EXHIBIT 99.01
Consolidated Financial Statements
Actuate Holding B.V.
Years ended December 31, 1998 and 1997
with Report of Independent Auditors
Actuate Holding B.V.
Consolidated Financial Statements
Years ended December 31, 1998 and 1997
Contents
Report of Independent Auditors............................................ 1
Audited Consolidated Financial Statements
Consolidated Balance Sheets............................................... 2
Consolidated Statements of Operations..................................... 3
Consolidated Statements of Stockholders' Equity (Net Capital Deficiency).. 4
Consolidated Statements of Cash Flows..................................... 5
Notes to Consolidated Financial Statements................................ 6
Report of Independent Auditors
To the Shareholders
Actuate Holding B.V.
We have audited the accompanying consolidated balance sheets of Actuate Holding
B.V. and subsidiaries as of December 31, 1998 and 1997, and the related
statements of operations, stockholders' equity (net capital deficiency), and
cash flows for the years ended December 31, 1998 and 1997. 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 consolidated financial position of Actuate Holding
B.V. and subsidiaries and the consolidated results of its operations and its
cash flows for the years ended December 31, 1998 and 1997, in conformity with
generally accepted accounting principles.
June 11, 1999, except for note 9, as to which
The date is June 18, 1999
Ernst & Young Entrepreneurs
Departement d'E&Y Audit
/s/ Emmanuel Picard
Actuate Holding B.V.
Consolidated Balance Sheets
December 31,
1998 1997
----------------------------
Assets
Current assets:
Cash and cash equivalents $ 277,515 $ 165,208
Accounts receivable less allowance for doubtful accounts of
$34,584 in 1998 and $0 in 1997 1,461,173 344,418
Prepaid expenses and other current assets 109,670 170,234
----------------------------
Total current assets 1,848,358 679,860
Property and equipment, net 74,996 126,107
Other assets 22,153 18,338
----------------------------
Total assets $ 1,945,507 $ 824,305
============================
Liabilities and stockholders' equity (net capital deficiency)
Current liabilities:
Accounts payable $ 345,367 $ 157,984
Accrued compensation 208,577
Accrued social taxes 137,458 29,874
Accrued fees 193,217 125,587
Accrued royalties 950,378 176,848
Customer payables 178,885 -
Other accrued liabilities 281,940 170,781
Deferred revenue 212,274 43,010
Short-term debt 832,727 37,796
----------------------------
Total current liabilities 3,340,823 741,880
Stockholder loans 3,547,322 2,405,850
Interest payable to stockholders 397,205 146,411
Commitments and contingencies
Stockholders' equity (net capital deficiency):
Common stock, NLG 1 par value: 200,000 shares authorized at
December 31, 1998 and 1997, 40,000 shares issued and outstanding
at December 31, 1998 and 1997 19,808 19,808
Accumulated other comprehensive income (loss) (77,275) 5,008
Accumulated deficit (5,282,376) (2,494,652)
----------------------------
Total stockholders' equity (net capital deficiency) (5,339,843) (2,469,836)
----------------------------
Total liabilities and stockholders' equity (net capital deficiency) $ 1,945,507 $ 824,305
============================
See accompanying notes
Actuate Holding B.V.
Consolidated Statements of Operations
Years ended December 31,
1998 1997
-------------------------
Revenues:
License fees $ 1,695,306 $ 559,924
Services 735,711 65,540
--------------------------------
Total revenues 2,431,017 625,464
--------------------------------
Operating expenses:
Cost of license fees 12,994 14,540
Royalty expense 861,100 239,260
Cost of services 176,467 4,969
Fee expense 775,933 617,260
Sales and marketing 2,488,096 1,102,549
General and administrative 627,385 458,218
--------------------------------
Total operating expenses 4,941,975 2,436,796
--------------------------------
Loss from operations (2,510,958) (1,811,332)
Interest and other expense (296,469) (71,209)
Interest and other income 19,703 133,163
--------------------------------
Income before income taxes (2,787,724) (1,749,378)
Income tax expense - -
Net loss $ (2,787,724) $ (1,749,378)
================================
See accompanying notes
Actuate Holding B.V.
Consolidated Statement of Stockholders' Equity (Net Capital Deficiency)
Accumulated Other Total
Common Stock Comprehensive Equity Stockholders'
-------------------------------------------------- Accumulated (Net Capital
Shares Amount Income (Loss) Deficit Deficiency)
-------------------------------------------------- ----------- -------------
Balance at December 31, 1996 40,000 $19,808 $(16,501) $ (745,274) $ (741,967)
Translation adjustment - - 21,509 - 21,509
Net loss - - - (1,749,378) (1,749,378)
Comprehensive loss (1,727,869)
---------------------------------------------------------------------------------
Balance at December 31, 1997 40,000 19,808 5,008 (2,494,652) (2,469,836)
Translation adjustment - - (82,283) - (82,283)
Net loss - - - (2,787,724) (2,787,724)
Comprehensive loss (2,870,007)
-------------------------------------------------------------------------------
Balance at December 31, 1998 40,000 $19,808 $(77,275) $(5,282,376) $(5,339,843)
===============================================================================
See accompanying notes
Actuate Holding B.V.
Consolidated Statements of Cash Flows
Years ended December 31,
1998 1997
--------------------------------
Operating activities
Net loss $(2,787,724) $(1,749,378)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 49,527 24,673
Loss on disposal of fixed assets 10,676 -
Changes in operating assets and liabilities:
Accounts receivable (1,116,755) (254,014)
Prepaid expenses and other assets 56,749 97,045
Accounts payable 187,383 7,745
Accrued compensation 208,577 -
Accrued royalties 773,530 152,530
Accrued interest payable 250,794 114,365
Short term debt 794,931 37,796
Accrued expenses and other liabilities 634,522 325,249
--------------------------------
Net cash used in operating activities (937,790) (1,243,989)
--------------------------------
Investing activities
Purchase of equipment (50,579) (128,751)
Proceeds from sale of equipment 41,487 -
--------------------------------
Net cash used in investing activities (9,092) (128,751)
--------------------------------
Financing activities
Proceeds from shareholder loans 1,141,472 1,237,390
--------------------------------
Net cash provided by financing activities 1,141,472 1,237,390
--------------------------------
Net increase (decrease) in cash 194,590 (135,350)
Translation adjustment (82,283) 21,509
Cash and cash equivalents at beginning of period 165,208 279,049
--------------------------------
Cash and cash equivalents at end of period 277,515 $ 165,208
================================
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 13,430 $ 1,280
================================
See accompanying notes
Actuate Holding B.V.
Notes to Consolidated Financial Statements
December 31, 1998
1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Actuate Holding B.V. ("Actuate B.V.") and its wholly owned subsidiaries, Actuate
France S.A. ("Actuate France"), Actuate Software UK Limited ("Actuate UK"), and
Actuate Software GmbH ("Actuate GmbH") (collectively, the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Business
Actuate B.V. is the exclusive distributor (other than with respect to value-
added resellers who have been or will be granted worldwide distribution rights)
of enterprise reporting solutions that enable organizations to systematically
extract, publish, and disseminate information across distributed computing
environments. Actuate B.V. was organized under the laws of the Netherlands in
March 1996 as a holding company of the outstanding shares of three operating
companies. The operating companies are located in France (formed in June 1996),
the United Kingdom (formed in October 1996), and Germany (formed in November
1997). The operating companies were formed for the purpose of marketing, selling
and supporting software products pursuant to a licensing agreement. The products
are developed by Actuate Software Corporation (the "Supplier" or "Actuate") in
the United States, and are designed to allow companies to rapidly design,
generate and distribute reports throughout the enterprise, thereby increasing
access to and the value of corporate data. The products can be adopted in a wide
variety of industries, including financial services, telecommunications,
technology, health care and others, and are marketed throughout Belgium, France,
Germany, Switzerland, and the United Kingdom. The stockholders of Actuate B.V.
consist of certain venture capital funds and individuals. These investors
provided capital to Actuate B.V. in the form of loans, which Actuate B.V. used
to fund the operations of the operating companies.
Accounting 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 revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Actuate Holding B.V.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Cash Equivalents
The Company considers all highly liquid instruments with an original maturity of
three months or less when purchased to be cash equivalents. Cash and cash
equivalents are held by major financial institutions.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of trade receivables. The Company sells to a
diverse customer base throughout Europe. Credit is extended based upon an
evaluation of each customer's financial condition, with terms consistent with
those present throughout the industry. The Company does not require collateral
on sales with credit terms.
Sales to two customers accounted for approximately 25% of total consolidated
sales for the year ended December 31, 1998 and 1997, respectively. Trade
accounts receivable from three customers accounted for 48% and 53% of total
consolidated accounts receivable as of December 31, 1998 and 1997, respectively.
Fair Values of Financial Instruments
Fair values of cash and cash equivalents approximate cost due to the short
period of time to maturity. Fair values of long-term debt, which have been
determined based on borrowing rates currently available to the Company for loans
with similar terms of maturity, approximate the carrying amounts in the
consolidated financial statements.
Foreign Currency Translation
Assets and liabilities of the Company, denominated in local functional
currencies, are generally translated to U.S. dollars at the exchange rate in
effect at the balance sheet date. Related revenues and expenses are translated
at average exchange rates in effect during the period. Resulting translation
adjustments are recorded as a foreign currency component in stockholders'
equity. Currency transaction gains or losses are recognized in interest and
other expense and have not been significant to the Company's operating results
in any period.
Actuate Holding B.V.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation. The
provision for depreciation is computed on the straight-line method over the
estimated useful lives of the respective assets, which range from two to six
years. Assets held under capital leases are amortized over the shorter of the
asset life or the remaining lease term. The related amortization expense is
included in depreciation expense.
Impairment of Long-Lived Assets
The carrying values of long-lived assets are reviewed periodically and if future
cash flows are believed insufficient to recover the remaining carrying value of
the related assets, the carrying value is written down to its estimated fair
value in the period the impairment is identified.
Revenue Recognition
Revenue from license fees from sales of software products directly to end-user
customer is recognized as revenue after execution of a license agreement or
receipt of a definitive purchase order, and shipment of the product, if no
significant vendor obligations remain, there are no uncertainties surrounding
product acceptance, the license fees are fixed and determinable, and collection
of the license fee is considered probable. The Company's products do not require
significant customization. The majority of end user license revenues are derived
from end user customer orders for specific individual products. These types of
transactions are recognized as revenue upon shipment of product.
License arrangements with enterprise application vendors, resellers, and
distributors generally take the form of either (a) fixed price arrangements, in
which the contracting entity has the right to the unlimited usage, unspecified
future products, and sublicensing of the licensed software for a specified term
and pursuant to which license fee revenue is deferred and recognized on a
straight-line basis over the term of the license agreement or (b) arrangements
pursuant to which a royalty is paid to the Company, which the Company recognizes
as revenue, based on the enterprise application vendor's sell-through.
Actuate Holding B.V.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Revenue Recognition (continued)
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97-2"). Effective January 1, 1998, the Company adopted SOP 97-2. SOP 97-2
generally requires revenue earned on software arrangements involving multiple
elements such as software products, upgrades, enhancements, postcontract
customer support, installation, and training to be allocated to each element
based on the relative fair values of the elements. If evidence of the fair value
for all elements of the arrangement does not exist, all revenue from the
arrangement is deferred until such evidence exists or until all elements are
delivered. There was no material change to the Company's accounting for revenues
as a result of the adoption of SOP 97-2, as amended by Statement of Position 98-
4, "Deferral of the Effective Date of a Provision of SOP 97-2" ("SOP 98-4"). In
December 1998, AICPA issued Statement of Position 98-9, "Modification of SOP 97-
2 With Respect to Certain Transactions," which amends SOP 98-4, to extend the
deferral of application of certain passages of SOP 97-2 provided by SOP 98-4
through fiscal years beginning on or before March 15, 1999. All other provisions
of SOP 98-9 are effective for transactions entered into in fiscal years
beginning after March 15, 1999. The Company has not yet determined the effect of
the final adoption of SOP 98-9 on its future revenues and results of operations.
Impact of Recently Issued Accounting Standards
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), effective January 1, 1998. Other
comprehensive income includes only the cumulative translation adjustment as is
shown in the consolidated statement of stockholder's equity (net capital
deficiency).
Also effective January 1, 1998, Statement of Financial Accounting Standards No.
131, "Disclosure About Segments of an Enterprise and Related Information" ("SFAS
131"), which requires the Company to report financial and descriptive
information about its reportable operating segments. There was no impact on the
financial statements of the Company due to the adoption of SFAS 131.
Actuate Holding B.V.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Impact of Recently Issued Accounting Standards (continued)
Also effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("SFAS 132"). This statement supersedes the disclosure
requirements in Statements of Financial Accounting Standards 87, "Employers'
Accounting for Pensions," 88, "Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans for Termination Benefits," and 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions." The objective of
SFAS 132 is to improve and standardize disclosures regarding pensions and
postretirement benefits. There was no impact on the financial statements of the
Company due to the adoption of SFAS 132.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"),
which is required to be adopted in years beginning after June 15, 1999. The
Company believes that there will be no impact due to the adoption of SFAS 133.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"), which is effective for fiscal years beginning after
December 15, 1998. SOP 98-1 requires capitalization of qualified computer
software costs with amortization recognized over their estimated useful lives.
The Company believes that there will be no impact due to the adoption of SOP 98-
1.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities" ("SOP 98-5"), which is effective
for fiscal years beginning after December 15, 1998. SOP 98-5 requires costs of
start-up activities, as defined in the Statement, to be expensed as incurred.
The Company believes that there will be no impact due to the adoption of SOP
98-5.
Actuate Holding B.V.
Notes to Consolidated Financial Statements (continued)
2. Property and Equipment
The following is a summary of property and equipment, which is recorded at cost:
December 31,
1998 1997
----------------------------
Office equipment $109,635 $ 67,106
Motor vehicles 25,481 79,857
Leasehold improvements 8,535 7,948
----------------------------
143,651 154,911
Accumulated depreciation 68,655 28,804
----------------------------
$ 74,996 $126,107
============================
Included in motor vehicles as of December 31, 1997 is vehicles under capital
lease arrangements. The cost and accumulated depreciation of such assets under
capital leases was approximately $54,500 and $3,500, respectively. During 1998,
these assets were sold by the Company and the lease agreements were canceled.
3. Stockholder Loans
The stockholder loans bear interest at a rate of 7% per annum, payable in
arrears on December 31 of each year. Interest due but not paid shall be added to
the loan amount and shall bear interest. The loans are granted for a period of
one year and are automatically renewed for a subsequent period of one year,
unless six-months notice is given by either party.
It is management's intent to renew loans for an uninterrupted period extending
beyond one year from the balance sheet date.
4. Short-Term Debt
The Company has entered into a sales financing agreement with Euro Sales Finance
("Euro Sales"), whereby Euro Sales purchases a portion of the Company's accounts
receivable and collects all sums due directly from the third party. The
agreement also states that the Company will repurchase any receivables deemed to
be uncollectable by Euro Sales. Accounts receivable financed under this
agreement are included in the accompanying balance sheets in accounts receivable
and the corresponding payable is included in short-term debt.
Actuate Holding B.V.
Notes to Consolidated Financial Statements (continued)
5. Income Taxes
As of December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $5,280,000. These carryforwards will expire
beginning in 2002, if not utilized.
Deferred income taxes are computed using the liability method and reflect the
net tax effects of temporary differences between the carrying amount of assets
and liabilities for financial statement purposes and the amounts used for income
tax purposes. Significant components of the Company's deferred tax assets are as
follows:
December 31,
1998 1997
--------------------------
Net operating loss carryforwards $ 2,112,000 $ 998,000
Other, net 14,000 -
--------------------------
Total deferred tax assets 2,126,000 998,000
Valuation allowance (2,126,000) (998,000)
--------------------------
$ - $ -
==========================
6. Related Party Transactions
The Company has entered into a service agreement with an entity controlled by a
manager of the Company. Under this agreement, the Company is required to pay an
annual aggregate amount of approximately $762,000 in exchange for services such
as assistance in contract negotiation, temporary administrative assistance,
assistance with the negotiation of license agreements, etc. The contract is
renegotiated annually and may be terminated by either party.
The Company has entered into a Software License Agreement with Actuate Software
Corporation, their supplier. The Company shall pay Actuate Software Corporation
a royalty equal to 50% (royalty rate) of the invoice price of software invoiced
by the Company and of the associated update portion and of maintenance revenues
(25% royalty rate) exclusive of VAT and other taxes.
The Company also has an agreement with the Supplier which could result in the
Supplier acquiring the Company. Also under the terms of the agreement, the
supplier has the right to increase the royalty it receives for Actuate product
sales by the Company to 100%.
Actuate Holding B.V.
Notes to Consolidated Financial Statements (continued)
7. Commitments and Contingencies
The Company leases its facilities and various office equipment under short-term
operating leases. Rent expense was approximately $172,000 and $65,000 , for the
years ended December 31, 1998 and 1997, respectively.
8. Impact of Year 2000 (Unaudited)
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company is currently taking steps to address Year 2000 issues in three
areas: (i) the Company's products, (ii) the Company's internal systems
(including information technology systems such as financial systems and
noninformation technology systems such as the phone system, and (iii) third-
party vendors with whom the Company has a business relationship.
The Company is currently testing and validating the Year 2000 readiness of its
products and will continue testing of its products during 1999.
Actuate Holding B.V.
Notes to Consolidated Financial Statements (continued)
8. Impact of Year 2000 (Unaudited) (continued)
The Company has determined that it will be required to modify or replace
portions of its software so that its computer systems will function properly
with respect to dates in the Year 2000 and thereafter. The Company also has
initiated formal communications with its significant suppliers and large
customers to determine the extent to which the Company's interface systems are
vulnerable to those third-parties' failure to remediate their own Year 2000
Issues. The Company presently believes that with modifications to existing
software and conversions to new software, the cost of which is not expected to
be material to the Company's results of operation or financial position, the
Year 2000 issue will not pose significant operational problems for its computer
systems. The Company will use both internal and external resources to reprogram,
or replace, and test the software for Year 2000 modifications. The Company
anticipates completing the Year 2000 project prior to any anticipated impact on
its operating systems. However, if such modifications and conversions are not
made, or are not completed timely, the Year 2000 issue could have a material
adverse effect on the operations of the Company. Likewise, there can be no
assurance that the systems of other companies on which the Company's systems
rely will be timely converted and would not have a material adverse effect on
the Company's systems.
9. Subsequent Event
On June 11, 1999, Actuate Software Corporation announced that it had signed a
definitive agreement to acquire Actuate B.V. The acquisition was completed on
June 18, 1999, at which time Actuate Software Corporation acquired all the
outstanding stock of Actuate B.V. for $6,000,000 in cash.