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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT 1
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: OCTOBER 18, 1999
EXTENDED SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 000-23597 82-0399670
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
5777 NORTH MEEKER AVENUE, BOISE, ID 83713
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (208) 322-7575
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On August 4, 1999, Extended Systems Incorporated (the "Company" or "ESI")
completed an acquisition (the "Acquisition") of all of the outstanding stock of
Oval (1415) Limited ("Oval") pursuant to an acquisition agreement, dated as of
August 4, 1999. Oval, based in Bristol, England, is the parent company of
Advance Systems Limited. ("ASL"), a developer of server-based synchronization
software for portable computing devices and high-end cellular phones and Zebedee
Software Limited, a software consulting company. As consideration in the
Acquisition, the shareholders of Oval received $5.0 million in cash and 625,000
of ESI Common Stock. The total purchase price is valued at approximately $8.5
million, including acquisition expenses. The source of the funds used for the
acquisition was the Company's existing cash and short-term investments. For
accounting purposes, the acquisition will be treated as a purchase.
The ESI Common Stock issued in the transaction has not been registered under the
Securities Act of 1933, as amended, and is therefore subject to certain
restrictions on resale.
A summary of the total net assets acquired at the date of the Acquisition, as
determined in accordance with Accounting Principles Board Opinion No. 16,
"Business Combinations", is as follows
Net working capital $ 112
Property and equipment 45
Developed technology, goodwill and other intangibles 5,971
Acquired in-process research and development 2,365
--------
$ 8,493
========
The above amounts are based on preliminary data and are subject to change. The
Company expects to amortise developed technology, goodwill and other intangibles
over its expected life and expense the acquired in-process research and
development in the first fiscal quarter of 2000.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
In May of 1999, Oval was formed by the shareholders of ASL and Zebedee.
Oval subsequently purchased ASL and Zebedee in stock for stock
exchanges. Substantially all of the net assets owned by, and operations
of, the Oval consolidated company are attributable to ASL. The audited
financial statements of ASL for the nine months ended June 30, 1999 and
the year ended September 30, 1998 are set forth at pages F-1 to F-26
attached hereto.
(b) PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial information giving
effect to the acquisition is set forth at pages F-27 to F-30 attached
hereto.
(c) EXHIBITS
2.1 Acquisition Agreement as of August 4, 1999 between Extended Systems
Incorporated and Oval (1415) Limited. (Schedules and exhibits have been
omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company
hereby undertakes to furnish supplementally copies of any of the
omitted schedules and exhibits upon request by the Securities and
Exchange Commission.) *
23.1 Consent of Independent Accountants **
- -----------------
* Previously filed.
** Filed herewith.
SIGNATURES
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 hereunto duly authorized.
Extended Systems Incorporated
Date: October 18, 1999 /s/ Karla K. Rosa
Karla K. Rosa
Vice President of Finance and
Chief Financial Officer
ADVANCE SYSTEMS LIMITED
FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED 30 JUNE 1999
CONTENTS
Page
Company information F-2
Directors' report F-3
Statement of directors'
responsibilities F-4
Auditors' report F-5
Profit and loss account F-6
Balance sheet F-7
Notes F-8 to F-11
THE FOLLOWING PAGES DO NOT FORM PART OF THE STATUTORY ACCOUNTS
Detailed trading and profit
and loss account Appendix 1
Schedule to the detailed trading
and profit and loss account Appendix 2
F-1
ADVANCE SYSTEMS LIMITED
COMPANY INFORMATION
30 JUNE 1999
INCORPORATED In England on 8 November 1988
NUMBER 2314556
DIRECTORS A M Terry
J S Hodges
M G B Colwill (resigned 4 August 1999)
SECRETARY J S Hodges
REGISTERED OFFICE 19 Portland Square
Bristol
BANKERS National Westminster Bank plc
32 Corn Street
Bristol
AUDITORS Bishop Fleming
Chartered Accountants
19 Portland Square
Bristol
F-2
ADVANCE SYSTEMS LIMITED
DIRECTORS' REPORT
30 JUNE 1999
The directors present their report and the audited financial statements for the
period ended 30 June 1999.
PRINCIPAL ACTIVITY
The principal activity of the company was that of the provision of computer
consultancy.
The company has resolved to change their accounting reference date to 30 June
with effect from 30 June 1999. Therefore, the current year and comparative
figures are for nine-month periods.
On 4 August 1999, the entire share capital of Oval (1415) Limited, parent
company to Advanced Systems Limited, was purchased by Extended Systems, a
company incorporated in America.
DIRECTORS
The directors of the company during the period and their interests in the shares
of the company as recorded in the register of directors' interests were as
follows
30 JUNE 1999 1 OCTOBER 1998
ORDINARY ORDINARY
SHARES SHARES
A M Terry 90 90
J S Hodges 90 90
M G B Colwill (resigned 4 August 1999) 20 20
AUDITORS
Bishop Fleming have agreed to offer themselves for re-appointment as auditors of
the company.
SMALL COMPANY EXEMPTIONS
This report is prepared in accordance with the special provisions of Part VII of
the Companies Act 1985 relating to small companies.
On behalf of the board
/s/ J S Hodges
J S Hodges
Secretary
Date: 15 October 1999
19 Portland Square
Bristol
F-3
ADVANCE SYSTEMS LIMITED
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for each
financial period which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In preparing
those financial statements, the directors are required to:
- select suitable accounting policies and 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 Companies 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.
On behalf of the board
/s/ A M Terry
A M Terry
Director
Date: 15 October 1999
F-4
ADVANCE SYSTEMS LIMITED
AUDITORS' REPORT
AUDITORS' REPORT TO THE MEMBERS OF
ADVANCE SYSTEMS LIMITED
We have audited the financial statements on pages F-6 to F-11 which have been
prepared in accordance with the Financial Reporting Standard for Smaller
Entities, under the historical cost convention and the accounting policies set
out on page F-8.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page F-4, 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 error or other
irregularity. 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 as at 30 June 1999 and of its profit for the period
then ended and have been properly prepared in accordance with the Companies Act
1985.
/s/ Bishop Fleming
Bishop Fleming
Chartered Accountants
Registered Auditors
19 Portland Square
Bristol
Date: 15 October 1999
F-5
ADVANCE SYSTEMS LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE NINE MONTHS ENDED 30 JUNE
1999 1998
NOTE L L
TURNOVER 2 663,419 558,022
Cost of sales (361,506) (281,452)
GROSS PROFIT 301,913 276,570
NET OPERATING EXPENSES
Distribution costs (68,128) (82,165)
Administrative expenses (157,205) (235,624)
OPERATING PROFIT/(LOSS) 3 76,580 (41,219)
Investment income 5 1,634 2,976
Interest payable (9,237) (7,010)
PROFIT/(LOSS) ON ORDINARY ACTIVITIES
BEFORE TAXATION 68,977 (45,253)
Taxation 6 (1,828) (584)
PROFIT/(LOSS) ON ORDINARY ACTIVITIES AFTER
TAXATION RETAINED FOR THE PERIOD 13 67,149 (45,837)
Movements in reserves are shown in the notes to the financial statements.
F-6
ADVANCE SYSTEMS LIMITED
BALANCE SHEET
AT 30 JUNE
1999 1998
NOTE L L L L
FIXED ASSETS
Tangible assets 7 29,119 26,630
CURRENT ASSETS
Debtors 8 144,588 79,910
Cash at bank and in hand 127,230 75,518
271,818 155,428
CREDITORS: amounts falling due
within one year 9 (127,854) (57,374)
NET CURRENT ASSETS 143,964 98,054
TOTAL ASSETS LESS CURRENT LIABILITIES 173,083 124,684
CREDITORS: amounts falling due
after more than one year 10 (103,125) (121,875)
69,958 2,809
CAPITAL AND RESERVES
Called up share capital 11 200 200
Share premium account 12 79,980 79,980
Profit and loss account 13 (10,222) (77,371)
TOTAL SHAREHOLDERS' FUNDS 69,958 2,809
These financial statements are prepared in accordance with the special
provisions of Part VII of the Companies Act 1985 relating to small companies and
with the Financial Reporting Standard for Smaller Entities.
The financial statements on pages F-6 to F-11 were approved by the board of
directors on 15 October 1999 and signed on its behalf by:
/s/ A M Terry
A M Terry
Director
F-7
ADVANCE SYSTEMS LIMITED
NOTES ON FINANCIAL STATEMENTS
30 JUNE 1999
1 ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The financial statements have been prepared under the historical cost
accounting rules.
The company has taken advantage of the exemption from preparing a cash
flow statement as conferred by Financial Reporting Standard No. 1
(Revised 1996) on the grounds that it qualifies as a small company under
the Companies Act 1985.
TURNOVER
Turnover represents the amount derived from the provision of goods and
services falling within the company's activities after deduction of
trade discounts and value added tax.
DEPRECIATION
Depreciation of fixed assets is calculated to write off their cost or
valuation less any residual value over their estimated useful lives as
follows:
Plant and equipment 33% reducing balance
2 TURNOVER
In the opinion of the directors, 10% of the turnover of the company is
attributable to geographical markets outside the UK. (1998 10%)
3 OPERATING PROFIT/(LOSS)
1999 1998
L L
Operating profit/(loss) is stated after charging
Auditors' remuneration 1,625 3,176
Depreciation of tangible fixed assets (note 7)
Owned assets 9,706 13,296
4 DIRECTORS
1999 1998
L L
Directors' emoluments 29,206 31,883
DEFINED CONTRIBUTION PENSION SCHEME
The company operates a defined contribution scheme. The assets of the
scheme are held separately from those of the company in an independently
administered fund. The pension cost charge represents contributions
payable by the company to the fund and amounted to L900 (1998 L1,200).
5 INVESTMENT INCOME
1999 1998
L L
Interest receivable 1,634 2,976
F-8
ADVANCE SYSTEMS LIMITED
NOTES ON FINANCIAL STATEMENTS
30 JUNE 1999
6 TAXATION
1999 1998
L L
Corporation tax on profit on ordinary activities
at 21% (1998 21%) 1,828 584
7 TANGIBLE FIXED ASSETS
PLANT AND
EQUIPMENT, ETC.
COST L
1 October 1998 96,327
Additions 12,195
30 June 1999 108,522
DEPRECIATION
1 October 1998 69,697
Charge for period 9,706
30 June 1999 79,403
NET BOOK AMOUNT
30 June 1999 29,119
1 October 1998 26,630
8 DEBTORS
1999 1998
L L
AMOUNTS FALLING DUE WITHIN ONE YEAR
Trade debtors 85,723 27,291
Other debtors 1,817 3,644
Prepayments and accrued income 57,048 48,975
144,588 79,910
F-9
ADVANCE SYSTEMS LIMITED
NOTES ON FINANCIAL STATEMENTS
30 JUNE 1999
9 CREDITORS: amounts falling due within one year
1999 1998
L L
Bank loans and overdrafts 50,905 28,125
Trade creditors 19,763 8,001
Other taxation and social security 48,789 8,637
Other creditors 880 880
Accruals and deferred income 7,517 11,731
127,854 57,374
The bank loan and overdraft is secured.
10 CREDITORS: amounts falling due after more than one year
1999 1998
L L
Bank loans 103,125 121,875
103,125 121,875
11 CALLED UP SHARE CAPITAL
1999 1998
NUMBER OF NUMBER OF
SHARES L SHARES L
AUTHORISED
Ordinary shares of L1 each 1,000 1,000 1,000 1,000
ALLOTTED CALLED UPAND FULLY PAID
Ordinary shares of L1 each 200 200 200 200
F-10
ADVANCE SYSTEMS LIMITED
NOTES ON FINANCIAL STATEMENTS
30 JUNE 1999
12 SHARE PREMIUM ACCOUNT
1999
L
1 October 1998 and
30 June 1999 79,980
13 PROFIT AND LOSS ACCOUNT
1999
L
1 October 1998 (77,371)
Retained profit for the period 67,149
30 June 1999 (10,222)
14 GUARANTEES AND OTHER FINANCIAL COMMITMENTS
Financial commitments under non-cancellable operating leases will result
in the following payments falling due in the year to 30 June 2000
1999 1998
L L
Expiring
Within two to five years 4,901 4,901
4,901 4,901
15 RELATED PARTIES
During the period purchases of L95,000 were made from Zebedee Software
Limited, a company of which Mr J Hodges and Mr A Terry each owned 25%
and are both directors.
F-11
APPENDIX 1
ADVANCE SYSTEMS LIMITED
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE NINE MONTHS ENDED 30 JUNE 1999
1999 1998
L L L L
TURNOVER
Sales 663,419 558,022
COST OF SALES
Purchases 9,255 6,740
Technical and marketing services 95,000 45,000
Salaries and wages 233,768 206,003
Social security costs 23,483 23,709
361,506 281,452
GROSS PROFIT 301,913 276,570
Distribution costs 68,128 82,165
Administrative expenses 157,205 235,624
Interest payable 9,237 7,010
234,570 324,799
NET TRADING PROFIT/(LOSS) FOR THE YEAR 67,343 (48,229)
OTHER INCOME
Bank deposit interest 1,411 2,934
Interest received from Inland Revenue - 42
Insurance claim 223 -
1,634 2,976
NET PROFIT/(LOSS) FOR THE YEAR 68,977 (45,253)
F-12
APPENDIX 2
ADVANCE SYSTEMS LIMITED
SCHEDULE TO THE TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE NINE MONTHS ENDED 30 JUNE 1999
1999 1998
L L
DISTRIBUTION COSTS
Advertising and publishing 2,298 5,007
US advertising and publishing -- 10,419
Entertaining 2,328 1,055
Distribution and carriage 939 1,858
Travelling 35,866 47,609
Hotels and subsistence 17,887 5,997
Telephone charges 8,810 10,125
US telephone charges -- 95
68,128 82,165
ADMINISTRATIVE EXPENSES
Salaries and wages 49,495 45,068
Social security costs 5,150 4,604
Printing postage and stationery 2,381 6,984
Subscriptions 9,000 10,614
Hire of other equipment 560 7,566
Sundry expenses 3,329 3,954
Recruitment expenses 17,847 21,916
Directors' emoluments 28,306 30,683
Directors' social security costs 2,558 3,068
Directors' money purchase pension scheme 900 1,200
Repairs and renewals 2,169 221
Insurance 7,527 13,611
Rent 12,550 16,200
US rent -- 14,591
Use of home as office -- 1,040
US admin expenses -- 3,589
Bank charges 344 1,987
Bookkeeping 1,860 3,156
Public relation fees -- 19,179
Bad debts -- 27
Legal and professional fees 1,898 9,757
US legal fees -- 137
Auditors' remuneration 1,625 3,176
Depreciation plant and equipment 9,706 13,296
157,205 235,624
INTEREST PAYABLE
Bank interest 9,237 7,010
9,237 7,010
F-13
ADVANCE SYSTEMS LIMITED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 SEPTEMBER 1998
CONTENTS
Page
Company information F-15
Directors' report F-16
Statement of directors'
responsibilities F-17
Auditors' report F-18
Profit and loss account F-19
Balance sheet F-20
Notes F-21 to F-24
THE FOLLOWING PAGES DO NOT FORM PART OF THE STATUTORY ACCOUNTS
Detailed trading and profit
and loss account Appendix 1
Schedule to the detailed trading
and profit and loss account Appendix 2
F-14
ADVANCE SYSTEMS LIMITED
COMPANY INFORMATION
30 SEPTEMBER 1998
INCORPORATED In England on 8 November 1988
NUMBER 2314556
DIRECTORS A M Terry
J S Hodges
M G B Colwill
SECRETARY J S Hodges
REGISTERED OFFICE 19 Portland Square
Bristol
BANKERS National Westminster Bank plc
32 Corn Street
Bristol
AUDITORS Bishop Fleming
Chartered Accountants
19 Portland Square
Bristol
F-15
ADVANCE SYSTEMS LIMITED
DIRECTORS' REPORT
30 SEPTEMBER 1998
The directors present their report and the audited financial statements for the
year ended 30 September 1998.
PRINCIPAL ACTIVITY
The principal activity of the company was that of the provision of computer
consultancy.
DIRECTORS
The directors of the company during the year and their interests in the shares
of the company as recorded in the register of directors' interests were as
follows
30 SEPTEMBER 1998 1 OCTOBER 1997
ORDINARY ORDINARY
SHARES SHARES
A M Terry 90 90
J S Hodges 90 90
M G B Colwill 20 20
AUDITORS
Bishop Fleming have agreed to offer themselves for re-appointment as auditors of
the company.
SMALL COMPANY EXEMPTIONS
This report is prepared in accordance with the special provisions of Part VII of
the Companies Act 1985 relating to small companies.
On behalf of the board
/s/ J S Hodges
J S Hodges
Secretary
19 Portland Square
Bristol Date: 7 May 1999
F-16
ADVANCE SYSTEMS LIMITED
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 or loss of the company for that period. In preparing
those financial statements, the directors are required to:
- select suitable accounting policies and 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 Companies 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.
On behalf of the board
/s/ A M Terry
A M Terry
Director
Date: 7 May 1999
F-17
ADVANCE SYSTEMS LIMITED
AUDITORS' REPORT
AUDITORS' REPORT TO THE MEMBERS OF
ADVANCE SYSTEMS LIMITED
We have audited the financial statements on pages F-19 to F-24 which have been
prepared in accordance with the Financial Reporting Standard for Smaller
Entities, under the historical cost convention and the accounting policies set
out on page F-21.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page F-17, 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 error or other
irregularity. 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 as at 30 September 1998 and of its loss for the year
then ended and have been properly prepared in accordance with the Companies Act
1985.
/s/ Bishop Fleming
Bishop Fleming
Chartered Accountants
19 Portland Square
Bristol
Date: 13 May 1999
F-18
ADVANCE SYSTEMS LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 30 SEPTEMBER 1998
1998 1997
NOTE L L
TURNOVER 2 558,022 253,926
Cost of sales (281,452) (174,298)
GROSS PROFIT 276,570 79,628
NET OPERATING EXPENSES
Distribution costs (82,165) (33,337)
Administrative expenses (235,624) (90,512)
Other operating income - 1,650
OPERATING LOSS 3 (41,219) (42,571)
Investment income 5 2,976 1,139
Interest payable (7,010) -
LOSS ON ORDINARY ACTIVITIES
BEFORE TAXATION (45,253) (41,432)
Taxation 6 (584) 7,379
LOSS ON ORDINARY ACTIVITIES
AFTER TAXATION (45,837) (34,053)
RETAINED FOR THE YEAR 13
Movements in reserves are shown in the notes to the financial statements.
F-19
ADVANCE SYSTEMS LIMITED
BALANCE SHEET
AT 30 SEPTEMBER 1998
1998 1997
NOTE L L L L
FIXED ASSETS
Tangible assets 7 26,630 25,924
CURRENT ASSETS
Debtors 8 79,910 83,071
Cash at bank and in hand 75,518 39,814
155,428 122,885
CREDITORS: amounts falling due
within one year 9 (57,374) (100,163)
NET CURRENT ASSETS 98,054 22,722
TOTAL ASSETS LESS CURRENT LIABILITIES 124,684 48,646
CREDITORS: amounts falling due
after more than one year 10 (121,875) -
2,809 48,646
CAPITAL AND RESERVES
Called up share capital 11 200 200
Share premium account 12 79,980 79,980
Profit and loss account 13 (77,371) (31,534)
TOTAL SHAREHOLDERS' FUNDS 2,809 48,646
These financial statements are prepared in accordance with the special
provisions of Part VII of the Companies Act 1985 relating to small companies and
with the Financial Reporting Standard for Smaller Entities.
The financial statements on pages 5 to 10 were approved by the board of
directors on 7 May 1999 and signed on its behalf by:
/s/ A M Terry
A M Terry
Director
F-20
ADVANCE SYSTEMS LIMITED
NOTES ON FINANCIAL STATEMENTS
30 SEPTEMBER 1998
1 ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The financial statements have been prepared under the historical cost
accounting rules.
The company has taken advantage of the exemption from preparing a cash
flow statement as conferred by Financial Reporting Standard No. 1
(Revised 1996) on the grounds that it qualifies as a small company under
the Companies Act 1985.
TURNOVER
Turnover represents the amount derived from the provision of goods and
services falling within the company's activities after deduction of
trade discounts and value added tax.
DEPRECIATION
Depreciation of fixed assets is calculated to write off their cost or
valuation less any residual value over their estimated useful lives as
follows:
Plant and machinery 33% reducing balance
2 TURNOVER
In the opinion of the directors, 10% of the turnover of the company
is attributable to geographical markets outside the UK. (1997 0%)
3 OPERATING LOSS
1998 1997
L L
Operating loss is stated after charging
Auditors' remuneration 3,176 2,542
Depreciation of tangible fixed assets (note 7)
Owned assets 13,296 5,123
4 DIRECTORS
1998 1997
L L
Directors' emoluments 31,883 15,600
DEFINED CONTRIBUTION PENSION SCHEME
The company operates a defined contribution scheme. The assets of the
scheme are held separately from those of the company in an independently
administered fund. The pension cost charge represents contributions
payable by the company to the fund and amounted to L1,200 (1997 L600).
5 INVESTMENT INCOME
1998 1997
L L
Interest receivable 2,976 1,139
F-21
ADVANCE SYSTEMS LIMITED
NOTES ON FINANCIAL STATEMENTS
30 SEPTEMBER 1998
6 TAXATION
1998 1997
L L
Corporation tax on loss on ordinary activities
at 21% (1997 21%) 584 (7,379)
7 TANGIBLE FIXED ASSETS
PLANT AND
MACHINERY ETC
COST L
1 October 1997 82,325
Additions 14,002
30 September 1998 96,327
DEPRECIATION
1 October 1997 56,401
Charge for year 13,296
30 September 1998 69,697
NET BOOK AMOUNT
30 September 1998 26,630
1 October 1997 25,924
F-22
ADVANCE SYSTEMS LIMITED
NOTES ON FINANCIAL STATEMENTS
30 SEPTEMBER 1998
8 DEBTORS
1998 1997
L L
AMOUNTS FALLING DUE WITHIN ONE YEAR
Trade debtors 27,291 42,944
Other debtors 3,644 5,811
Prepayments and accrued income 48,975 34,316
79,910 83,071
9 CREDITORS: amounts falling due within one year
1998 1997
L L
Bank loans and overdrafts 28,125 -
Trade creditors 8,001 2,634
Other taxation and social security 8,637 10,256
Other creditors 880 3,760
Accruals and deferred income 11,731 83,513
57,374 100,163
The bank loan and overdraft is secured.
10 CREDITORS: amounts falling due after more than one year
1998 1997
L L
Bank loans 121,875 -
121,875 -
CREDITORS OTHER THAN FINANCE LEASE
AND HIRE PURCHASE CONTRACTS
11 CALLED UP SHARE CAPITAL
1998 1997
NUMBER OF NUMBER OF
SHARES L SHARES L
AUTHORISED
Ordinary shares of L1 each 1,000 1,000 1,000 1,000
ALLOTTED CALLED UP AND FULLY PAID
Ordinary shares of L1 each 200 200 200 200
F-23
ADVANCE SYSTEMS LIMITED
NOTES ON FINANCIAL STATEMENTS
30 SEPTEMBER 1998
12 SHARE PREMIUM ACCOUNT
1998
L
1 October 1997 and
30 September 1998 79,980
13 PROFIT AND LOSS ACCOUNT
1998
L
1 October 1997 (31,534)
Retained loss for the year (45,837)
30 September 1998 (77,371)
14 GUARANTEES AND OTHER FINANCIAL COMMITMENTS
Financial commitments under non-cancellable operating leases will result
in the following payments falling due in the year to 30 September 1999
1998 1997
L L
Expiring
Within two to five 4,901 4,901
4,901 4,901
15 RELATED PARTIES
During the year purchases of L125,000 were made from Zebedee Software
Limited, a company of which Mr J Hodges and Mr A Terry each own 25% and
are both directors.
F-24
APPENDIX 1
ADVANCE SYSTEMS LIMITED
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 30 SEPTEMBER 1998
1998 1997
L L L L
TURNOVER
Sales 558,022 253,926
COST OF SALES
Purchases 6,740 27,439
Technical and marketing services 45,000 60,000
Salaries and wages 206,003 78,863
Social security costs 23,709 7,996
281,452 174,298
GROSS PROFIT 276,570 79,628
OTHER OPERATING INCOME
Dept of Trade & Industry - 1,650
276,570 81,278
Distribution costs 82,165 33,337
Administrative expenses 235,624 90,512
Interest payable 7,010 -
324,799 123,849
NET TRADING LOSS FOR THE YEAR (48,229) (42,571)
OTHER INCOME
Bank deposit interest 2,934 1,139
Interest received from Inland Revenue 42 -
2,976 1,139
NET LOSS FOR THE YEAR (45,253) (41,432)
F-25
APPENDIX 2
ADVANCE SYSTEMS LIMITED
SCHEDULE TO THE TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 30 SEPTEMBER 1998
1998 1997
L L
DISTRIBUTION COSTS
Advertising and publishing 5,007 5,482
US advertising and publishing 10,419 -
Entertaining 1,055 134
Distribution and carriage 1,858 545
Travelling 47,609 22,042
Hotels and subsistence 5,997 1,417
Telephone charges 10,125 3,717
US telephone charges 95 -
82,165 33,337
ADMINISTRATIVE EXPENSES
Salaries and wages 45,068 20,560
Social security costs 4,604 1,913
Printing postage and stationery 6,984 3,953
Subscriptions 10,614 5,697
Hire of plant and machinery - 309
Hire of other equipment 7,566 3,906
Sundry expenses 3,954 1,056
Recruitment expenses 21,916 6,075
Directors' emoluments 30,683 15,000
Directors' social security costs 3,068 1,500
Directors' money purchase pension scheme 1,200 600
Repairs and renewals 221 200
Insurance 13,611 3,083
Rent 16,200 8,100
US rent 14,591 -
Use of home as office 1,040 520
US admin expenses 3,589 -
Bank charges 1,987 349
Bookkeeping 3,156 -
Public relation fees 19,179 8,458
Bad debts 27 -
Legal and professional fees 9,757 637
US legal fees 137 -
Training fees - 931
Auditors' remuneration 3,176 2,542
Depreciation plant and equipment 13,296 5,123
235,624 90,512
INTEREST PAYABLE
Bank interest 7,010 -
7,010 -
F-26
EXTENDED SYSTEMS INCORPORATED
AND ADVANCE SYSTEMS LIMITED COMBINED COMPANY
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
BASIS OF PRESENTATION
On August 4, 1999, Extended Systems Incorporated ("ESI") completed an
acquisition (the "Acquisition") of all of the outstanding stock of Oval
(1415) Limited ("Oval") pursuant to an Acquisition Agreement, dated as of
August 4, 1999. Oval, based in Bristol, England, is the parent company of
Advance Systems Limited ("ASL"), a developer of server-based synchronization
software for portable computing devices and high-end cellular phones, and
Zebedee Software Limited ("Zebedee"), a software consulting company.
In May of 1999, Oval was formed by the shareholders of ASL and Zebedee. Oval
subsequently purchased ASL and Zebedee in stock for stock exchanges. For
accounting purposes, all ASL was determined to be the acquiring company.
Substantially all of the net assets owned by, and operations of, the Oval
consolidated company are attributable to ASL. The following unaudited pro
forma combined financial information is based upon the consolidated financial
statements of ESI and the financial statements of ASL, combined with pro
forma adjustments to give effect to the Acquisition.
The following unaudited pro forma combined statement of operations was
prepared based upon the audited consolidated statement of operations of ESI
and the unaudited statement of operations of ASL for the year ended June 30,
1999 and gives effect to the Acquisition as if it had occurred on July 1,
1998.
The following unaudited pro forma combined balance sheet was prepared based
upon the audited consolidated balance sheet of ESI and the unaudited balance
sheet of ASL as of June 30, 1999 and gives effect to the Acquisition as if it
had occurred on such date.
These unaudited pro forma combined financial statements and the notes thereto
should be read in conjunction with ESI's Annual Report on Form 10-K for the
year ended June 30, 1999 and the financial statements of ASL as of and for
the nine months ended June 30, 1999 and as of and for the year ended
September 30, 1998 (see Item 7(a)).
For accounting purposes, the acquisition was treated as a purchase.
Accordingly, ESI's cost to acquire Oval (the "Purchase Price") of
approximately $8.5 million, net of cash proceeds, was allocated to the assets
acquired and liabilities assumed according to their respective fair values,
with any excess Purchase Price being allocated to intangible assets. The
Purchase Price was based on the $5.5 million of cash paid, including
acquisition expenses, and 625,000 shares of ESI Common Stock valued at $3.0
issued to the shareholders of Oval on the date of the Acquisition.
Independent appraisers determined the valuation of the intangible assets
acquired from Oval, including $2,4 of acquired in-process research and
development, $1.9 million of developed technology and $3.9 million of an
established workforce and other goodwill-type assets. The acquired in-process
research and development will be charged to operations as of the date of the
Acquisition. The developed technology and other goodwill-type assets will be
amortized over the estimated useful live of 5 years using the straight-line
method.
The unaudited pro forma combined financial statements are not necessarily
indicative of the results of operations or financial position of the combined
company that would have occurred had the Acquisition occurred at the
beginning of the period presented or on the date indicated, nor are they
necessarily indicative of future operating results or financial position.
The acquisition is expected to have a significant effect on the Company's
future results of operations and cash flows, including, but not limited to:
the acquired in process research and development charged to operations in the
first quarter of fiscal 2000; increased amortization expense as a result of
the intangible assets associated with the Acquisition; costs related to the
assimilation of the acquired operations; and increased capital spending
relating to the acquired facilities.
F-27
EXTENDED SYSTEMS INCORPORATED AND
ADVANCE SYSTEMS LIMITED COMBINED COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
HISTORICAL
-----------------------------
EXTENDED ADVANCE
SYSTEMS SYSTEMS PRO FORMA
INCORPORATED LIMITED ADJUSTMENTS COMBINED
--------------- ------------- -------------- -------------
Net revenue $ 50,689 $ 1,304 $ - $ 51,993
Cost of net revenue 25,264 16 382 (a) 25,662
--------------- ------------- -------------- -------------
Gross profit 25,425 1,289 (382) 26,332
Operating expenses:
Research and development 6,883 503 - 7,386
Acquired in-process research and development 758 - - 758
Marketing and sales 15,930 251 - 16,181
General and administrative 3,337 229 - 3,566
Amortization of intangibles 40 - 812 (a) 852
--------------- ------------- -------------- -------------
Income (loss) from operations (1,523) 306 (1,194) (2,411)
Other expense, net (82) (5) - (87)
Interest expense 713 21 - 734
--------------- ------------- -------------- -------------
Income (loss) before income taxes (2,154) 290 (1,194) (3,058)
Income tax provision (benefit) (692) 3 (448)(b) (1,137)
--------------- ------------- -------------- -------------
Net income (loss) $ (1,462) $ 287 $ (746) $ (1,921)
=============== ============= ============== =============
Earnings (loss) per share:
Basic $ (0.17) $ (0.21)
Diluted $ (0.17) $ (0.21)
Number of shares used in
per share calculation:
Basic 8,409 625 (c) 9,034
Diluted 8,409 625 (c) 9,034
F-28
EXTENDED SYSTEMS INCORPORATED AND
ADVANCE SYSTEMS LIMITED COMBINED COMPANY
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1999
ASSETS
Current:
Cash and cash equivalents $ 9,668 $ 200 $ (5,500)(a) $ 4,368
Short-term investments 3,001 - - 3,001
Accounts receivable 9,778 229 - 10,007
Income taxes receivable 664 - - 664
Other receivables 1,147 - - 1,147
Inventories:
Purchased parts 2,060 - - 2,060
Work in process 860 - - 860
Finished goods 2,097 - - 2,097
Prepaids and other 945 - - 945
Deferred income taxes 584 - 576 (d) 1,160
-------------- ------------ ------------- ------------
Total current assets 30,804 429 (4,924) 26,309
Property and equipment, net 8,300 46 - 8,346
Intangibles, net 1,402 - 5,971 (c) 7,373
Other assets 293 - - 293
-------------- ------------ ------------- ------------
Total assets $ 40,799 $ 475 $ 1,047 $ 42,321
============== ============ ============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current:
Accounts payable $ 4,609 $ 203 $ - $ 4,812
Accrued payroll and related benefits 1,297 - - 1,297
Current portion of long-term debt 8,206 162 - 8,368
-------------- ------------ ------------- ------------
Total current liabilities 14,112 365 - 14,477
Long-term debt 67 - - 67
Deferred income taxes 25 - - 25
-------------- ------------ ------------- ------------
Total liabilities 14,204 365 - 14,569
-------------- ------------ ------------- ------------
Shareholders' equity:
Common stock 9 - 1 (b) 10
Additional paid-in capital 12,015 126 2,866 (b),(e) 15,007
Retained earnings 15,525 (16) (1,820)(e),(f) 13,689
Deferred compensation (553) - - (553)
Accumulated other comprehensive loss (401) - - (401)
-------------- ------------ ------------- ------------
Total shareholders' equity 26,595 110 1,047 27,752
-------------- ------------ ------------- ------------
Total liabilities and shareholders' equity $ 40,799 $ 475 $ 1,047 $ 42,321
============== ============ ============= ============
F-29
EXTENDED SYSTEMS INCORPORATED AND
ADVANCE SYSTEMS LIMITED COMBINED COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Pro forma adjustments giving effect to the Acquisition in the unaudited pro
forma combined statement of operations reflect the following:
(a) Amortization of intangible assets purchased in the Acquisition.
(b) Tax effect of pro forma adjustments at the estimated effective
tax rate.
(c) Effect on earnings per shares from the issuance of 625,000
unregistered shares of ESI Common Stock to the shareholders of
Oval.
The pro forma adjustments exclude the effect of the nonrecurring charge of $2.4
million for acquired in-process research and development recorded by the Company
in fiscal 2000 following consummation of the Acquisition.
Pro forma adjustments giving effect to the Acquisition in the unaudited pro
forma combined balance sheet reflect the following:
(a) Cash paid in the Acquisition, including Acquisition expenses.
(b) Fair value of ESI Common Stock issued in the Acquisition.
(c) Purchased technology, assembled workforce and other goodwill-type
assets purchased in the Acquisition.
(d) Deferred tax asset resulting from the Acquisition.
(e) Elimination of ESI's investment in the equity of ASL.
(f) Adjustment for pro forma income statement adjustments at the
Acquisition date.
These pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of what operating results would have been had the
Acquisition actually taken place at the beginning of fiscal 1999 or operating
results which may occur in the future.
F-30