EXHIBIT 13.1
AUDITORS' REPORT TO THE DIRECTORS AND SHAREHOLDERS OF HOLISTIC SYSTEMS LIMITED
(NOW SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP LIMITED)
We have audited the accompanying consolidated balance sheet of Holistic Systems
Limited (now Seagate Software Information Management Group Limited) as at 31
March 1996 and 31 March 1995 and the consolidated profit and loss account and
cashflow statement for the years ended 31 March 1996 and 31 March 1995 ("the
consolidated accounts").
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The directors are responsible for preparing consolidated accounts that give a
true and fair view of the state of affairs of the group and of the profit or
loss of the group for its financial year. In doing so the directors are
required to:
. select suitable accounting policies and apply them consistently
. make judgements and estimates that are reasonable and prudent
. state whether applicable accounting standards have been followed, subject to
any material departures disclosed and explained in the consolidated accounts
. prepare consolidated accounts on the going concern basis unless it is
inappropriate to presume that the group will continue in business.
The directors are responsible for maintaining proper accounting records that
disclose with reasonable accuracy at any time the financial position of the
group. They are also responsible for safeguarding the assets of the group and
hence for taking reasonable steps for the prevention and detection of fraud and
other irregularities.
It is our responsibility to form an independent opinion, based on our audit, on
those consolidated accounts 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 in the United Kingdom. An audit includes examination,
on a test basis, of evidence relevant to the amounts and disclosures in the
consolidated accounts. It also includes an assessment of the significant
estimates and judgements made by the directors in the preparation of the
consolidated accounts and of whether the accounting policies are appropriate to
the group'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 consolidated accounts
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 consolidated accounts.
OPINION
In our opinion, the consolidated accounts give a true and fair view of the state
of the group's affairs as at 31 March 1996 and 31 March 1995 and of its profit
and cash flows for the years ended 31 March 1996 and 31 March 1995.
Accounting principles generally accepted in the United Kingdom vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the determination of
the consolidated retained profit for the year ended 31 March 1996 to the extent
summarised in note 25.
/s/ Moores Rowland
Moores Rowland
Chartered Accountants
Registered Auditors
London, United Kingdom
30 September 1997
1
HOLISTIC SYSTEMS LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Year ended 31 March 1996
1996 1995
Note (Pounds) (Pounds)
TURNOVER 2 16,178,670 11,747,445
Cost of sales (1,396,414) (962,170)
----------- ----------
GROSS PROFIT 14,782,256 10,785,275
Administrative expenses (12,913,259) (9,384,479)
----------- ----------
OPERATING PROFIT 1,868,997 1,400,796
Investment income 3 99,097 38,145
Interest payable 4 (5,396) (8,888)
----------- ----------
PROFIT ON ORDINARY
ACTIVITIES BEFORE TAXATION 5 1,962,698 1,430,053
Tax on profit on ordinary
activities 7 (905,557) (579,387)
----------- ----------
PROFIT ON ORDINARY
ACTIVITIES AFTER TAXATION 1,057,141 850,666
Dividends 8 (8,744) (14,300)
----------- ----------
RETAINED PROFIT FOR THE YEAR 15 1,048,397 836,366
=========== =========
All disclosures relate only to continuing operations.
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
1996 1995
(Pounds) (Pounds)
Profit for the financial year 1,057,141 850,666
Currency translation differences on
foreign currency net investments 86,342 (18,479)
----------- ---------
1,143,483 832,187
=========== =========
The accompanying notes form part of these consolidated accounts.
2
HOLISTIC SYSTEMS LIMITED
CONSOLIDATED BALANCE SHEET
As at 31 March 1996
1996 1995
Note (Pounds) (Pounds) (Pounds) (Pounds)
FIXED ASSETS
Tangible assets 9 610,948 471,077
CURRENT ASSETS
Debtors 10 4,915,675 3,571,325
Cash at bank and in hand 2,395,532 1,903,185
--------- ---------
7,311,207 5,474,510
CREDITORS amounts falling
due within one year 11 4,408,467 3,241,289
--------- ---------
NET CURRENT ASSETS 2,902,740 2,233,221
--------- ---------
TOTAL ASSETS LESS
CURRENT LIABILITIES 3,513,688 2,704,298
CREDITORS amounts falling
due after more than one year 12 64,043 -
Provisions for liabilities
and charges 21 73,107 74,526
--------- ---------
TOTAL NET ASSETS 3,376,538 2,629,772
========= =========
CAPITAL AND RESERVES
Called up share capital 13 10,000 409,925
Share premium 14 48,396 36,444
Capital redemption reserve 15 400,000 -
Profit and loss account 15 2,918,142 2,183,403
--------- ---------
(Shareholders' funds include 22 3,376,538 2,629,772
non-equity interests) ========= =========
The accompanying notes form part of these consolidated accounts.
3
HOLISTIC SYSTEMS LIMITED
CONSOLIDATED CASHFLOW STATEMENT
Year ended 31 March 1996
Note 1996 1995
(Pounds) (Pounds)
NET CASH INFLOW FROM OPERATING
ACTIVITIES 16 1,899,620 1,918,420
RETURNS ON INVESTMENTS AND SERVICING
OF FINANCE
Interest received 99,097 38,145
Interest paid (628) (8,878)
Interest element of hire purchase payments (4,768) (10)
Dividends paid (14,300) (11,143)
--------- ---------
NET CASH INFLOW FROM RETURNS
ON INVESTMENTS AND SERVICING OF FINANCE 79,401 18,114
--------- ---------
TAXATION
U.K. corporation tax paid (353,747) (259,000)
Overseas tax paid, including
withholding tax (254,581) (261,446)
--------- ---------
TAX PAID (608,328) (520,446)
INVESTING ACTIVITIES
Purchase of tangible fixed assets (563,472) (486,556)
Proceeds from disposal of fixed assets 10,000 -
--------- ---------
NET CASH OUTFLOW FROM
INVESTING ACTIVITIES (553,472) (486,556)
--------- ---------
NET CASH INFLOW BEFORE FINANCING 817,221 929,532
FINANCING
Net cash (outflow)/inflow from share capital 19 (387,973) 26,235
New hire purchase loan 69,886 -
Capital element of hire purchase payments (6,787) (9,987)
--------- ---------
NET CASH (OUTFLOW)/INFLOW FROM FINANCING (324,874) 16,248
--------- ---------
INCREASE IN CASH 492,347 945,780
CASH BALANCES AT 1 APRIL 1995/1994 1,903,185 957,405
--------- ---------
CASH BALANCES AT 31 MARCH 1996/1995 17 2,395,532 1,903,185
========= =========
The accompanying notes form part of these consolidated accounts.
4
HOLISTIC SYSTEMS LIMITED
NOTES TO THE ACCOUNTS
1. ACCOUNTING POLICIES
ACCOUNTING CONVENTION
The accounts have been prepared under the historical cost convention and in
accordance with applicable accounting standards.
BASIS OF CONSOLIDATION
The group accounts consolidate the accounts of the company and its
subsidiaries.
DEPRECIATION OF TANGIBLE FIXED ASSETS
Depreciation is provided on all tangible fixed assets so as to write them off
over their anticipated useful lives at the following annual rates on a
straight line basis:
Leasehold property - 20% or to next rent review if greater
Office equipment and fittings - 20%
Computer equipment - 33%
Motor vehicles - 25%
FOREIGN CURRENCIES
Assets and liabilities expressed in foreign currencies are translated at the
rates of exchange ruling at the balance sheet date. Transactions in foreign
currencies are translated at the rate ruling at the date of the transaction.
Differences arising are dealt with in the profit and loss account. The
results of overseas companies are translated at the rate of exchange ruling
at the balance sheet date. Exchange differences arising on the retranslation
of opening reserves of subsidiaries are taken to group reserves.
FINANCE LEASES AND HIRE PURCHASE CONTRACTS
Assets being acquired under finance leases and hire purchase contracts are
capitalised in the balance sheet and are depreciated over their anticipated
useful lives. The obligation to make future rental payments, net of future
finance charges, is recognised as a liability in the balance sheet. The
interest element of the lease and hire purchase payments is charged to the
profit and loss account at a constant rate over the period of the agreement.
Rentals under operating leases are charged to the profit and loss account as
incurred.
DEFERRED TAXATION
Deferred taxation is calculated using the liability method and provision is
made to the extent that it is probable that such tax will become payable in
the foreseeable future.
DEVELOPMENT EXPENDITURE
All computer development expenditure is written off as it is incurred except
for capital expenditure on hardware and the associated externally purchased
software related to the general development of the business which is
capitalised and written off over 3 years.
5
HOLISTIC SYSTEMS LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
2. TURNOVER
Turnover arises from the group's principal activity based on delivered,
unconditional, signed licences (or other written confirmation) except in the
case of distributor sales which are determined by invoice dates to
distributors. Turnover is stated net of value added tax and trade discounts.
Credit is taken for consulting services when the services are provided.
An analysis of turnover by geographical
market is given below:
1996 1995
(Pounds)000 (Pounds)000
Europe 7,431 6,040
USA/Canada 6,749 3,941
Far East 641 669
Australia/New Zealand 1,358 1,097
------ ------
16,179 11,747
====== ======
Turnover and profit are attributable to one class of business.
3. INVESTMENT INCOME
1996 1995
(Pounds) (Pounds)
Bank interest receivable 98,427 38,054
Other interest receivable 670 91
------ ------
99,097 38,145
====== ======
4. INTEREST PAYABLE
1996 1995
(Pounds) (Pounds)
On bank overdrafts wholly
repayable within five years 628 8,878
On finance leases and hire purchase contracts 4,768 10
------ ------
5,396 8,888
====== ======
6
HOLISTIC SYSTEMS LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
5. PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
Profit on ordinary activities before
taxation is stated after charging/(crediting):
1996 1995
(Pounds) (Pounds)
Auditors' remuneration - Audit 59,394 35,976
- Non-audit (UK only) 16,400 20,400
Depreciation of fixed assets 434,237 296,146
Amortisation of goodwill - 22,250
(Profit)/loss on exchange (48,726) 28,767
Hire of plant and equipment 381,642 332,834
Exceptional item overprovision
relating to prior years (30,000) (80,000)
====== ======
6. DIRECTORS AND OTHER EMPLOYEES
Staff costs include the following:
1996 1995
(Pounds) (Pounds)
Wages and salaries 7,506,819 5,207,656
Social security costs 803,709 597,612
--------- ---------
8,310,528 5,805,268
========= =========
The average weekly number of persons employed
by the group during the year was as follows:
Number Number
Research and development 40 31
Sales 43 28
Support 52 49
Administration 16 16
Directors 8 6
--- ---
159 130
=== ===
The emoluments of the directors of the parent company were (Pounds)465,500
(1995 (Pounds)434,294). The chairman, who was also the highest paid director,
received (Pounds)166,051 (1995 (Pounds)162,470).
The emoluments of the other directors were in the following ranges:
Number Number
Pounds)55,001 - (Pounds)60,000 - 2
Pounds)75,001 - (Pounds)80,000 1 -
Pounds)95,001 - (Pounds)100,000 1 -
(Pounds)125,001 - (Pounds)130,000 1 -
(Pounds)155,001 - (Pounds)160,000 1 -
- 1
-- --
3 3
== ==
7
HOLISTIC SYSTEMS LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
7. TAX ON PROFIT ON ORDINARY ACTIVITIES
1996 1995
(Pounds) (Pounds)
Based on the profit for the year:
Corporation tax at 33% (1995 33%) 136,000 357,332
Overseas taxation 757,182 236,387
Taxation under/(over) provided in prior years
Corporation tax 12,375 (14,332)
------- -------
905,557 579,387
======= =======
8. DIVIDENDS
1996 1995
(Pounds) (Pounds)
Preference dividends 8,744 14,300
===== ======
9. TANGIBLE FIXED ASSETS
Office
equipment Computer Motor Leasehold
and fittings equipment vehicles improvements Total
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
Cost
At 1 April 1995 216,265 1,262,355 29,404 50,152 1,558,176
Exchange differences 10,028 18,931 - - 28,959
Additions 25,828 449,329 79,886 8,429 563,472
Disposals - - (29,404) - (29,404)
------- --------- ------- ------ ---------
At 31 March 1996 252,121 1,730,615 79,886 58,581 2,121,203
------- --------- ------- ------ ---------
Depreciation
At 1 April 1995 121,267 924,577 29,403 11,852 1,087,099
Exchange differences 4,484 13,838 - - 18,322
Charge for year 35,222 364,150 19,886 14,979 434,237
Disposals - - (29,403) - (29,403)
------- --------- ------- ------ ---------
At 31 March 1996 160,973 1,302,565 19,886 26,831 1,510,255
------- --------- ------- ------ ---------
Net book value at
31 March 1996 91,148 428,050 60,000 31,750 610,948
======= ======== ======= ====== =========
Net book value at
31 March 1995 94,998 337,778 1 38,300 471,077
======= ======== ======= ====== =========
8
HOLISTIC SYSTEMS LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
10. DEBTORS
1996 1995
(Pounds) (Pounds)
Trade debtors 4,369,417 3,360,635
Other debtors 157,661 137,378
Prepayments and accrued income 386,411 69,737
Advance corporation tax
recoverable 2,186 3,575
--------- ---------
4,915,675 3,571,325
========= =========
11. CREDITORS--amounts falling
due within one year
1996 1995
(Pounds) (Pounds)
Trade creditors 523,204 288,744
Obligations under finance leases
and hire purchase contracts 11,636 -
Corporation tax and taxes
on overseas profits 732,275 433,657
Other taxes and social
security costs 313,257 300,857
Advance corporation tax
payable 2,186 3,575
Accruals and deferred income 2,825,909 2,214,456
--------- ---------
4,408,467 3,241,289
========= =========
12. CREDITORS--amounts falling
due after more than one year
1996 1995
(Pounds) (Pounds)
Obligations under finance leases
and hire purchase contracts 51,463 -
Other creditors 12,580 -
--------- ---------
64,043 -
========= =========
9
HOLISTIC SYSTEMS LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
13. CALLED UP SHARE CAPITAL
1996 1995
(Pounds) (Pounds)
Authorised:
'A' ordinary shares of 10p each 7,600 7,600
'B' ordinary shares of 10p each 3,400 3,400
Non-cumulative participating redeemable
2.5% preference shares of (Pounds)1 each 400,000 400,000
------- -------
411,000 411,000
======= =======
Allotted and fully paid:
'A' ordinary shares of 10p each 6,645 6,905
'B' ordinary shares of 10p each 3,355 3,020
Non-cumulative participating redeemable
2.5% preference shares of (Pounds)1 each - 400,000
------- -------
10,000 409,925
======= =======
During the year the company redeemed 400,000 non-cumulative participating
redeemable 2.5% preference shares at par. Prior to redemption, a dividend
had been declared (note 8).
The company also issued 750 'B' ordinary shares to employees, 700 at
(Pounds)15.90 each and 50 at (Pounds)17.95 each (1995-1,650 shares issued
to employees at (Pounds)15.90 each). Additionally 2,600 'A' ordinary shares
of 10p each were converted to 'B' ordinary shares of 10p each.
14. SHARE PREMIUM ACCOUNT
1996 1995
(Pounds) (Pounds)
At 1 April 1995/1994 36,444 10,374
Premium on shares issued during the year 11,952 26,070
At 31 March 1996/1995 48,396 36,444
====== ======
15. PROFIT AND LOSS ACCOUNT
1996 1995
(Pounds) (Pounds)
At 1 April 1995/1994 2,183,403 1,365,516
Profit for the year 1,048,397 836,366
Transfer to capital redemption reserve (400,000) -
Exchange rate adjustments 86,342 (18,479)
--------- ---------
At 31 March 1996/1995 2,918,142 2,183,403
10
HOLISTIC SYSTEMS LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
16. RECONCILIATION OF OPERATING PROFIT TO
NET CASH INFLOW FROM OPERATING ACTIVITIES
1996 1995
(Pounds) (Pounds)
Operating profit 1,868,997 1,400,796
Depreciation charges 434,237 318,396
(Decrease)/increase in provisions (7,235) 4,512
Exchange rate adjustments 86,342 (18,479)
(Increase)/decrease in debtors (1,345,739) 113,035
Increase in creditors 863,018 100,160
---------- ---------
Net cash inflow from operating
activities 1,899,620 1,918,420
========== =========
17. ANALYSIS OF CHANGES IN CASH AND
CASH EQUIVALENTS DURING THE YEAR
1996 1995
(Pounds) (Pounds)
At 1 April 1995/1994 1,903,185 957,405
Net cash inflow 492,347 945,780
--------- ---------
At 31 March 1996/1995 2,395,532 1,903,185
========= =========
18. ANALYSIS OF THE BALANCES OF CASH
AND CASH EQUIVALENTS AS SHOWN IN
THE BALANCE SHEET
Change in year ended
31 March 1996 1996 1995
(Pounds) (Pounds) (Pounds)
Cash at bank and in hand 492,347 2,395,532 1,903,185
======= ========= =========
Change in year ended
31 March 1995 1995 1994
(Pounds) (Pounds) (Pounds)
Cash at bank and in hand 945,780 1,903,185 957,405
======= ========= =========
11
HOLISTIC SYSTEMS LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
19. ANALYSIS OF CHANGES IN FINANCING
DURING THE YEAR
Share Share
capital capital
1996 1995
(Pounds) (Pounds)
At 1 April 1995/1994 446,369 420,134
--------- --------
Issue of ordinary shares 12,027 26,235
Redemption of preference shares (400,000) -
--------- --------
(387,973) 26,235
--------- --------
At 31 March 1996/1995 58,396 446,369
========= ========
20. COMMITMENTS: OPERATING LEASES
Land and buildings Other
1996 1995 1996 1995
(Pounds) (Pounds) (Pounds) (Pounds)
Annual commitments on
agreements expiring:
Within one year 538,000 336,000 84,000 321,000
Between one and five years 500,000 272,000 48,000 181,000
After five years 30,000 31,000 2,000 -
--------- ------- ------- -------
1,068,000 639,000 134,000 502,000
========= ======= ======= =======
21. PROVISIONS FOR LIABILITIES AND CHARGES
(Pounds)
Provision against warranty
costs and claim by former
distributor
At 1 April 1995 74,526
Exchange rate differences 1,024
Utilised in the year (3,012)
Provided in the year 569
------
At 31 March 1996 73,107
======
12
HOLISTIC SYSTEMS LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
22. SHAREHOLDERS' FUNDS
1996 1995
(Pounds) (Pounds)
RECONCILIATION OF MOVEMENTS
Profit for the financial year 1,057,141 850,666
Dividends (8,744) (14,300)
--------- ---------
1,048,397 836,366
New share capital subscribed 12,027 26,235
Preference shares redeemed in the year (400,000) --
--------- ---------
Net addition to shareholders' funds 660,424 862,601
Exchange rate adjustment to opening
shareholders' funds 86,342 (18,479)
Opening shareholders' funds 2,629,772 1,785,650
--------- ---------
Closing shareholders' funds 3,376,538 2,629,772
========= =========
SHAREHOLDERS' FUNDS COMPRISE:
Equity interests 3,376,538 2,229,772
Non-equity interests -- 400,000
--------- ---------
3,376,538 2,629,772
========= =========
23. CONTINGENT LIABILITY
Holistic Systems Limited has received a claim for damages from a former
distributor. Based on legal advice that the company has strong defences, the
directors are firmly resisting the claim. It is not practicable to quantify
the financial effect of the claim should it be found against the company.
24. COMPANIES ACT 1985
These consolidated accounts do not comprise the company's statutory accounts
within the meaning of Section 240 of the Companies Act 1985 of Great Britain.
Statutory accounts for the years ended 31 March 1996 and 31 March 1995 have
been delivered to the Registrar of Companies for England and Wales. The
auditors' report on those accounts were unqualified.
13
HOLISTIC SYSTEMS LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
25. SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
The consolidated accounts are prepared in accordance with accounting
principles generally accepted in the United Kingdom ("UK GAAP"), which
differ in certain significant respects from United States generally accepted
accounting principles ("US GAAP"). These differences and their effect on
the retained profit for the year are set out below.
1996
(Pounds)
Retained profit in accordance with UK GAAP, as reported in the
consolidated profit and loss account 1,048,397
---------
US GAAP adjustments:
(a) Adjustment to profit on ordinary activities before taxation:
Foreign currency translation (71,130)
(b) Adjustment to tax on profit on ordinary activities related to:
Deferred taxation 80,000
Foreign currency translation 20,973
---------
Net US GAAP adjustments 29,843
---------
Retained profit as adjusted for US GAAP 1,078,240
=========
Retained profit for the year arises from continuing operations.
ADDITIONAL INFORMATION
BAD DEBTS
The bad debt charge for the year ended 31 March 1996 was (Pounds)97,458 and bad
debts written off amounted to (Pounds)115,180, net of recoveries.
Comments on the above and on the differences between the company's accounting
policies and US GAAP are as follows:
(a) FOREIGN CURRENCY
Under UK GAAP, revenues, expenses and assets and liabilities relating to
overseas subsidiaries are translated at the year end rate. Under US GAAP
assets and liabilities are translated as under UK GAAP; however, revenues
and expenses are translated at average rates for the year.
(b) DEFERRED TAXATION
Under UK GAAP, provision is made for deferred taxation under the
liability method when it is probable that a tax liability will become
payable. Under US GAAP, Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," requires deferred taxation to be
provided in full on the liability method; in particular, it requires the
recognition of deferred taxation assets for gross deductible temporary
differences and operating loss carry forwards at the expected applicable
tax rate based on currently enacted tax law. A valuation allowance would
be provided for these deferred tax assets to the extent that it is more
likely than not that they will not be realised.
The adjustment of (Pounds)80,000 relates to the recognition of deferred
taxation assets in respect of gross deductible temporary differences of
(Pounds)50,000 and operating loss carry forwards of (Pounds)30,000.
14
HOLISTIC SYSTEMS LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
25. SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (CONTINUED)
(c) CONSOLIDATED CASHFLOW STATEMENT
The consolidated cashflow statement prepared in accordance with UK
Financial Reporting Standard No. 1 presents substantially the same
information as that required under US GAAP by Statement of Financial
Accounting Standards No. 95, "Statement of Cash Flows". These standards
differ, however, with regard to the definition of cash and cash
equivalents and in respect of the classification of items within the
statements.
Under US GAAP, cash and cash equivalents would not include bank
overdrafts and borrowings with initial maturities of less than three
months or cash held in escrow. Under UK GAAP, cash flows are presented
separately for operating activities, servicing of finance and returns on
investments, taxation, investing activities and financing activities. US
GAAP, however, requires only three categories of cash flow activity to be
reported: operating, investing and financing. Cash flows from taxation
and servicing of finance and returns on investments shown under UK GAAP,
would, with the exception of dividends paid, be included as operating
activities under US GAAP. The payment of dividends would be included as
a financing activity under US GAAP.
15