarding intellectual property rights, and litigation may be necessary to
protect the Company's proprietary technology. The Company has not received
significant claims that it is infringing third parties' intellectual property
rights, but there can be no assurance that third parties will not in the future
claim infringement by the Company with respect to current or future products,
trademarks or other proprietary rights. The Company expects that companies in
the storage systems market will increasingly be subject to infringement claims
as the number of products and competitors in the Company's target markets
grows. Any such claims or litigation may be time-consuming and costly, cause
product shipment delays, require the Company to redesign its products or
require the Company to enter into royalty or licensing agreements, any of
which could have a material adverse effect on the Company's business,
operating results or financial condition. Despite the Company's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy
aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. There can be no assurance that the Company's
means of protecting its proprietary rights will be adequate or that the
Company's competitors will not independently develop similar technology,
duplicate the Company's products or design around patents issued to the
Company or other intellectual property rights of the Company.
INTERNATIONAL SALES AND OPERATIONS
Sales to customers outside the United States have accounted for significant
portions of the Company's net sales, and the Company expects that the recent
acquisition of companies headquartered and operating in the United Kingdom and
the Netherlands, respectively, will result in international sales representing
an increasingly significant portion of the Company's net sales. International
sales pose certain risks not faced by companies that limit themselves to
domestic sales. Fluctuations in the value of foreign currencies relative to the
U.S. dollar, for example, could make the Company's products less price
competitive and, if the Company in the future denominates any of its sales in
foreign currencies, could result in losses from foreign currency transactions.
International sales also could be adversely affected by factors beyond the
Company's control, including the imposition of government controls, export
license requirements, restrictions on technology exports, changes in tariffs and
taxes and general economic and political conditions. The laws of some countries
do not protect the Company's intellectual property rights to the same extent as
the laws of the United States.
7.
RECENT ACQUISITIONS
The Company, on June 30, 1997, concluded the acquisition of the assets or
stock of three companies: Datametrics Systems Corporation, headquartered in
Fairfax, Virginia; Palmer & Webb Systems, Limited, headquartered in England and
Palmer & Webb Systems, B.V., headquartered in the Netherlands. The operations
of these acquired companies are substantial in relation to the previous
operations of the Company and there are significant risks involved in
integrating the operations and financial systems of these companies, in part
because of the relative size of the acquired operations and the distance of the
headquarters of these companies from the headquarters of the Company.
Acquisitions involve a number of special risks, including diversion of
management's attention, failure to retain key acquired personnel, unanticipated
events or circumstances, legal liabilities and amortization of acquired
intangible assets, some or all of which could have a material adverse effect on
the Company's results of operations and financial condition. Client
satisfaction or performance problems at a single acquired firm could have a
material adverse impact on the reputation of the Company as a whole.
While the Company has had experience developing and marketing software, a
substantial majority of the Company's efforts and experience have been
devoted to the development, manufacturing and marketing of computer memory
systems and embedded software and firmware. The new focus on developing and
marketing software will involve new and different skills and there can be no
assurance that the Company will be successful in that effort.
DEPENDENCE ON KEY PERSONNEL
The Company's future performance depends in significant part upon the
continued service of its key technical and senior management personnel. The
Company provides incentives such as salary, benefits and option grants (which
are typically subject to vesting over four years) to attract and retain
qualified employees. The loss of the services of one or more of the Company's
officers or other key employees could have a material adverse effect on the
Company's business, operating results and financial condition. The Company's
future success also depends on its continuing ability to attract and retain
highly qualified technical and management personnel. Competition for such
personnel is intense, and there can be no assurance that the Company can retain
its key technical and management employees or that it can attract, assimilate
and retain other highly qualified technical and management personnel in the
future.
The future success of the Company's systems solutions division will depend
to a significant extent on its ability to attract, train, motivate and retain
highly skilled software development professionals, particularly project
managers, software engineers and other senior technical personnel. The Company
believes that in the United States and elsewhere there is a shortage of, and
significant competition for, software development professionals with the
advanced technological skills necessary to perform the services offered by the
systems solutions division. The increasing recognition of the scope and
significance of the year 2000 problem has
8.
materially increased the competition for personnel with appropriate skills and
salary requirements have increased as availability of such personnel has
declined precipitously. The Company's ability to maintain and renew existing
relationships and obtain new business depends, in large part, on its ability to
hire and retain technical personnel with the information technology skills who
keep pace with continuing changes in information processing technology, evolving
industry standards and changing client preferences. An inability to hire such
additional qualified personnel could impair the ability of the systems solutions
division to manage and complete its existing projects and to bid for or obtain
new projects. Further, the Company must train and manage its growing employee
base, requiring an increase in the level of responsibility for both existing and
new management personnel. There can be no assurance that the management skills
and systems currently in place will be adequate or that the Company will be able
to assimilate new employees successfully. Accordingly, there can be no
assurance that the Company will be successful in retaining current or future
employees.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation, as
amended and restated, and Bylaws, as amended, California law and the Company's
indemnification agreements with certain officers and directors of the Company
may be deemed to have an anti-takeover effect. Such provisions may delay, defer
or prevent a tender offer or takeover attempt that a stockholder might consider
to be in that stockholder's best interests, including attempts that might result
in a premium over the market price for the shares held by stockholders.
The Company's Board of Directors may issue additional shares of Common
Stock or establish one or more classes or series of Preferred Stock, having the
number of shares designations, relative voting rights, dividend rates,
liquidation and other rights, preferences and limitations as determined by the
Board of Directors without stockholder approval.
The Board of Directors of the Company has approved the adoption of a
Preferred Share Purchase Rights Plan (the "Rights Plan"). Terms of the Rights
Plan provide for a dividend distribution of one preferred share purchase right
(a "Right") for each outstanding share of common stock, no par value per share
(the "Common Shares"), of the Company. Each Right entitles the registered
holder to purchase from the Company one one-hundredth of a share of Series A
Junior Participating Preferred Stock, no par value (the "Preferred Stock"), at
an exercise price of $69.50 per one one-hundredth of a Preferred Share (the
"Purchase Price"), subject to adjustment, and a redemption price of $.01 per
Right. Each one one-hundredth of a share of Preferred Stock has designations
and the powers, preferences and rights, and the qualifications, limitations and
restrictions which make its value approximately equal to the value of a Common
Share.
The Rights are not exercisable until the earlier to occur of (i) 10 days
following a public announcement that a person, entity or group of affiliated or
associated persons (an "Acquiring Person") have acquired beneficial ownership of
15% or more of the outstanding Common Shares or (ii) 10 business days (or such
later date as may be determined by action of the Board of Directors prior to
such time as any person or entity becomes an Acquiring Person) following the
9.
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 15% or more of such outstanding Common Shares.
The Rights have certain anti-takeover effects as they would cause
substantial dilution to a person or group that attempted to acquire the Company
on terms not approved by the Company's Board of Directors. The Rights should
not interfere with any merger or other business combination approved by the
Board of Directors, since the Rights may be redeemed by the Company at $.01 per
Right prior to the earliest of (i) the twentieth day following the time that a
person or group has acquired beneficial ownership of 15% or more of the Common
Shares (unless extended for one or more 10 day periods by the Board of
Directors), (ii) a change of control, or (iii) the final expiration date of the
rights.
10.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
Attached hereto and filed as a part of this report are the following
financial statements:
(I) The Financial statements and report thereof, for
Datametrics Systems Corporation for the years ended
December 31, 1996 and 1995.
(II) The Financial statements and report thereof, for
Palmer & Webb Systems Limited for the years ended
December 31, 1996 and 1995.
(III) The Financial statements and report thereof, for
Palmer & Webb Systems B.V. for the years ended December 31,
1996 and 1995.
(B) UNAUDITED PRO FORMA FINANCIAL INFORMATION.
The following listed unaudited pro forma financial information for
the acquisitions if attached hereto and filed as a part of this report:
(I) Introductory Paragraph
(II) Notes to Unaudited Pro Forma Combined Financial Statements
(III) Unaudited Pro Forma Combined Balance Sheet as of
March 31, 1997
(IV) Unaudited Pro Forma Combined Statement of Operations
for the Year Ended September 30, 1996
(V) Unaudited Pro Forma Combined Statement of Operations
for the Six Months Ended March 31, 1997
11.
(C) EXHIBITS.
The following exhibits are furnished in accordance with the provisions
of Item 601 of Regulation S-K:
Exhibit Number Exhibit
2.1 Asset Purchase Agreement dated as of June 25, 1997, by
and among Zitel World Trade, Datametrics System
Corporation and John C. Kelly.
2.2 Asset Purchase Agreement dated as of 30 June 1997, by
and among Zitel Corporation, Zitel Limited, Palmer &
Webb Systems Limited, Reginald Webb and Julian Palmer
and Moebius Business Training Limited.
2.3 Stock Purchase Agreement dated as of June 30, 1997, by
and among Zitel Corporation, Zitel World Trade, Hell
Sails B.V. and Palmer & Webb Systems B.V.
10.1 Lease Office Building for One Monument Place between
Upland Industrities Corporation and Collin Equities,
Inc. and Datametrics Systems Corporation dated July 31,
1992.
10.2 First Amendment to Lease between CMD Realty Investment
Fund, L.P. and Datametrics Systems Corporation dated
October 16, 1996.
10.3 Form of Palmer & Webb Lease.
12.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ZITEL CORPORATION
Dated: July 14, 1997 By:/s/ Jack H. King
----------------
Jack H. King
President and Director
Chief Executive Officer
13.
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------
2.1 Asset Purchase Agreement dated as of June 25, 1997, by and among
Zitel World Trade, Datametrics Systems Corporation and John C. Kelly.
2.2 Asset Purchase Agreement dated as of 30 June 1997, by and among
Zitel Corporation, Zitel Limited, Palmer & Webb Systems Limited,
Reginald Webb and Julian Palmer and Moebius Business Training
Limited.
2.3 Stock Purchase Agreement dated as of June 30, 1997, by and among
Zitel Corporation, Zitel World Trade, Hell Sails B.V. and Palmer
& Webb Systems B.V.
10.1 Lease Office Building for One Monument Place between Upland
Industrities Corporation and Collin Equities, Inc. and Datametric
Systems Corporation dated July 31, 1992.
10.2 First Amendment to Lease between CMD Realty Investment Fund, L.P. and
Datametrics Systems Corporation dated October 16, 1996.
10.3 Form of Palmer & Webb Lease.
14.
FINANCIAL STATEMENTS
DATAMETRICS SYSTEMS CORPORATION
YEARS ENDED DECEMBER 31, 1996 AND 1995
WITH REPORT OF INDEPENDENT AUDITORS
Datametrics Systems Corporation
Financial Statements
Years ended December 31, 1996 and 1995
Contents
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . 1
Audited Financial Statements
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Stockholder's Equity . . . . . . . . . . . . . . . . . 4
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . 6-9
[LETTERHEAD]
Report of Independent Auditors
Board of Directors
Datametrics Systems Corporation
We have audited the accompanying balance sheets of Datametrics Systems
Corporation as of December 31, 1996 and 1995 and the related statements of
income, stockholder's equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Datametrics Systems Corporation
at December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
February 21, 1997
Datametrics Systems Corporation
Balance Sheets
DECEMBER 31
1996 1995
-------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 106,667 $ 801,041
Accounts receivable 2,476,526 3,015,281
Prepaid expenses and other assets 17,785 13,915
----------- -----------
Total current assets 2,600,978 3,830,237
Property and equipment:
Computer equipment and software 604,078 494,941
Office furniture and equipment 173,719 158,357
----------- -----------
777,797 653,298
Less accumulated depreciation and amortization (578,496) (463,290)
----------- -----------
199,301 190,008
Capitalized software costs, net 1,559,430 620,884
----------- -----------
Total assets $ 4,359,709 $ 4,641,129
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 36,585 $ 55,870
Accrued liabilities 762,166 549,504
Note payable 27,778 61,111
Deferred revenue 1,961,062 1,910,523
----------- -----------
Total current liabilities 2,787,591 2,577,008
Commitments (Note 5) - -
Stockholder's equity:
Common stock, no par value; 1,000 shares
authorized, 100 shares issued and outstanding 5,943 5,943
Retained earnings 1,566,175 2,058,178
----------- -----------
Total stockholder's equity 1,572,118 2,064,121
----------- -----------
Total liabilities and stockholder's equity $ 4,359,709 $ 4,641,129
----------- -----------
----------- -----------
SEE ACCOMPANYING NOTES.
2
Datametrics Systems Corporation
Statements of Income
YEARS ENDED DECEMBER 31,
1996 1995
---------------------------
Revenues:
Software and maintenance $ 6,676,963 $ 6,649,045
Contract 1,528,220 1,406,050
----------- -----------
8,205,183 8,055,095
Costs of revenues:
Software and maintenance 3,839,180 2,792,255
Contract 707,786 696,923
----------- -----------
4,546,966 3,489,178
Gross profit 3,658,217 4,565,917
Operating expenses:
Research and development 291,064 259,918
Sales and marketing 1,503,962 1,174,786
General and administrative 1,768,219 1,484,332
----------- -----------
Total operating expenses 3,563,245 2,919,036
----------- -----------
Income from operations 94,972 1,646,881
Other income (expense):
Interest and other income 47,593 14,446
Interest expense (4,568) (8,380)
----------- -----------
Net income $ 137,997 $ 1,652,947
----------- -----------
----------- -----------
SEE ACCOMPANYING NOTES.
3
Datametrics Systems Corporation
Statements of Stockholder's Equity
COMMON STOCK
------------ RETAINED
SHARES AMOUNT EARNINGS TOTAL
----------------------------------------------
Balance at December 31, 1994 100 $ 5,943 $ 440,231 $ 446,174
Net income - - 1,652,947 1,652,947
Distributions to stockholder - - (35,000) (35,000)
------- -------- ----------- -----------
Balance at December 31, 1995 100 5,943 2,058,178 2,064,121
Net income - - 137,997 137,997
Distributions to stockholder - - (630,000) (630,000)
------- -------- ----------- -----------
Balance at December 31, 1996 100 $ 5,943 $ 1,566,175 $ 1,572,118
-----------------------------------------------
-----------------------------------------------
SEE ACCOMPANYING NOTES
4
Datametrics Systems Corporation
Statements of Cash Flows
YEARS ENDED DECEMBER 31,
1996 1995
-------------------------
OPERATING ACTIVITIES
Net income $ 137,997 $ 1,652,947
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 227,209 108,494
Changes in operating assets and liabilities:
Accounts receivable 538,755 (1,786,016)
Prepaid expenses and other assets (3,870) 22,518
Accounts payable and accrued liabilities 193,377 220,660
Deferred revenue 50,539 835,850
----------- -----------
Net cash provided by operating activities 1,144,007 1,054,453
INVESTING ACTIVITIES
Purchase of property and equipment (124,499) (107,146)
Capitalized software costs (1,050,549) (620,884)
----------- -----------
Net cash used in investing activities (1,175,048) (728,030)
FINANCING ACTIVITIES
Repayments of note payable (33,333) (33,333)
Distributions to stockholder (630,000) (35,000)
----------- -----------
Net cash used in financing activities (663,333) (68,333)
Net (decrease) increase in cash and cash equivalents (694,374) 258,090
Cash and cash equivalents at beginning of year 801,041 542,951
----------- -----------
Cash and cash equivalents at end of year $ 106,667 $ 801,041
----------- -----------
----------- -----------
SEE ACCOMPANYING NOTES
5
Datametrics Systems Corporation
Notes to Financial Statements
December 31, 1996 and 1995
1. ORGANIZATION AND NATURE OF OPERATIONS
Datametrics Systems Corporation (the "Company") was incorporated in 1980 under
the laws of the State of Delaware. The Company develops and sells computer
performance management and capacity planning software, contracting/consulting
services, and educational programs for certain users.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
STATEMENT OF CASH FLOWS
For purposes of the statements of cash flows, cash equivalents are defined as
highly liquid investments with original maturities of three months or less.
REVENUE RECOGNITION
Net revenues include contract revenue, software license revenue and
maintenance fees. Contract revenue is recognized ratably over the contract
term as services are performed pursuant to contractual terms. The Company
recognizes software license revenue upon shipment of related software
products. The portion of new software revenue attributed to post-contract
customer support ("PCS") as well as continuing maintenance fees are
recognized ratably over the contractual period as the services are provided.
DEFERRED REVENUE
The Company records deferred revenue for PCS and other maintenance arrangements
while complying with the aforementioned revenue recognition policies.
6
Datametrics Systems Corporation
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization on
property and equipment and purchased computer software are calculated on the
straight-line method over the estimated useful lives of the assets of three to
five years.
CAPITALIZED SOFTWARE COSTS
Certain software development costs are capitalized when incurred.
Capitalization of software development costs begins upon the establishment of
technological feasibility. The establishment of technological feasibility
and the ongoing assessment of recoverability of capitalized software
development costs requires considerable judgment by management with respect
to certain external factors, including, but not limited to, technological
feasibility, anticipated future gross revenues, estimated economic life and
changes in software and hardware technologies.
The Company's policy is to amortize capitalized software costs by the greater
of (a) the ratio that current gross revenues for a product bear to the total
of current and anticipated future gross revenues for that product or (b) the
straight-line method over the remaining estimated economic life of the
product (three year period) including the period being reported on. During
1996, amortization expense of $112,003 was recorded for the capitalized
software products that were released. During 1995, amortization expense for
such costs was not recorded since the products in development did not become
available for general market release. It is reasonably possible that those
estimates of anticipated future gross revenues, the remaining estimated
economic life of the product, or both may change significantly in the near
term. As a result, the carrying amount of the capitalized software costs may
be adjusted materially in the near term.
During the years ended December 31, 1996 and 1995, the Company capitalized
approximately $1,051,000 and $621,000, respectively, of software development
costs. All research and development costs, until technological feasibility is
attained, are charged to expense as incurred.
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest was approximately $4,500 and $8,000 during the years
ended December 31, 1996 and 1995, respectively.
7
Datametrics Systems Corporation
Notes to Financial Statements (continued)
3. INCOME TAXES
The Company has elected by unanimous consent of its stockholder to be taxed
under the provisions of Subchapter S of the Internal Revenue Code. Under those
provisions, the Company does not pay corporate income taxes on its taxable
income. Instead, the stockholder includes the Company's net income in his
individual income tax return.
4. NOTE PAYABLE
The Company executed a term note payable agreement for $100,000 with a bank
whereby the principal amount is payable in equal monthly installments over the
thirty-six month period ending February 1997. Interest is payable monthly at an
annual rate of the bank's interest rate plus 1.5%. As of December 31, 1996, the
balance on the note payable was $27,778. The note payable is secured by the
Company's assets and is also guaranteed by the Company's stockholder.
5. COMMITMENTS
The Company leases its facilities and various equipment under operating leases.
The leases provide for various renewal options. Rental expense for these
operating leases for the years ending December 31, 1996 and 1995 amounted to
approximately $255,000 and $223,000, respectively.
The aggregate liabilities for future rentals as of December 31, 1996 are as
follows:
1997 $ 318,146
1998 31,089
1999 8,288
----------
$ 357,523
----------
----------
The Company also has two agreements under which it is required to make royalty
payments based on sales of specific products. These royalty payments represent
10% - 35% of total sales of specific products and amounted to approximately
$560,000 and $420,000 during 1996 and 1995, respectively.
8
Datametrics Systems Corporation
Notes to Financial Statements (continued)
6. MAJOR CUSTOMERS
During 1996, one customer accounted for approximately 18% of the Company's
revenues. During 1995, two customers accounted for approximately 34% of the
Company's revenues.
7. RETIREMENT PLAN
The Company has adopted a 401(k) Plan (the "Plan"). The Plan, which covers all
employees who have completed six months of service, stipulates that employees
may elect an amount between 1% and 15% of their total compensation to contribute
to the Plan. Additionally, the Company's Board of Director's approves Company
contributions to match employee contributions. Contributions were made by the
Company in the amount of $84,608 and $59,515 during the years ended December 31,
1996 and 1995, respectively.
8. SUBSEQUENT EVENTS
Subsequent to December 31, 1996, the company has entered into a letter of intent
to sell 100% of its outstanding common stock to another party.
9
[COMPANY LETTERHEAD]
PALMER & WEBB SYSTEMS LIMITED
-----------------------------
DIRECTORS' REPORT AND
FINANCIAL STATEMENTS
FOR THE YEAR ENDED
31 DECEMBER 1996
Company Number: 1648965
PALMER & WEBB SYSTEMS LIMITED 1
- -----------------------------
Directors
J.C.C. Palmer
R.H.W. Webb
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 1996
- --------------------------------------------------------------------------------
The directors submit their report together with the audited financial statements
of the company for the year ended 31 December 1996.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit of the company for that period. In preparing those
financial statements, the directors are required to:
- - Select suitable accounting policies and then apply them consistently.
- - Make judgements and estimates that are reasonable and prudent.
- - Prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the financial statements comply with
the Company Act 1985. They are also responsible for safeguarding the assets of
the company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
PRINCIPAL ACTIVITIES
The principal activities of the company are that of computer programming
services and the supply of computer equipment.
REVIEW OF THE BUSINESS
The company's results are satisfactory and the directors remain confident that
continued profitability will occur in the coming years.
RESULTS AND DIVIDENDS
The profit for the year after taxation amounted to 13,588 Pound Sterling.
Dividends were paid during the year as set out in note 9. The directors
recommend that the balance be deducted from reserves.
PALMER & WEBB SYSTEMS LIMITED 2
- -----------------------------
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 1996 (continued)
- --------------------------------------------------------------------------------
DIRECTORS AND THEIR INTERESTS
The directors during the year together with their beneficial interest in the
Company's issued ordinary share capital were as follows:
Ordinary shares Ordinary shares
of 5p each of 5p each
31.12.96 1.1.96
J.C.C. Palmer 1,000,000 1,000,000
R.H.W. Webb l,000,000 1,000,000
PALMER & WEBB SYSTEMS LIMITED EXECUTIVE SHARE OPTION SCHEME
At 31 December 1996, there were outstanding options over 33,850 shares which had
been granted to 7 employees.
The directors had no interests in the executive share option scheme.
AUDITORS
In accordance with Section 385 of the Companies Act 1985, a resolution proposing
that M.P. Saunders & Company be re-appointed as auditors of the Company will
be put to the Annual General Meeting.
The Directors have taken advantage in preparation of their report of the special
exemptions applicable to small companies.
This report was approved by the Board on 21 February 1997.
/s/ R.H.W. Webb
R.H.W. Webb
Director
PALMER & WEBB SYSTEMS LIMITED 3
- -----------------------------
AUDITORS' REPORT
TO THE MEMBERS OF PALMER & WEBB SYSTEMS LIMITED
We have audited the financial statements on pages 4 to 11 which have been
prepared under the historical cost convention and the accounting policies set
out on page 6.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page 1 the company's directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements.
It also includes an assessment of the significant estimates and judgements made
by the directors in the preparation of the financial statements, and of whether
the accounting policies are appropriate to the company's circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion, the financial statements give a true and fair view of the state
of the company's affairs at 31 December 1996 and of its profit for the year then
ended and have been properly prepared in accordance with the provisions of the
Companies Act 1985 applicable to small companies.
/s/ signature illegible
M P Saunders & Company
Chartered Accountants and Registered Auditor
183-191 Ballards Lane
Finchley Central
London
N3 ILP Dated 21 February 1997
PALMER & WEBB SYSTEMS LIMITED 4
- -----------------------------
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1996
(FIGURES IN POUND STERLING)
- -------------------------------------------------------------------------------
1996 1995
NOTES
TURNOVER 2 2,133,002 2,217,151
Cost of sales (994,397) (1,023,483)
------- ---------
GROSS PROFIT 1,138,605 1,193,668
Distribution Costs (149,324) (144,709)
Administrative expenses (1,041,523) (1,044,242)
---------- ---------
(1,190,847) (1,188,951)
--------- ---------
OPERATING (LOSS)/PROFIT 4 (52,242) 4717
Other income 6 86,966 76,512
------ ------
34,724 81,229
Interest payable 7 (9,249) (16,434)
----- ------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 25,475 64,795
Tax charge on
ordinary activities 8 (11,887) (22,841)
------ ------
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 13,588 41,954
Dividends 9 (17,000) -
------ --------
(LOSS)/PROFIT FOR THE YEAR (3,412) 41,954
----------- ------------
----------- ------------
STATEMENT OF RETAINED PROFITS
Retained profits brought forward 303,415 261,461
Retained (loss)/profit for the year (3,412) 41,954
----- ------
Retained profits carried forward 300,003 303,415
------------- -------------
------------- -------------
There were no recognised gains and losses for 1995 or 1996 other than those
included in the profit and loss account.
The notes on pages 6 to 11 form part of these financial statements.
PALMER & WEBB SYSTEMS LIMITED 5
- -----------------------------
BALANCE SHEET
as at 31 December 1996
(FIGURES IN POUND STERLING)
- -------------------------------------------------------------------------------
1996 1995
Notes
FIXED ASSETS
Tangible assets 10 314,114 310,616
Investments 11 50 50
------- -------
314,164 310,666
CURRENT ASSETS
Stocks 12 116,970 102,900
Debtors 13 1,002,759 764,946
Cash at bank and in hand 88 8
--------- -------
1,119,817 867,854
CREDITORS: Amounts falling
due within one year 14 (958,978) (700,105)
------- -------
NET CURRENT ASSETS 160,839 167,749
------- -------
TOTAL ASSETS LESS CURRENT
LIABILITIES 475,003 478,415
CREDITORS: Amounts
falling due after more
than one year 15 (62,500) (62,500)
------ ------
TOTAL NET ASSETS 412,503 415,915
------- -------
------- -------
CAPITAL AND RESERVES
Called up share capital 16 100,000 100,000
Capital reserve 12,500 12,500
Profit and loss account 300,003 303,415
------- -------
SHAREHOLDERS FUNDS 17 412,503 415,915
------- -------
------- -------
The Directors have taken advantage, in the preparation of these financial
statements, of special exemptions applicable to small Companies on the grounds
that the Company qualifies as a small Company by virtue of Section 247 of the
Companies Act 1985.
The financial statements on pages 4 to 11 were approved by the Board on 21
February, 1997.
/s/ R.H.W. Webb
R.H.W. Webb
Director
PALMER & WEBB SYSTEMS LIMITED 6
- -----------------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1996
(FIGURES IN POUND STERLING)
- -------------------------------------------------------------------------------
1. ACCOUNTING POLICIES
The following are the more important accounting policies adopted by the
company:
(a) BASIS OF ACCOUNTING
The financial statements have been prepared under the historical cost
convention and include the results of the company's operations which are
described in the Directors' Report and all of which are continuing.
The company has taken advantage of the exemption in Financial Reporting
Standard No. 1 from producing a cashflow statements on the grounds that it
is a small company.
(b) DEPRECIATION OF TANGIBLE FIXED ASSETS
Fixed assets are stated at cost and all repairs are written off as
incurred. Fixed assets are written down to their estimated residual values
over their estimated useful lives.
The estimated useful lives are as follows:-
Leasehold premises over term of lease
Equipment 15% p.a.
Fixtures and fittings 15% p.a.
Motor vehicles 20% p.a.
(c) STOCKS
Stocks and work in progress are valued at the lower of cost and net
relisable value.
(d) DEFERRED TAXATION
Provision for deferred taxation is made only where a liability for the
payment of such taxation is anticipated to arise in the foreseeable future.
(e) FOREIGN CURRENCIES
Foreign currency balances are converted into sterling at the rates ruling
at the end of the accounting year.
(f) LEASING
Rental costs of operating leases are charged against profit on a straight
line basis over the term of the lease.
(g) PENSION COSTS
The company makes payments to a defined contribution scheme and these are
charged to the profit and loss account as they become payable.
(h) INVESTMENT
The accounts of Moebius Business Training Ltd have not been consolidated
because of the exemptions available under S248(3) of the Companies Act
1985. Because of the significance of the company's share in this associate
and because of its long term nature, the associate has been accounted for
on a cost basis.
PALMER & WEBB SYSTEMS LIMITED 7
- -----------------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1996
(FIGURES IN POUND STERLING)
- --------------------------------------------------------------------------------
2. TURNOVER
Turnover represents the total amount receivable by the company in respect
of goods sold and services rendered to customers, excluding sales taxes and
is attributable to the principal activities of the company.
Turnover by geographical market supplied is split as follows:
1996 1995
% %
United Kingdom 78 89
Rest of the world 22 11
---- ----
100 100
---- ----
---- ----
3. STAFF COSTS
Wages and salaries 642,339 674,004
Social security costs 65,594 66,521
Other pension costs 17,218 16,702
-------- --------
725,151 757,227
-------- --------
-------- --------
The average number of employees was as follows:
Number Number
Sales 18 20
Administration 4 5
------ ------
22 25
------ ------
------ ------
4. OPERATING (LOSS)/PROFIT
The operating (loss)/profit is stated after charging:
Motor vehicle leasing 48,167 46,108
Equipment hire & leasing 9,915 8,338
Auditors' remuneration 3,500 3,750
Directors' emoluments as executives (note 5) 163,335 143,149
Depreciation of tangible fixed assets 54,194 53,506
Amortisation of tangible fixed assets 595 588
(Profit) on disposal of tangible fixed assets - (1,218)
------- -------
------- -------
PALMER & WEBB SYSTEMS LIMITED 8
- -----------------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1996
(FIGURES IN POUND STERLING)
- --------------------------------------------------------------------------------
5. DIRECTORS' EMOLUMENTS (EXCLUDING PENSION CONTRIBUTIONS)
1996 1995
Chairman 77,740 58,305
------- -------
------- -------
The remuneration of the other directors were in
the following ranges:
Number Number
15,001 - 20,000 - 1
65,001 - 70,000 - 1
85,001 - 90,000 1 -
------ ------
------ ------
6. OTHER INCOME
Interest Receivable 402 -
Management Fees 86,564 76,512
------- -------
86,966 76,512
------- -------
------- -------
The management fees are received from Palmer & Webb Systems B.V. a company
in The Netherlands. The fees are for technical, administration, as well as
management services and there is no legal relationship between the two
companies.
7. INTEREST PAYABLE
On bank overdraft 3,582 12,179
On other loans wholly repayable within five years 5,667 4,255
------ -------
9,249 16,434
------ -------
------ -------
PALMER & WEBB SYSTEMS LIMITED 9
- -----------------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1996
(FIGURES IN POUND STERLING)
- --------------------------------------------------------------------------------
8. TAX ON PROFIT ON ORDINARY ACTIVITIES
1996 1995
Tax charge for the year 11,887 22,841
------- -------
------- -------
9. DIVIDENDS
Interim dividends were paid as follows:
28 February 1996 0.006p per share 12,000 -
9 April 1996 0.0025p per share 5,000 -
------- -------
17,000 -
------- -------
------- -------
10. TANGIBLE FIXED ASSETS
Leasehold Fixtures Motor
premises Equipment and fittings vehicles Total
COST:
1 January 1996 12,500 772,630 93,903 7,558 886,591
Additions - 54,194 4,093 - 58,287
------ ------- ------ ----- -------
31 December 1996 12,500 826,824 97,996 7,558 944,878
------ ------- ------ ----- -------
------ ------- ------ ----- -------
ACCUMULATED DEPRECIATION:
1 January 1996 4,108 506,198 60,460 5,209 575,975
Charge for the year 595 48,094 5,630 470 54,789
------ ------- ------ ----- -------
31 December 1996 4,703 554,292 66,090 5,679 630,764
------ ------- ------ ----- -------
------ ------- ------ ----- -------
NET BOOK VALUE:
31 DECEMBER 1996 7,797 272,532 31,906 1,879 314,114
------ -------- ------- ------ -------
------ -------- ------- ------ -------
31 DECEMBER 1995 8,392 266,432 33,443 2,349 310,616
------ -------- ------- ------ --------
------ -------- ------- ------ --------
PALMER & WEBB SYSTEMS LIMITED 10
- -----------------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1996
(FIGURES IN POUND STERLING)
- --------------------------------------------------------------------------------
11. FIXED ASSET INVESTMENT
1996 1995
Shares in associated company - Stated at cost 50 50
----- -----
----- -----
The company holds 50% of the ordinary share capital of Moebius Business
Training Ltd., a company registered in England and Wales.
12. STOCKS
Work in progress 110,000 94,300
Finished goods 6,970 8,600
-------- --------
116,970 102,900
-------- --------
-------- --------
13. DEBTORS: amounts falling due within one year
Trade debtors 891,612 714,959
Other debtors 1,309 11,472
Prepayments and accrued income 109,838 38,515
---------- --------
1,002,759 764,946
---------- --------
---------- --------
14. CREDITORS: amounts falling due within one year
Bank overdraft (secured) 147,563 103,639
Trade creditors 675,459 378,609
Corporation tax 6,110 20,281
Other taxes and social security costs 83,573 137,202
Accruals 16,273 51,886
Other creditors 30,000 8,488
-------- --------
958,978 700,105
-------- --------
-------- --------
The bank overdraft is secured by a mortgage debenture over the assets of the
company, including a first legal charge over the leasehold premises at
Fountain House, Cleeve Road, Leatherhead, Surrey.
PALMER & WEBB SYSTEMS LIMITED 11
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1996
(FIGURES IN POUND STERLING)
- -------------------------------------------------------------------------------
15. CREDITORS: amounts falling due after more than one year
1996 1995
Pension fund loan 62,500 62,500
------- -------
------- -------
The pension fund loan is secured against the directors' pension policies.
16. SHARE CAPITAL
Authorised Allotted, issued
and fully paid
1996 1995 1996 1995
Ordinary shares of
5p each 150,000 150,000 100,000 100,000
-------- -------- -------- --------
-------- -------- -------- --------
17. MOVEMENT ON SHAREHOLDERS FUNDS
1996 1995
Profit for the year 13,588 41,954
Less: Dividends (17,000) -
------- ------
(3,412) 41,954
Opening Shareholders funds 415,915 373,961
------- -------
CLOSING SHAREHOLDERS FUNDS 412,503 415,915
-------- --------
-------- --------
18. COMMITMENTS UNDER LEASING CONTRACTS
The company is committed to make the following payments under operating
leases in existence at 31 December 1996:
Commitment expires within one year 26,963 -
in the second to fifth years 293 49,519
----------- -------
27,256 49,519
----------- -------
----------- -------
PALMER & WEBB SYSTEMS LIMITED 12
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1996
(FIGURES IN POUND STERLING)
- -------------------------------------------------------------------------------
1996 1995
TURNOVER 2,133,002 2,217,151
COST OF SALES
Opening stock 102,900 93,212
Purchases 1,008,467 1,033,171
--------- ---------
1,111,367 1,126,383
Less closing stock (116,970) (102,900)
--------- ---------
(994,397) (1,023,483)
--------- -----------
GROSS PROFIT 1,138,605 1,193,668
DISTRIBUTION COSTS
Travel and subsistence 46,848 48,319
Motor expenses 19,246 25,046
Motor leasing 48,167 46,108
Advertising and promotion 30,702 20,324
Depreciation of motor vehicles 470 587
Freight and packing 3,891 4,325
------- --------- ------- -----------
CARRIED FORWARD 149,324 1,138,605 144,709 1,193,668
PALMER & WEBB SYSTEMS LIMITED 13
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1996
(FIGURES IN POUND STERLING)
- -------------------------------------------------------------------------------
1996 1995
BROUGHT FORWARD 149,324 1,138,605 144,709 1,193,668
------- -------
ADMINISTRATIVE EXPENSES
Wages and salaries 642,339 674,004
Social security costs 65,594 66,521
Pension costs 17,218 16,702
Welfare premiums 16,026 14,893
Rent and rates 98,596 94,410
Light and heat 3,967 8,206
Telephone . 30,005 27,730
Printing, postage & stationery 22,978 12,137
Legal and professional 4,363 7,991
Audit and accountancy 3,500 3,750
Recruitment costs 19,898 7,021
Insurance 16,521 14,169
Repairs and maintenance 6,876 18,422
Training 6,798 5,913
Depreciation of equipment 48,094 47,017
Depreciation of fixtures and fittings 5,630 5,902
Amortization of lease 595 588
Entertaining 4,848 11,031
Subscriptions and donation 2,176 2,043
Bank charges 3,408 3,951
Sundry, expenses 4,630 1,932
Loss/(Profit) on exchange 4,503 (10,256)
Equipment hire and leasing 9,915 8,338
(Profit) on disposal of equipment - (1,218)
Bad debts 3,045 3,045
------- -------
1,041,523 1,044,242
--------- ---------
(1,190,847) (1,188,951)
---------- ----------
OPERATING (LOSS)/PROFIT (52,242) 4,717
CARRIED FORWARD
PALMER & WEBB SYSTEMS LIMITED 14
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1996
(FIGURES IN POUND STERLING)
- --------------------------------------------------------------------------------
1996 1995
OPERATING (LOSS)/PROFIT
BROUGHT FORWARD (52,242) 4,717
OTHER INCOME
Management Fees 86,564 76,512
Interest Receivable 402 86,966 - 76,512
------ ------
INTEREST PAYABLE
On bank overdraft 3,582 12,179
On other loans wholly repayable
within five years 5,667 (9,249) 4,255 (16,434)
------ ------ ------ --------
PROFIT ON ORDINARY 25,475 64,795
ACTIVITIES BEFORE ------- -------
TAXATION ------- -------
PALMER & WEBB SYSTEMS LIMITED
-----------------------------
(formerly Palmer & Webb Limited)
DIRECTORS' REPORT AND
FINANCIAL STATEMENTS
FOR THE YEAR ENDED
31 DECEMBER 1995
Company Number 1648965
PALMER & WEBB SYSTEMS LIMITED 1
- -----------------------------
Directors
J.C.C. Palmer
R.H.W. Webb
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 1995
- -------------------------------------------------------------------------------
The directors submit their report together with the audited financial statements
of the company for the year ended 31 December 1995.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit of the company for that period. In preparing those
financial statements, the directors are required to:
- - Select suitable accounting policies and then apply them consistently.
- - Make judgements and estimates that are reasonable and prudent.
- - Prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the financial statements comply with
the Company Act 1985. They are also responsible for safeguarding the assets of
the company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
PRINCIPAL ACTIVITIES
The principal activities of the company are that of computer programming
services and the supply of computer equipment.
REVIEW OF THE BUSINESS
The company's results are satisfactory and the directors remain confident that
continued profitability will occur in the coming years.
RESULTS AND DIVIDENDS
The profit for the year after taxation amounted to 41,954 Pound Sterling.
The directors recommend that this be transferred to reserves. No dividends
were paid during the year.
CHANGE OF NAME
On 6 March 1995 the company changed its name from Palmer & Webb Limited to
Palmer & Webb Systems Limited.
PALMER & WEBB SYSTEMS LIMITED 2
- -----------------------------
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 1995 (continued)
- -------------------------------------------------------------------------------
DIRECTORS AND THEIR INTERESTS
The directors during the year together with their beneficial interests in the
Company's issued ordinary share capital were as follows:
Ordinary shares Ordinary shares
of 5p each of 5p each
31.12.95 1.1.95
J.C.C. Palmer 1,000,000 1,000,000
R.H.W. Webb 1,000,000 1,000,000
C.P. McGhie (resigned 11/1/95) - -
PALMER & WEBB SYSTEMS LIMITED EXECUTIVE SHARE OPTION SCHEME
At 31 December 1995, there were outstanding options over 44,600 shares which
had been granted to 10 employees.
The directors had no interests in the executive share option scheme.
AUDITORS
In accordance with Section 385 of the Companies Act 1985, a resolution
proposing that M.P. Saunders & Company be re-appointed as auditors of the
company will be put to the Annual General Meeting.
The Directors have taken advantage in preparation of their Report, of the
special exemptions applicable to small Companies.
This report was approved by the Board on 18 March 1996.
/s/ R.H.W. Webb
R.H.W. Webb
Director
PALMER & WEBB SYSTEMS LIMITED 3
- -----------------------------
AUDITORS' REPORT
TO THE MEMBERS OF PALMER & WEBB SYSTEMS LIMITED
We have audited the financial statements on pages 4 to 11 which have been
prepared under the historical cost convention and the accounting policies set
out on page 6.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page 1 the company's directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements.
It also includes an assessment of the significant estimates and judgements made
by the directors in the preparation of the financial statements, and of whether
the accounting policies are appropriate to the company's circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion, the financial statements give a true and fair view of the state
of the company's affairs at 31 December 1995 and of its profit for the year
then ended and have been properly prepared in accordance with the provisions of
the Companies Act 1985 applicable to small companies.
M P Saunders & Company
Chartered Accountants and Registered Auditor
183-191 Ballards Lane
Finchley Central
London
N3 ILP Dated 18 March 1996
PALMER & WEBB SYSTEMS LIMITED 4
- -----------------------------
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1995
(FIGURES IN POUND STERLING)
- ------------------------------------------------------------------------------
1995 1994
NOTES
TURNOVER 2 2,217,151 2,767,645
Cost of sales (1,023,483) (1,404,963)
--------- ---------
GROSS PROFIT 1,193,668 1,362,682
Distribution Cost (151,730) (214,919)
Administrative expenses (1,037,221) (1,155,841)
--------- ---------
(1,188,951) (1,370,760)
------- ---------
OPERATING PROFIT/(LOSS) 4 4717 (8,078)
Other income 6 76,512 43,787
---------- --------
81,229 35,709
Interest payable 7 (16,434) (13,608)
------ ------
PROFIT ON ORDINARY
ACTIVITIES BEFORE
TAXATION 64,795 22,101
Tax charge on ordinary
activities 8 (22,841) (11,338)
------ ------
PROFIT ON ORDINARY 41,954 10,763
ACTIVITIES AFTER
TAXATION
Dividends - (6,000)
----------- ------------
PROFIT FOR THE YEAR 41,954 4,763
----------- ------------
----------- ------------
STATEMENT OF RETAINED PROFITS
Retained profits brought forward 261,461 256,698
Retained profit for the year 41,954 4,763
------ -----
Retained profits. carried forward 303,415 261,461
------------ ------------
------------ ------------
There were no recognised gains and losses for 1995 or 1994 other than those
included in the profit and loss account.
The notes on pages 6 to 11 form part of these financial statements.
PALMER & WEBB SYSTEMS LIMITED 5
- -----------------------------
BALANCE SHEET
as at 31 December 1995
(FIGURES IN POUND STERLING)
- -----------------------------------------------------------------------------
1995 1994
NOTES
FIXED ASSETS
Tangible assets 9 310,616 349,343
Investments 10 50 50
------- --------
310,666 349,393
CURRENT ASSETS
Stocks 11 102,900 93,212
Debtors 12 764,946 814,639
Cash at bank and in hand 8 90
------- -------
867,854 907,941
CREDITORS: Amounts
falling due within
one year 13 (700,105) (820,873)
------- -------
NET CURRENT ASSETS 167,749 87,068
------- ------
TOTAL ASSETS LESS
CURRENT LIABILITIES 478,415 436,461
CREDITORS: Amounts
falling due after
more than one year 14 (62,500) (62,500)
------ -------
TOTAL NET ASSETS 415,915 373,961
------------ ------------
------------ ------------
CAPITAL AND RESERVES
Called up share capital 16 100,000 100,000
Capital reserve 12,500 12,500
Profit and loss account 303,415 261,461
------- -------
SHARE HOLDERS FUNDS 17 415,915 373,961
------------ ------------
------------ ------------
The Directors have taken advantage, in the preparation of these financial
statements, of special exemptions applicable to small Companies on the
grounds that the Company qualifies as a small Company by virtue of section
247 of the Companies Act 1985.
The financial statements on pages 4 to 11 were approved by the Board on 18 March
1996.
/s/ R.H.W. Webb
R.H.W. Webb
Director
PALMER & WEBB SYSTEMS LIMITED 6
- -----------------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995
(FIGURES IN POUND STERLING)
- --------------------------------------------------------------------------------
1. ACCOUNTING POLICIES
The following are the more important accounting policies adopted by the
company:
(a) BASIS OF ACCOUNTING
The financial statements have been prepared under the historical cost
convention and include the results of the company's operations which are
described in the Directors' Report and all of which are continuing.
The company has taken advantage of the exemption in Financial Reporting
Standard No. 1 from producing a cashflow statement on the grounds that it
is a small company.
(b) DEPRECIATION OF TANGIBLE FIXED ASSETS
Fixed assets are stated at cost and all repairs are written off as
incurred. Fixed assets are written down to their estimated residual values
over their estimated useful lives.
The estimated useful lives are as follows:-
Leasehold premises over term of lease
Equipment 15% p.a.
Fixtures and fittings 15% p.a.
Motor vehicles 20% p.a.
(c) STOCKS
Stocks and work in progress are valued at the lower of cost and net
realisable value.
(d) DEFERRED TAXATION
Provision for deferred taxation is made only where a liability for the
payment of such taxation is anticipated to arise in the foreseeable future.
(e) FOREIGN CURRENCIES
Foreign currency balances are converted into sterling at the rates ruling
at the end of the accounting year.
(f) LEASING
Rental costs of operating leases are charged against profit on a straight
line basis over the term of the lease.
(g) PENSION COSTS
The company makes payments to a defined contribution scheme and these are
charged to the profit and loss account as they become payable.
(h) INVESTMENT
The accounts of Moebius Business Training Ltd have not been consolidated
because of the exemptions available under S248(3) of the Companies Act
1985. Because of the significance of the company's share in this associate
and because of its long term nature, the associate has been accounted
for on a cost basis.
PALMER & WEBB SYSTEMS LIMITED
7
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995
(FIGURES IN POUND STERLING)
- --------------------------------------------------------------------------------
2. TURNOVER
Turnover represents the total amount receivable by the company in
respect of goods sold and services rendered to customers, excluding
sales taxes and is attributable to the principal activities of the
company.
Turnover by geographical market supplied is split as follows:
1995 1994
% %
United Kingdom 89 91
Rest of the world 11 9
-------- --------
100 100
-------- --------
-------- --------
3. STAFF COSTS 1995 1994
Wages and salaries 674,004 760,105
Social security costs 66,521 75,778
Other pension costs 16,702 16,094
-------- --------
757,227 851,977
-------- --------
-------- --------
The average number of employees was as follows:
Number Number
Sales 20 24
Administration 5 6
-------- --------
25 30
-------- --------
-------- --------
4. OPERATING PROFIT/(LOSS)
The operating profit/(loss) is stated after charging:
1995 1994
Motor vehicle leasing 46,108 27,539
Equipment hire & leasing 8,338 6,040
Auditors' remuneration 3,750 3,600
Directors' emoluments as executives (note 5) 143,149 180,225
Depreciation of tangible fixed assets 53,506 66,309
Amortisation of tangible fixed assets 588 588
(Profit)/Loss on disposal of tangible fixed assets (1,218) 20,139
-------- --------
-------- --------
PALMER & WEBB SYSTEMS LIMITED
8
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995
(FIGURES IN POUND STERLING)
- --------------------------------------------------------------------------------
5. DIRECTORS' EMOLUMENTS (excluding pension contributions)
1995 1994
Chairman 58,305 57,547
-------- --------
-------- --------
The remuneration of the other directors were
in the following ranges:
Number Number
15,001 - 20,000 1 --
55,001 - 60,000 -- 1
65,001 - 70,000 1 1
-------- --------
-------- --------
6. OTHER INCOME 1995 1994
Management Fees 76,512 43,787
-------- --------
-------- --------
The management fees are received from Palmer & Webb Systems B.V. a
company in The Netherlands, The fees are for technical, administration,
as well as management services and there is no legal relationship
between the two companies.
7. INTEREST PAYABLE 1995 1994
On finance lease and hire purchase agreements -- 911
On bank overdraft l2,179 8,175
On other loans wholly repayable within five years 4,255 4,522
-------- --------
16,434 13,608
-------- --------
-------- --------
PALMER & WEBB SYSTEMS LIMITED
9
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995
(FIGURES IN POUND STERLING)
- --------------------------------------------------------------------------------
8. TAX ON PROFIT ON ORDINARY ACTIVITIES
1995 1994
Tax charge for the year 22,841 11,338
-------- --------
-------- --------
9. TANGIBLE FIXED ASSETS
Leasehold Fixtures Motor
premises Equipment and fittings vehicles Total
COST:
1 January 1995 12,500 758,163 93,903 7,558 872,124
Additions -- 20,471 -- -- 20,471
Disposals -- (6,004) -- -- (6,004)
-------- -------- -------- -------- --------
31 December 1995 12,500 772,630 93,903 7,558 886,591
-------- -------- -------- -------- --------
ACCUMULATED DEPRECIATION:
1 January 1995 3,520 460,081 54,558 4,622 522,781
Charge for the year 588 47,017 5,902 587 54,094
Disposals -- (900) -- -- (900)
-------- -------- -------- -------- --------
31 December 1995 4,108 506,198 60,460 5,209 575,975
-------- -------- -------- -------- --------
NET BOOK VALUE:
31 DECEMBER 1995
8,392 266,432 33,443 2,349 310,616
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
31 DECEMBER 1994 8,980 298,082 39,345 2,936 349,343
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
PALMER & WEBB SYSTEMS LIMITED
10
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995
(FIGURES IN POUND STERLING)
- --------------------------------------------------------------------------------
10. FIXED ASSETS INVESTMENT
1995 1994
Shares in associated company
- Stated at cost 50 50
-------- --------
-------- --------
The company holds 50% of the ordinary share capital of Moebius Business
Training Ltd, a company registered in England and Wales.
11. STOCKS 1995 1994
Work in progress 94,300 78,300
Finished goods 8,600 14,912
-------- --------
102,900 93,212
-------- --------
-------- --------
12. DEBTORS: amounts falling due within one year 1995 1994
Trade debtors 714,959 771,464
Other debtors 11,472 11,479
Prepayments and accrued income 38,515 31,696
-------- --------
764,946 814,639
-------- --------
-------- --------
13. CREDITORS: amounts falling due within one year
1995 1994
Bank overdraft (secured) 103,639 176,640
Trade creditors 378,609 458,757
Corporation tax 20,281 9,596
Other taxes and social security costs 137,202 96,988
Accruals 51,886 55,799
Other creditors 8,488 23,093
-------- --------
700,105 820,873
-------- --------
-------- --------
The bank overdraft is secured by a mortgage debenture over the assets of
the company, including a first legal charge over the leasehold premises
at Fountain House, Cleeve Road, Leatherhead, Surrey.
PALMER & WEBB SYSTEMS LIMITED 11
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995
(FIGURES IN POUND STERLING)
- -------------------------------------------------------------------------------
14. CREDITORS: amounts falling due after more 1995 1994
than one year
Pension fund loan 62,500 62,500
------- -------
------- -------
The pension fund loan is secured against the directors' pension policies.
15. COMMITMENTS UNDER LEASING CONTRACTS
The company is committed to make the following payments during the year
ending 31 December 1995 under operating leases in existence at 31 December
1995:
1995 1994
Commitment expires
within one year - 2,925
in the second to fifth years 49,519 45,438
------ ------
49,519 48,363
------- -------
------- -------
16. SHARE CAPITAL Authorised Allotted, issued
and fully paid
1995 1994 1995 1994
Ordinary shares of 5p each 150,000 150,000 100,000 100,000
-------- -------- -------- --------
-------- -------- -------- --------
17. MOVEMENT ON SHAREHOLDERS FUNDS
1995 1994
Profit for the year 41,954 4,763
Opening shareholders funds 373,961 369,198
------- -------
Closing shareholders funds 4l5,915 373,961
-------- --------
-------- --------
PALMER & WEBB SYSTEMS LIMITED 12
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1995
(FIGURES IN POUND STERLING)
- -------------------------------------------------------------------------------
1995 1994
TURNOVER 2,217,151 2,767,645
COST OF SALES
Opening stock 93,212 92,543
Purchases 1,033,171 1,405,632
--------- ---------
1,126,383 1,498,175
Less closing stock (102,900) (93,212)
--------- ----------
(1,023,483) (1,404,963)
--------- ---------
GROSS PROFIT 1,193,668 1,362,682
DISTRIBUTION COSTS
Travel and subsistence 48,319 62,466
Motor expenses 25,046 39,526
Motor leasing 46,108 27,539
Advertising and promotion 27,345 55,140
Depreciation of motor
vehicles 587 6,175
Freight and packing 4,325 3,934
Loss on disposal of motor
vehicles - 20,139
------- --------- ------- ---------
CARRIED FORWARD 151,730 1,193,668 214,919 1,362,682
PALMER & WEBB SYSTEMS LIMITED 13
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1995
(FIGURES IN POUND STERLING)
- ---------------------------------------------------------------------------------------------------------------------------------
1995 1994
BROUGHT FORWARD 151,730 1,193,668 214,919 1,362,682
------- -------
ADMINISTRATIVE EXPENSES
Wages and salaries 674,004 760,105
Social security costs 66,521 75,778
Pension costs 16,702 16,094
Welfare premiums 14,893 8,148
Rent and rates 94,410 79,490
Light and heat 8,206 11,525
Telephone 27,730 31,288
Printing, postage &
stationery 12,137 20,583
Legal and professional 7,991 2,597
Audit and accountancy 3,750 3,600
Insurance 14,169 12,877
Repairs and maintenance 18,422 45,945
Training 5,913 11,320
Depreciation of equipment 47,017 52,603
Depreciation of fixtures
and fittings 5,902 6,943
Amortisation of lease 588 588
Entertaining 11,031 13,696
Subscriptions and donations 2,043 1,107
Bank charges 3,951 3,933
Sundry expenses 1,932 2,837
Profit on exchange (10,256) (11,256)
Equipment hire and leasing 8,338 6,040
Profit on disposal of
equipment (1,218) -
Bad debts 3,045 -
--------- ---------
1,037,221 1,155,841
--------- ---------
(1,188,951) (1,370,760)
----------- -----------
OPERATING PROFIT/(LOSS) 4,717 (8,078)
CARRIED FORWARD
PALMER & WEBB SYSTEMS LIMITED 14
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1995
(FIGURES IN POUND STERLING)
- ---------------------------------------------------------------------------------------------------------------------------------
1995 1994
OPERATING PROFIT/(LOSS) 4,717 (8,078)
Brought forward
OTHER INCOME
Management Fees 76,512 43,787
INTEREST PAYABLE
On finance lease and hire
purchase agreements - 911
On bank overdraft 12,179 8,175
On other loans wholly
repayable within 4,255 4,522
five years ------ -----
(16,434) (13,608)
------- -------
PROFIT ON ORDINARY 64,795 22,101
ACTIVITIES BEFORE ------- --------
TAXATION ------- --------
[LETTERHEAD]
R E G S T E R A C C 0 U N T A N T S
Scheepmakersstraat 15 Burg. de Zeeuwstraat 296
3011 VH Rotterdam 2981 AJ Ridderkerk
telefoon : 010 - 4149891 telefoon : 0180 - 425011
telefax : 010 - 4143023 telefax : 03-80 - 426142
PALMER & WEBB SYSTEMS B.V.
--------------------------
DIRECTORS' REPORT AND
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1996
Company Number 194.245
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 1
- --------------------------
Directors
R.H.W. Webb
M.L. Schuurkes
T. Fortgens
Supervisory Directors
J.C.C. Palmer
F.W.J.J. Kaalen
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 1996
- -------------------------------------------------------------------------------
The directors submit their report together with the audited financial
statements of the company for the year ended 31 December 1996.
PRINCIPAL ACTIVITIES
The principal activities of the company are that of the sale of automation
products and related services.
REVIEW OF THE BUSINESS
The company has achieved results in line with expectation during the year and
the directors remain confident that continued growth will occur in the years
to come.
RESULTS AND DIVIDENDS
The profit for the year after taxation amounted to FL. 56.001.
In accordance with the articles of association, the profit after taxation was
added to the retained earnings.
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 2
- --------------------------
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 1996 (continued)
- -------------------------------------------------------------------------------
DIRECTORS
Them were no changes in the year and none of the directors have any interest
in the share capital of the company.
AUDITORS
In accordance with Chapter 9 of Book 2 of the Dutch Civil Code, a resolution
proposing that Van Doesburg & Partners be re-appointed as auditors of the
company will be put to the Annual General Meeting.
THIS REPORT WAS APPROVED BY THE BOARD ON 7 FEBRUARY 1997.
/s/ signature illegible /s/ signature illegible
- ----------------------- -----------------------
M.L. Schuurkes T. Fortgens
Director Director
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 3
- --------------------------
AUDITORS' REPORT
TO THE MEMBERS OF PALMER & WEBB SYSTEMS B.V.
We have audited the 1996 financial statements of Palmer & Webb Systems B.V.
at Rotterdam. These financial statements are the responsibility of the
entire management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with the auditing standards generally
accepted in the Netherlands. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. 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 financial statements give a true and fair view of the
financial position of the company as of 31 December 1996 and of the result
for the year then ended in accordance with accounting principles generally
accepted in the Netherlands and comply with the financial reporting
requirements included in Part 9, Book 2 of the Netherlands Civil Code.
Rotterdam, 7 February 1997
/s/ signature illegible
- ------------------------
Van Doesburg & Partners
J.C.J. van Doesburg, RA
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 4
- --------------------------
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1996
- -------------------------------------------------------------------------------
1996 1995
Notes FL FL
Turnover 1 4.336.216 5.683.216
Cost of sales (2.195.830) (3.337.982)
----------- -----------
Gross profit 2.140.386 2.345.234
Administrative expenses (1.800.774) (1.976.275)
Distribution costs (196.186) (189.259)
----------- -----------
Operating profit 3 143.426 179.700
Other income 5 8.811 9.713
Interest payable 6 0 0
----------- -----------
Profit on ordinary activities 152.237 189.413
before taxation
Tax charge on ordinary 7 (38.897) (61.451)
activities
----------- -----------
Profit on ordinary activities after 113.340 127.962
taxation
Extraordinary item 8 (57.339) (37.882)
----------- -----------
Profit for the year 56.001 90.080
----------- -----------
----------- -----------
STATEMENT OF RETAINED PROFITS
Retained profit brought forward 210.092 120.012
Profit for the year 56.001 90.080
----------- -----------
Retained profit carried
forward 266.093 210.092
----------- ------------
----------- ------------
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 5
- --------------------------
BALANCE SHEET
as at 31 December 1996
- -------------------------------------------------------------------------------
1996 1995
Notes FL FL FL FL
FIXED ASSETS
Tangible assets 9 13.347 26.761
CURRENT ASSETS
Stocks 10 9.057 367
Debtors 11 1.688.632 2.194.359
Cash at bank and in hand 786.335 403.101
--------- ---------
2.484.024 3.187.907
CREDITORS: Amounts falling
due within one year 12 (2.191.678) (2.964.576)
--------- ---------
Net current assets 292.346 223.331
------- -------
Total assets less current
liabilities 306.093 250.092
------- -------
------- -------
CAPITAL AND RESERVES
Called up share capital 13 40.000 40.000
Retained earnings 266.093 210.092
------- -------
306.093 250.092
------- -------
------- -------
The financial statements on pages 4 to 10 were approved by the Board on 7
February 1997.
/s/ M.L. Schuurkes /s/ T. Fortgens
- ------------------------- -------------------------
M.L. Schuurkes T. Fortgens
Director Director
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 6
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1996
- -------------------------------------------------------------------------------
1. ACCOUNTING POLICIES
The following are the more important accounting policies adopted by the
company:
(a) BASIS OF ACCOUNTING
The financial statements are prepared under the historical cost
convention and in accordance with applicable accounting standards.
(b) DEPRECIATION OF TANGIBLE FIXED ASSETS
Fixed assets are stated at cost and all repairs are written off as
incurred. Fixed assets are written down to their estimated residual
values over their estimated useful lives.
The estimated useful lives are as follows:
Fixtures and fittings 20% straight line
office equipment - 33 1/3% straight line
Computer equipment - 33 1/3% straight line
(c) STOCKS
Stocks are valued at the lower of cost and net realisable value.
(d) FOREIGN CURRENCIES
Foreign currency balances are converted into guilders at the rates
ruling at the end of the accounting year.
(e) TURNOVER
Turnover represents the total amount receivable by the company in
respect of goods sold and services rendered to customers, excluding
sales taxes and is attributable to the principal activities of the
company. All turnover was supplied by customers in The Netherlands
(f) PENSION COSTS
Pension Costs are charged to the profit and loss account in the year to
which they relate, and any commitments are provided for.
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 7
- -------------------------
NOTES To THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1996(continued)
- --------------------------------------------------------------------------------
1996 1995
FL. FL.
2. STAFF COSTS
Wages and salaries 878.401 1.042.031
Social security costs 39.048 24.174
Other pension costs 60.031 33.572
Third party costs 186.763 248.095
------- -------
1.164.243 1.347.872
--------- ---------
--------- ---------
The average number of employees
was as follows during the year
Sales 8 9
Administration 3 2
--- ----
11 11
---- ----
---- ----
3. OPERATING PROFIT 1996 1995
FL. FL.
The operating profits, stated
after charging:
Hire of plant and machinery 51.537 51.384
Auditors' remuneration 7.500 10.500
Directors, emoluments as executives
(note 4) 217.497 146.010
Depreciation of tangible fixed
assets 31.172 29.098
4. DIRECTORS' REMUNERATION (EXCLUDING PENSION CONTRIBUTIONS)
Highest paid director 217.497 146.010
------- -------
------- -------
No other director received any
remuneration
5. OTHER INCOME
Interest receivable 8.811 9.713
----- -----
----- -----
6. INTEREST PAYABLE
On bank loans and overdrafts 0 0
On tax liabilities 0 0
- -
0 0
- -
- -
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 8
- --------------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1996 (continued)
- -------------------------------------------------------------------------------
7. TAX ON PROFIT ON ORDINARY ACTIVITIES
1996 1995
FL. FL.
Dutch Corporation tax 38.897 61.451
------ ------
------ ------
8. EXTRAORDINARY ITEM
The company has purchased her client base from Unisys Nederland NV at
Amsterdam. In exchange of this transfer Palmer & Webb Systems bv have
agreed upon the following payments to Unisys Nederland NV..
- 20% of the pretax profit for a period of 5 years, over the years 1992
up to and including 1996 up to a maximum amount of Dfl. 1.250.000 in total.
- a payment of 16% of shareholders equity as stated on the statutory balance
of Palmer & Webb Systems BV ending book-year 1996
9. TANGIBLE FIXED ASSETS
Fixtures and Office Computer
Fittings Equipment Equipment Total
FL. FL. FL. FL.
COST:
1 January 1996 60.959 69.026 126.220 256.205
Additions 0 0 118.159 18.159
Disposals 0 0 0 0
------ ------- ------- -------
31 December 1996 60.959 69.026 144.379 274.364
------ ------- ------- -------
ACCUMULATED DEPRECIATION
1 January 1996 48.768 68.119 112.557 229.444
Charge for the year 12.191 454 18.528 31.173
Disposals 0 0 0 0
------ ------- ------- -------
31 December 1996 60.959 68.573 131.085 260.617
------ ------- ------- -------
Net book value
31 December 1996 0 453 13.294 13.747
------ ---- ------ ------
------ ---- ------ ------
Net book value: 12.191 907 13.663 26.761
31 December 1995 ------ --- ------ ------
------ --- ------ ------
10. STOCKS 1996 1995
FL FL
Finished goods 9.057 367
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 9
- --------------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1996 (continued)
- ---------------------------------------------------------------------
1996 1995
FL. FL.
11. DEBTORS
Trade debtors 1.636.853 2.646.372
Other debtors 8.996 5.412
Prepayments 42.783 42.575
--------- ---------
1.688.632 2.694.359
--------- ---------
--------- ---------
12. CREDITORS:
amounts falling due within one year
Trade creditors 1.284.615 2.051.093
Other taxes and social costs 200.176 316.138
Accrued income 126.700 0
Inter company account 112.097 102.028
Corporation tax 66.640 41.451
Other creditors 3.750 7.789
Accruals 397.300 446.077
-------- ---------
2.191.678 2.694.576
--------- ---------
--------- ---------
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 10
- ------------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1996(continued)
- --------------------------------------------------------------------------------
13. SHARE CAPITAL
AUTHORISED ALOTTED, ISSUED
AND FULLY PAID
1 January 31 December 1 January 31 December
1996 1996 1996 1996
FL. FL. FL. FL.
Ordinary shares of FL.
10000 each 200.000 200.000 40.000 40.000
------- ------- ------ ------
------- ------- ------ ------
14 CONTINGENT LIABILITIES
The company has purchased her client base from Unisys Nederland N.V. at
Amsterdam. In exchange of this transfer Palmer & Webb Systems BV have
agreed upon the following payments to Unisys Nederland NV:
- 20% of the pretax profit for a period of 5 years, over the years 1992 up
to and including 1996 up to a maximum amount of Dfl. 1.250.000 in total.
- a payment of 16% of shareholders equity as stated on the statutory
balance of Palmer & Webb Systems BV ending book-year 1996.
- Palmer & Webb Systems B.V. and Unisys Nederland NV at Amsterdam have
decided to continue their VAR relationship on the Dutch market as per 1
April 1997 ("Effective Date) The present agreement will be in effect
until 31 March 1997 on the same conditions as mentioned above.
15 UTLTIMATE HOLDING COMPANY
The directors of the company regard is Palmer & Webb Systems International
N.V., a company incorporated in Curacao (N.A.) as the holding company.
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 11
- --------------------------
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1996
- --------------------------------------------------------------------------------
1996 1995
FL. FL. FL FL
TURNOVER 4.336.216 5.683.216
COST OF SALES (2.195.830) (3.337.982)
----------- -----------
GROSS PROFIT 2.140.386 2.345.234
ADMINISTRATIVE EXPENSES
Wages and salaries, 876.801 1.042.031
Social security cost 39.048 24.174
Third party costs 188.363 248.095
Rent and rates 91.640 90.044
Pension costs 60.031 33.572
Telephone 30.786 34.248
Printing, postage and stationery 32.576 13.979
Auditors remuneration 7.500 10.500
Legal and professional 22.859 76.299
Insurance 9.685 7.214
Repairs and maintenance 17.714 22.281
Training 19.475 5.464
Depreciation of office equipment 453 454
Depreciation of fixtures & fittings 12.191 12.192
Depreciation of computer equipment 18.528 16.452
Hire of equipment 51.537 51.384
Entertaining 2.430 6.773
Subscriptions and donations 4.527 4.834
Books and publications 1.988 707
Bank charges 6.495 7.702
Sundry expenses 15.879 12.952
Loss/(Profit) on exchange (11.732) (24.987)
Management fee U.K 226.000 176.000
Management fee Holding company 76.000 74.000
Profit on disposal of fixed assets 0 0
Bad Debts 0 29.911
-------- --------
(1.80074) (1.976.275)
DISTRIBUTION COSTS
Travel and subsistence 23.147 25.577
Motor expenses 160.928 140.384
Advertising and promotion 12.111 23.298
Freight and packing 0 0
------- -------
(196.186) (189.259)
------- -------
OPERATING PROFIT carried forward 143.426 179.700
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 12
- --------------------------
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1996
- --------------------------------------------------------------------------------
1996 1995
FL. FL.
OPERATING PROFIT 143.426 179.700
brought forward
OTHER INCOME
Bank interest receivable 8.811 9.713
INTEREST PAYABLE
Bank interest payable ( 0) 0
On tax liabilities ( 0) 0
---- -
0 0
PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION 152.237 189.413
------- -------
------- -------
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V.
DIRECTORS' REPORT AND
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995
Company Number 194.245
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 1
- --------------------------
Directors
R.H.W. Webb
M.L. Schuurkes
T. Fortgens
Commissarissen:
J.C.C. Palmer
F.W.J.J. Kaalen
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 1995
- --------------------------------------------------------------------------------
The directors submit their report together with the audited financial
statements of the company for the year ended 31 December 1995.
PRINCIPAL ACTIVITIES
The principal activities of the company are that of the sale of automation
products and services.
REVIEW OF THE BUSINESS
The company has achieved results more in line with expectation during the year
and the directors remain confident that continued growth with occur in the years
to come.
RESULTS AND DIVIDENDS
The profit for the year after taxation amounted to FL. 90.080 In accordance with
the articles of association, the profit after taxation was added to the retained
earnings.
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 2
- --------------------------
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 1995 (continued)
- --------------------------------------------------------------------------------
DIRECTORS
There were no changes in the year and none of the directors have any interest in
the share capital of the company.
AUDITORS
In accordance with Chapter 9 of Book 2 of the Dutch Civil Code, a resolution
proposing that Van Doesburg & Partners be re-appointed as auditors of the
company will be put to the Annual General Meeting.
This report was approved by the Board on 2 April 1996.
/s/ ILLEGIBLE /s/ ILLEGIBLE
- ------------------------- -------------------------
M.L. Schuurkes T. Fortgens
Director Director
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 3
- --------------------------
AUDITORS' REPORT
TO THE MEMBERS OF PALMER & WEBB SYSTEMS B.V.
We have audited the 1995 financial statements of Palmer & Webb Systems B.V.
at Rotterdam. These financial statements are the responsibility of the
entitiy's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auding standards generally accepted in
the Netherlands. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. 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 financial statements give a true and fair view of the
financial position of the company as of 31 December 1995 and of the result for
the year then ended in accordance with accounting principles generally accepted
in the Netherlands and comply with the financial reporting requirements included
in Part 9, Book 2 of the Netherlands Civil Code.
Rotterdam, 2 April 1996
/s/ ILLEGIBLE
- ------------------------
Van Doesburg & Partners
J.C.J. van Doesburg, RA
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 4
- --------------------------
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1995
- --------------------------------------------------------------------------------
1995 1994
Notes FL FL
Turnover 1 5.683.216 6.039.768
Cost of sales (3.337.982) (3.613.265)
----------- -----------
Gross profit 2.345.234 2.426.503
Administrative expenses (1.976.275) (2.177.388)
Distribution costs (189.259) (228.248)
----------- -----------
Operating profit 3 179.700 20.867
Other income 5 9.713 4.554
Interest Payable 6 0 (4.245)
---------- -----------
Profit on ordinary activities 189.413 21.176
before taxation
Tax charge on ordinary 7 (61.451) (9.640)
activities
---------- -----------
Profit on ordinary activities 127.962 11.536
after taxation
Extraordinary item 8 (37.882) (4.235)
---------- -----------
Profit for the year 90.080 7.301
---------- -----------
---------- -----------
STATEMENT OF RETAINED PROFITS
Retained profit brought 120.012 112.711
forward
Profit for the year 90.080 7.301
---------- -----------
Retained profit carried
forward 210.092 120.012
---------- -----------
---------- -----------
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 5
- --------------------------
BALANCE SHEET
as at 31 December 1995
- --------------------------------------------------------------------------------
1995 1994
Notes FL FL FL FL
FIXED ASSETS
Tangible assets 9 26.761 50.937
CURRENT ASSETS
Stocks 10 367 4.612
Debtors 11 2.694.359 1.724.969
Cash at bank and in hand 493.181 398.777
--------- ---------
3.187.907 2.128.358
CREDITORS: Amounts falling
due within one year 12 (2.964.576) (2.019.283)
----------- -----------
Net current assets 223.331 109.075
------- -------
Total assets less current
liabilities 250.092 160.012
------- -------
------- -------
CAPITAL AND RESERVES
Called up share capital 13 40.000 40.000
Retained earnings 210.092 120.012
------- -------
250.092 160.012
------- -------
------- -------
The financial statements on pages 4 to 10 were approved by the Board on 2 April
1996.
/s/ M.L. Shuurkes /s/ T. Fortgens
- ----------------- ---------------
M.L. Shuurkes T. Fortgens
Director Director
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 6
- --------------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995
- --------------------------------------------------------------------------------
1. ACCOUNTING POLICIES
The following are the more important accounting policies adopted by the
company:
(a) BASIS OF ACCOUNTING
The financial statements are prepared under the historical cost convention
and in accordance with applicable accounting standards.
(b) DEPRECIATION OF TANGIBLE FIXED ASSETS
Fixed assets are stated at cost and all repairs are written off as
incurred. Fixed assets are written down to their estimated residual values
over their estimated useful lives.
The estimated useful lives are as follows:
Fixtures and fittings - 20% straight line
Office equipment - 33 1/3% straight line
Computer equipment - 33 1/3% straight line
(c) STOCKS
Stocks are valued at the lower of cost and net realisable value.
(d) FOREIGN CURRENCIES
Foreign currency balances are converted into gilders at the rates ruling at
the end of the accounting year.
(e) TURNOVER
Turnover represents the total amount receivable by the company in respect
of goods sold and services rendered to customers, excluding sales taxes and
is attributable to the principal activities of the company. All turnover
was supplied to customers in The Netherlands
(f) PENSION COSTS
Pension Costs are charged to the profit and loss account in the year in
which they relate, and any commitments are provided for.
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 7
- --------------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995 (continued)
- --------------------------------------------------------------------------------
1995 1994
FL. FL.
2. STAFF COSTS
Wages and salaries 1.042.031 1.202.605
Social security costs 24.174 20.727
Other pension costs 33.572 59.174
Third party costs 248.095 210.138
--------- ---------
1.347.872 1.492.644
--------- ---------
--------- ---------
The average number of employees was as
follows during the year
Sales 9 10
Administration 2 3
--- ---
11 13
--- ---
--- ---
3. OPERATING PROFIT 1995 1994
FL. FL.
The operating profit is stated after charging:
Hire of plant and machinery 51.384 51.384
Auditors' remuneration 10.500 10.000
Directors' emoluments as executives (note 4) 146.010 122.872
Depreciation of tangible fixed assets 29.098 75.634
4. DIRECTORS' REMUNERATION (excluding pension contributions)
Highest paid director 146.010 122.872
------- -------
------- -------
No other director received any remuneration
5. OTHER INCOME
Interest receivable 9.713 4.554
----- -----
----- -----
6. INTEREST PAYABLE
On bank loans and overdrafts 0 399
On tax liabilities 0 3.846
- -----
0 4.245
- -----
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 8
- --------------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995(continued)
- -------------------------------------------------------------------------------
7. TAX ON PROFIT ON ORDINARY ACTIVITIES
1995 1994
FL. FL.
Dutch Corporation tax 61.451 9.640
------ -----
------ -----
8. EXTRAORDINARY ITEM
The company is liable to pay for the first five years of its existence 20%
of its pre-tax profits to Unisys Nederland N.V. as consideration to that
company for the customers that it transferred to Palmer & Webb Systems B.V.
at its incorporation..
9. TANGIBLE FIXED ASSETS
Fixtures and Office Computer
Fittings Equipment Equipment Total
FL. FL. FL. FL.
Cost:
1 January 1995 60.959 67.665 122.659 251.283
Additions 0 1.361 3.561 4.922
Disposals 0 0 0 0
31 December 1995 ------ ------ ------- -------
60.959 69.026 126.220 256.205
------ ------ ------- -------
Accumulated depreciation
1 January 1995 36.576 67.665 96.105 200.346
Charge for the year 12.192 454 16.452 29.098
Disposals 0 0 0 0
------ ------ ------- -------
31 December 1995 48.768 68.119 112.557 229.444
------ ------ ------- -------
Net book value
31 December 1995 12.191 907 13.663 26.761
------ ------ ------- ------
------ ------ ------- ------
Net book value: 24.383 0 26.554 50.937
31 December 1994 ------ ------ ------ ------
------ ------ ------ ------
10. STOCKS
1995 1994
FL. FL.
Finished goods 367 4.612
--------- ---------
--------- ---------
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 9
- --------------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995 (continued)
- -------------------------------------------------------------------------------
1995 1994
FL. FL.
11. DEBTORS
Trade debtors 2.646.372 1.613.423
Other debtors 5.412 42.280
Prepayments 42.575 69.266
--------- ---------
2.694.359 1.724.969
--------- ---------
--------- ---------
12. CREDITORS:
amounts falling due within one year
Trade creditors 2.051093 1.407.292
Other taxes and social security 316.138 168.570
costs
Inter company account 102.028 67.000
Corporation tax 41.451 9.640
Other creditors 7.789 476
Accruals 446.077 366.305
--------- ---------
2.964.576 2.019.283
--------- ---------
--------- ---------
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 10
- --------------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995(continued)
- ---------------------------------------------------------------------------
13. SHARE CAPITAL
AUTHORISED ALOTTED, ISSUED
AND FULLY PAID
1 January 31 December 1 January 31 December
1995 1995 1995 1995
FL. FL. FL. FL.
Ordinary shares of FL. 1000
each 200.000 200.000 40.000 40.000
------- ------- ------ ------
------- ------- ------ ------
14 CONTINGENT LIABILITIES
The company has purchased her client base from Unisys Nederland N.V.
at Amsterdam. In exchange of this transfer Palmer & Webb Systems BV
have agreed upon the following payments to Unisys Nederland NV:
- 20% of the pretax profit for a period of 5 years, over the years 1992
up to and including 1996 up to a maximum amount of Dfl. 1.250.000 in
total.
- a payment of 16% of shareholders equity as stated on the statutory
balance of Palmer & Webb Systems BV ending book-year 1996.
15 ULTIMATE HOLDING COMPANY
The directors of the company regard is Palmer & Webb Systems
International N.V., a company incorporated in Curacao (N.A.) as the
holding company.
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 11
- --------------------------
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1995
- ---------------------------------------------------------------------------
1995 1994
FL. FL. FL FL
TURNOVER 5.683.216 6.039.768
COST OF SALES (3.337.982) (3.613.265)
---------- ----------
GROSS PROFIT 2.345.234 2.426.503
ADMINISTRATIVE EXPENSES
Wages and salaries 1.042.031 1.202.605
Social security costs 24.174 20.727
Third party costs 248.095 210.138
Rent and rates 90.044 110.586
Pension costs 33.572 59.174
Telephone 34.248 33.701
Printing, postage and stationery 13.979 10.547
Auditor's remuneration 10.500 8.500
Legal and professional 76.299 121.584
Insurance 7.214 7.168
Repairs and maintenance 22.281 43.181
Training 5.464 6.832
Depreciation of office equipment 454 22.555
Depreciation of fixtures & fittings 12.192 12.192
Depreciation of computer equipment 16.452 40.887
Hire of equipment 51.384 51.384
Entertaining 6.773 1.756
Subscriptions and donations 4.834 604
Books and publications 707 663
Bank charges 7.702 5.775
Sundry expenses 12.952 7.325
Loss/(Profit) on exchange (24.987) (9.193)
Management fee U.K 176.000 126.000
Management fee Holding company 74.000 84.000
Profit on disposal of fixed assets 0 (1.303)
Bad Debts 29.911 0
-------- -------
(1.976.275) (2.177.388)
DISTRIBUTION COSTS
Travel and subsistence 25.577 40.224
Motor expenses 140.384 159.705
Advertising and promotion 23.298 28.081
Freight and packing 0 238
-------- -------
(189.259) (228.248)
--------- ---------
OPERATING PROFIT carried forward 179.700 20.867
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 12
- --------------------------
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1995
- ---------------------------------------------------------------------------
1995 1994
FL. FL.
OPERATING PROFIT 179.700 20.867
brought forward
OTHER INCOME
Bank interest receivable 9.713 4.554
INTEREST PAYABLE
Bank interest payable ( 0) ( 399)
On tax liabilities ( 0) (3.846)
---- -------
(0) (4.245)
------- -------
PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION 189.413 21.176
------- ------
------- ------
ZITEL CORPORATION
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The pro forma unaudited balance sheet as of March 31, 1997 gives effect to
the acquisition of Datametrics, Palmer & Webb Ltd. and Palmer & Webb B.V.
(the Palmer & Webb companies), by Zitel Corporation ("Zitel"), as if the
acquisition had occurred on March 31, 1997. The pro forma unaudited combined
balance sheet is based on the balance sheet of Zitel, as of March 31, 1997
and on the balance sheet of Datametrics, and the Palmer & Webb companies as
of that date.
The Palmer & Webb companies and Datametrics were acquired by Zitel, as part
of one simultaneous transaction. While the Palmer & Webb companies have
common ownership, there is no common ownership between Datametrics and the
Palmer & Webb companies. There are, however, agreements between the
companies for the sale of the Datametric's product by the Palmer & Webb
companies.
The pro forma unaudited combined statements of operations for the year ended
September 30, 1996 and the six months ended March 31, 1997 give effect to the
transaction as though it had occurred on October 1, 1995 and on October 1,
1996, respectively. The pro forma unaudited combined statements of
operations, for the year ended September 30, 1996, are based on historical
audited financial statements of operations of Zitel, for its year ended
September 30, 1996 and Datametrics, Palmer & Webb companies, for their year's
ended December 31, 1996. The pro forma unaudited results for the six month
period ended March 31, 1997, are based on the historical financial statements
of operations of Zitel, and Datametrics, Palmer & Webb Ltd. and Palmer & Webb
B.V. for the six months ended March 31, 1997.
The pro forma combined financial statements give effect to the acquisition
transaction using the purchase method of accounting and the assumptions and
adjustments described in the accompanying notes to the pro forma combined
financial statements.
The pro forma statements may not be indicative of the results that would have
occurred if the combination had been in effect on the dates indicated or
which may be obtained in the future. The pro forma statements should be read
in conjunction with the consolidated financial statements of Zitel, and the
financial statements of the acquired companies.
Page 2
NOTE 1 - PURCHASE PRICE
The purchase price of the acquisition of Datametrics and the Palmer &
Webb Companies is computed as follows:
Palmer & Webb
Datametrics Companies Total
----------- --------- -----
Common stock to be issued - $1,200,000 $ 1,200,000
Cash $9,262,000 1,800,000 11,062,000
Direct transaction costs 228,000 272,000 500,000
---------- ---------- -----------
Total $9,490,000 $3,272,000 $12,762,000
---------- ---------- -----------
---------- ---------- -----------
The purchase price is expected to be allocated as follows:
Palmer & Webb
Datametrics Companies Total
----------- --------- -----
Current assets $1,918,000 $2,228,000 $ 4,146,000
Liabilities assumed (1,733,000) (2,095,000) (3,828,000)
Equipment and other 214,000 529,000 743,000
In-process technology 5,016,000 1,584,000 6,600,000
Existing technology 1,424,000 450,000 1,874,000
Other intangibles 752,000 237,000 989,000
Goodwill 1,830,000 408,000 2,238,000
---------- ---------- -----------
Total $9,421,000 $3,341,000 $12,762,000
---------- ---------- -----------
---------- ---------- -----------
The allocation of the purchase price among identifiable intangible
assets was based on a preliminary independent appraisal of the fair value of
those assets. Such appraisal allocated $6.6 million to purchased in-process
research and development. The $6.6 million will be expensed in the second
calendar quarter upon closing, net of the $1.8 million tax effect, as the
technology has not yet reached technological feasibility and does not have
alternative future uses. The unaudited pro forma combined statements of
operations do not include this one-time charge for purchased in-process
technology as it represents a material nonrecurring charge which is in
accordance with the rules for the preparation of pro forma financial
statements.
In order to finance the acquisitions, Zitel, raised $25 million of
convertible debentures through a private placement. For purposes of the
unaudited pro forma financial statements, only $11.8 million is being
reflected as a pro forma
Page 3
adjustment, and only a pro rata portion of the financing costs are being
capitalized. The additional funds raised were not used for the purposes of
this acquisition and are therefore not reflected on the pro forma financial
statements.
The acquisition of Datametrics involved the purchase of assets and the
assumption of liabilities and the acquisition of the Palmer & Webb companies
involved the acquisition of stock for the B.V. entity and the purchase of
assets and assumption of liabilities for the Limited entity. Accordingly,
for tax purposes, Datametrics' and the Palmer & Webb Ltd.'s tax and book
bases in the acquisition are the same and the Palmer & Webb B.V.'s tax and
book bases are different as no effect is given for the acquisition costs
other than for deferred taxes on the acquired tangible and intangible
products. Prior to the acquisition, Datametrics was a Subchapter S company,
therefore, this tax status was taken into consideration for pro forma tax
adjustment purposes.
NOTE 2 - PRO FORMA ADJUSTMENTS
The following adjustments are incorporated in the pro forma combined balance
sheet as of March 31, 1997:
1. Reflects the allocation of purchase price to existing technology
2. Reflects the allocation of goodwill
3. Reflects the elimination of the common stock and retained earnings of
Datametrics and the Palmer & Webb companies
4. Reflects a one-time charge for purchased in-process technology
5. Reflects the issuance of Zitel shares and debentures to effect the
transaction, as well as the capitalization of the related financing costs
6. Reflects the accrual of deferred income taxes on purchased intangible
products
7. Reflects the write-off of the capitalized software costs to purchased
technology and other intangibles
8. Reflects the accrual of the direct transaction costs
Page 4
9. Reflects the adjustment of deferred revenue and the accrual for future
warranty and maintenance costs associated with the acquired customer base
10. Reflect the elimination of intercompany receivables and payables between
Datametrics and the Palmer & Webb companies
The following adjustments are incorporated in the pro forma combined income
statements:
Six Months Ended Year Ended
March 31, 1997 September 30, 1996
---------------- ------------------
A. Elimination of
intercompany sales $ 981,000 $1,251,000
A1. Elimination of
intercompany cost
of sales $ 981,000 $1,251,000
A2. Elimination of
intercompany
administrative expenses $ 16,000 ----
B. Reflects the interest
expense related to the
debentures $ 300,000 $ 600,000
C. Reflects the amortization
of the capitalized
financing costs $ 140,000 $ 280,000
D. Reflects the amortization
of the goodwill $ 78,000 $ 156,000
E. Reflects the amortization
of the purchased
technology $ 313,000 $ 625,000
F. Reflects the amortization
of the other intangibles $ 49,000 $ 99,000
G. Reflects the amortization
of the legal and
accounting fees $ 50,000 $ 100,000
Page 5
H. Reflects the effect of
the adjustments on income
tax expense $ 199,000 $ 555,000
I. Reflects the issuance of
Zitel shares of common
stock to effect the
transaction 60,000 60,000
Page 6
Zitel Corporation Pro Forma Combined Balance Sheet
(in thousands - unaudited)
March 31, 1997
Palmer & Palmer & Pro Forma Pro Forma
Zitel Datametrics Webb Ltd. Webb BV Adjustments Combined
------- ----------- --------- ------- ----------- --------
Assets
Current Assets:
Cash and cash equivalents 7,410 533 (70) 250 8,123
Short-term investments
Accounts receivable 3,331 1,384 1,585 436 (414) (10) 6,322
Inventories 3,532 192 5 3,729
Deferred and refundable taxes 3,619 (170) (6) 5,305
1856 (4)
Other current assets 739 1 740
------- ------ ------ ---- ------ -------
Total current assets 18,631 1,918 1,707 691 1,272 24,219
Fixed assets 2,556 214 525 4 3,299
Other assets 7,242 1,619 700 (5) 7,942
(1,619) (7)
Purchased technology 1,874 (1) 1,874
Goodwill and other intangibles 3,228 (2) 3,228
------- ------ ------ ---- ------ -------
Total assets $28,429 $3,751 $2,232 $695 $5,455 $40,562
======= ====== ====== ==== ====== =======
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable 1,334 146 1,409 584 500 (8) 3,559
(414) (10)
Accrued liabilities 1,607 368 1,975
Note payable 0
Deferred revenue 1,830 (1,830) (9) 0
Warranty and maintenance 1,200 (9) 1,200
------- ------ ------ ---- ------ -------
Total current liabilities 2,941 2,344 1,409 584 (544) 6,734
Other long-term liabilities 19 103 122
Debentures 11,762 (5) 11,762
------- ------ ------ ---- ------ -------
Total liabilities 2,941 2,363 1,512 584 11,218 18,618
Shareholders' equity:
Common stock 21,604 6 185 21 1,200 (5) 22,804
(212) (3)
Retained earnings 3,884 1,382 535 90 (2,007) (3) (860)
(4,744) (4)
------- ------ ------ ---- ------ -------
Total shareholders' equity 25,488 1,388 720 111 (5,763) 21,944
------- ------ ------ ---- ------ -------
Total liabilities and
shareholders' equity $28,429 $3,751 $2,232 $695 $5,455 $40,562
======= ====== ====== ==== ====== =======
Page 7
Zitel Corporation
Pro Forma Combined Statement of Operations
Year Ended September 30, 1996
(in thousands - unaudited)
Palmer & Palmer & Pro Forma Pro Forma
Zitel Datametrics Webb Ltd. Webb BV Adjustments Combined
------- ----------- --------- ------- ----------- --------
Net sales $8,593 $8,205 $3,473 $2,602 ($1,251) (A) $21,622
Royalty revenue 14,473 14,473
------ ----- ------ ------ ------ -------
Total revenue 23,066 8,205 3,473 2,602 (1,251) 36,095
Cost of goods sold 6,630 4,547 1,862 1,417 (1,251) (A1) 13,205
Research & development expenses 6,551 291 6,842
Selling, general & administrative
expenses 8,002 3,272 1,696 1,081 100 (G) 15,031
99 (F)
156 (D)
625 (E)
------ ----- ------ ------ ------ -------
Operating income (loss) 1,883 95 (85) 104 (980) 1,017
Interest & other expense 25 5 15 280 (C) 925
600 (B)
Interest & other income (4,670) (48) (142) (5) (4,865)
------ ----- ------ ------ ------ -------
Income(loss) before income taxes 6,528 138 42 109 (1,860) 4,957
Provision(benefit) for income taxes 2,479 19 23 (555) (H) 1,966
Other & extraordinary item 28 34 62
------ ----- ------ ------ ------ -------
Net income(loss) $4,049 $138 ($5) $52 ($1,305) $2,929
====== ====== ====== ====== ====== =======
Net income per share $0.26 $0.19
====== =======
Weighted average shares outstanding 15,626 (I) 15,686
====== =======
Page 8
Zitel Corporation
Pro Forma Combined Statement of Operations
Six Months Ended March 31, 1997
(in thousands - unaudited)
Palmer & Palmer & Pro Forma Pro Forma
Zitel Datametrics Webb Ltd. Webb BV Adjustments Combined
------- ----------- --------- ------- ----------- --------
Net sales $4,842 $4,753 $2,127 $1,191 ($981) (A) $11,932
Royalty revenue 3,514 3,514
------ ------ ------ ------ ------ -------
Total revenue 8,356 4,753 2,127 1,191 (981) 15,446
Cost of goods sold 4,536 1,830 880 559 (981) (A1) 6,824
Research & development expenses 3,235 1,017 4,252
Selling, general & administrative expenses 5,498 1,873 1,032 629 50 (G) 9,506
49 (F)
78 (D)
313 (E)
(16) (A2)
------ ------ ------ ------ ------ -------
Operating income (loss) (4,913) 33 215 3 (474) (5,136)
Interest & other expense (6) 140 (C) 434
300 (B)
Interest & other income (1,035) (3) (1,038)
------ ------ ------ ------ ------ -------
Income(loss) before income taxes (3,878) 42 215 3 (914) (4,532)
Provision(benefit) for income taxes (1,396) (199) (H) (1,595)
Other & extraordinary item 38 38
------ ------ ------ ------ ------ -------
Net income(loss) ($2,482) $42 $215 ($35) ($715) ($2,975)
====== ====== ====== ====== ====== =======
Net loss per share ($0.16) ($0.19)
====== =======
Weighted average shares outstanding 15,234 (I) 15,294
====== =======
Page 9