EXHIBIT 99.1
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of CATS computer
aided technologies, Computeranwendungen in der Fertigungssteuerung GmbH,
Karlsruhe, as of December 31, 1997 and 1996, and the related statements of
income and cash flows for each of the two years in the period ended December 31,
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 in the United States of America and Germany. 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, such financial statements present fairly, in all
material respects, the financial position of CATS computer aided technologies,
Computeranwendungen in der Fertigungssteuerung GmbH, Karlsruhe, as of December
31, 1997 and 1996, and the results of their operations and their cash flows for
each of the two years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles in the United States of America.
Deloitte & Touche GmbH
Wirtschaftsprufungsgesellschaft
/s/ Dr. KAMM /s/ KOMPENHANS
(Dr. Kamm) (Kompenhans)
Wirtschafsprufer Wirtschaftsprufer
Mannheim, May 26, 1998
Kom/Pf
CATS COMPUTER AIDED TECHNOLOGIES,
COMPUTERANWENDUNGEN IN DER FERTIGUNGSSTEUERUNG GMBH
BALANCE SHEETS
DECEMBER 31,
1997 1996
----- -----
(in thousands of DM)
ASSETS
Current Assets
Cash and cash equivalents ......................... 5 6
Accounts receivable ............................... 2,154 569
(net of allowance for doubtful accounts of
DM 21 in 1997 and DM 6 in 1996)
Inventories ....................................... 54 32
Other current assets and prepaid expenses .........
Deferred tax assets ............................... 154 34
----- -----
2,367 641
EDP equipment and office furniture (net) ............. 360 96
Long-term receivables from related parties ........... 328 143
----- -----
3,055 880
===== =====
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities
Liabilities to banks .............................. 1,092 121
Accounts payable .................................. 1,227 260
Other liabilities and other accruals .............. 534 433
Deferred tax liabilities .......................... 56 8
----- -----
2,909 822
Stockholders' Equity
Registered capital ................................ 50 50
Retained earnings ................................. 96 8
----- -----
146 58
----- -----
3,055 880
===== =====
See Notes to the Financial Statements.
CATS COMPUTER AIDED TECHNOLOGIES,
COMPUTERANWENDUNGEN IN DER FERTIGUNGSSTEUERUNG GMBH
STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DM)
YEARS ENDED
DECEMBER 31,
----------------
1997 1996
----- -----
Net sales ....................... 5,711 3,116
Cost of sales ................... 1,718 928
----- -----
Gross profit .................... 3,993 2,188
Selling and administrative ...... 2,069 1,439
Research and development ........ 1,669 712
----- -----
Income from operations .......... 255 37
Net interest ............ 40 21
----- -----
Income before income taxes ...... 215 16
Income taxe expense ............. 127 13
----- -----
Net ncome ............... 88 3
===== =====
See Notes to the Financial Statements.
CATS COMPUTER AIDED TECHNOLOGIES,
COMPUTERANWENDUNGEN IN DER FERTIGUNGSSTEUERUNG GMBH
STATEMENTS OF CASH FLOW
YEARS ENDED
DECEMBER 31,
------------------
1997 1996
------ ------
Operating activities
Net income ............................................. 68 3
Adjustments to reconcile net income to
cash (used by) provided by
operating activities
Deferred income taxes ............................... 48 (7)
Depreciation ........................................ 92 62
Changes in assets and liabilities that
provided (used) cash
Inventories ......................................... (22) (31)
Accounts payable and accrued charges ................ 1,068 274
Accounts receivable and other assets ................ (1,890) (257)
------ ------
Cash (used) provided by operating activities ........... (616) 44
------ ------
Investing activities
Purchase of EDP-equipment and office furniture ...... (356) (84)
------ ------
Cash provided by (used in) investing activities ........ (356) (84)
Financing activities
Increase of bank liabilities, net ...................... 971 44
------ ------
Cash provided by financing activities .................. 971 44
------ ------
Net change in cash and cash equivalents ................ (1) 4
Cash and cash equivalents, beginning of year ........... 6 2
------ ------
Cash and cash equivalents, end of year ................. 5 6
====== ======
See Notes to the Financial Statements.
CATS
COMPUTER AIDED TECHNOLOGIES, COMPUTERANWENDUNGEN
IN DER FERTIGUNGSSTEUERUNG GMBH
NOTES TO THE FINANCIAL STATEMENTS
(DEUTSCHE MARK IN THOUSANDS)
1. DESCRIPTION OF BUSINESS
CATS computer aided technologies, Computeranwendungen in der
Fertigungssteuerung GmbH ("CATS") is engaged in the production and marketing of
software and computer applications used in managing and controlling computer
integrated manufacturing applications as well as in the related training.
Offered are modules for CAD/CAM-technologies (computer aided design, computer
aided manufacturing), CAQ-technologies (computer aided quality control) and
manufacturing, planning and control systems. Workstations can be delivered ready
for operation including hardware, software and other services.
The company operates in one segment providing customer oriented
development of overall concepts relating to computer aided manufacturing in
Germany. The main customers are large German car manufacturers and component
suppliers for the car industry.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The company's accounting policies are in accordance with accounting
policies generally accepted in the United States of America. 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
the revenue and expenses during the reporting period. Actual results could
differ from those estimates. The following policies are considered to be
significant.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and amounts on
deposit with financial institutions.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The company's financial instruments include cash and cash
equivalents, accounts receivable, accounts payable and liabilities to banks. The
carrying amounts of the financial instruments approximate their fair value
because of their short term maturities.
INVENTORIES
NOTES TO THE FINANCIAL STATEMENTS --(CONTINUED)
Inventories include raw materials and are stated at the lower of
average cost or market.
EDP-EQUIPMENT AND OFFICE FURNITURE
Property, plant and equipment are recorded at cost.
Depreciation is computed using the straight-line method over the
estimated useful lives of the various classes of assets as follows:
Office furniture .........................5 - 10 years
EDP-equipment ............................3 - 4 years
CATS COMPUTER AIDED TECHNOLOGIES, COMPUTERANWENDUNGEN
IN DER FERTIGUNGSSTEUERUNG GMBH
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
RESEARCH AND DEVELOPMENT
Research and development costs incurred in the discovery of new
knowledge and the resulting translation of this knowledge into plans and new
products, prior to the attainment of the related products' feasibility, are
recorded as expenses in the period incurred.
Costs incurred in the development of products, after technological
feasibility is attained, are principally to be capitalized and amortized over
the estimated economic lives of the related products. According to the
assessment of the management the company's products have an economic life of
less than one year, due to the fast rate of technological development. As a
result, all product design costs are charged to income.
REVENUE RECOGNITION
The company recognizes revenue at the date of shipment.
INCOME TAXES
Income taxes have been provided for in accordance with the asset and
liability methodology of Statement for Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109). Under SFAS 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carry forwards. Deferred tax assets and liabilities are measured using enacted
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
EARNINGS PER SHARE
Earnings per share are not calculated because the company has two
shareholders with ownership of 50% each.
3. OTHER CURRENT ASSETS AND PREPAID EXPENSES
The balances were as follows:
1997 1996
---- ----
(DM) (DM)
Tax receivables......................................... 108 0
Receivables from employees.............................. 33 18
Prepaid expenses........................................ 2 10
Other .................................................. 11 6
--- ---
154 34
=== ===
CATS
COMPUTER AIDED TECHNOLOGIES, COMPUTERANWENDUNGEN
IN DER FERTIGUNGSSTEUERUNG GMBH
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
4. EDP-EQUIPMENT AND OFFICE FURNITURE
Cost and accumulated depreciation were as follows:
1997 1996
---- ----
(DM) (DM)
EDP -equipment and office furniture......................... 613 257
Less accumulated depreciation............................... 253 161
--- ---
360 96
=== ===
5. LONG-TERM RECEIVABLES FROM RELATED PARTIES
1997 1996
---- ----
(DM) (DM)
Argus Q GmbH, Germany (former AC-Tech GmbH)................. 215 143
Antares Ltd., Portugal...................................... 113 0
--- ----
328 143
=== ===
- -------------------------
The receivables from Argus Q GmbH and Antares Ltd. have a residual term in
excess of one year. They are bearing interest with a rate of 4.5%.
6. LIABILITIES TO BANKS
The average interest rate of the short-term borrowings outstanding at
year-end was approx. 10.0%.
Cash payment for interest amounted to DM 37 in 1997 and DM 25 in 1996.
The bank loans are secured by guarantees given by the company's shareholders.
Furthermore, accounts receivable and the company's telephone system serve as
collateral.
There are no significant credit lines available in addition to the drawings on
short-term credit lines shown on the balance sheet.
7. OTHER LIABILITIES AND OTHER ACCRUALS
The balances were as follows:
1997 1996
---- ----
(DM) (DM)
Accrued warranty expenses................................... 57 31
Accrued vacation expenses................................... 112 89
Other accruals.............................................. 143 14
Payables to related parties................................. 52 43
Withholding tax liability................................... 126 199
Other liabilities........................................... 44 57
--- ---
534 433
8. LEASE COMMITMENTS
The Company has operating lease agreements for the rental of cars
and office space. Expenses for operating leases were DM 289 in 1997 and DM 124
in 1996 respectively.
CATS
COMPUTER AIDED TECHNOLOGIES, COMPUTERANWENDUNGEN
IN DER FERTIGUNGSSTEUERUNG GMBH
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments, which have initial or remaining non
cancelable terms in excess of one year at December 31, 1997, were as follows:
(DM)
1998.................................................................... 337
1999.................................................................... 327
2000.................................................................... 256
2001.................................................................... 70
2002.................................................................... 35
------
1,025
9. SHAREHOLDERS' EQUITY
The registered capital of the Company is DM 50, which has been paid
in by the company's two shareholders. Such ownership shares are not negotiable.
The following table presents the changes in retained earnings for
the period from January 1, 1996, to December 31, 1997:
(DM)
Balance - January 1, 1996............................................... 5
Net Income 1996....................................................... 3
-
Balance - December 31, 1996............................................. 8
Net Income 1997....................................................... 88
--
Balance - December 31, 1997............................................. 96
--
10. INCOME TAXES
The components of income taxes are as follows:
1997 1996
---- ----
(DM) (DM)
Current Taxes............................................... 79 20
Deferred Taxes.............................................. 48 (7)
--- ---
127 13
=== ==
The provision for income taxes differed from the statutory rate
(45%) for the following reasons:
1997 1996
---- ----
(DM) (DM)
Corporate income tax at statutory rate...................... 99 8
Municipal trade tax, net of corporation income tax effect... 18 1
Corporate income tax surcharge.............................. 7 0
Non-deductible expenses..................................... 5 3
Other ...................................................... (2) 1
--- --
127 13
Corporate income taxes and municipal trade taxes paid amounted to DM
206 in 1997 and DM 0 in 1996.
The components of the recorded deferred tax liabilities are:
1997 1996
---- ----
(DM) (DM)
Accounts receivable and other current assets................ 10 (28)
Accounts payable and accrued changes........................ 46 36
-- --
56 8
11. RELATED PARTY TRANSACTIONS
The company's operations include transactions with companies that
are owned by the stockholders of CATS GmbH. The material transactions are as
follows:
1997 1996
---- ----
(DM) (DM)
Argus Q GmbH, Germany
Net sales................................................. 320 0
Antares Ltd., Portugal
Net sales................................................. 533 0
Purchased Services......................................... 537 0
Antares Ltd. is developing software for the company. The business
of Argus Q GmbH is the quality control for the automotive and aircraft
industry.
Amounts due from these companies are included in trade accounts
receivable.
The balances outstanding were:
1997 1996
---- ----
(DM) (DM)
Argus Q GmbH, Germany ...................................... 368 0
Antares Ltd., Portugal...................................... 533 0
Long-term receivables from related parties:
1997 1996
---- ----
(DM) (DM)
Argus Q GmbH, Germany 215 143
Antares Ltd., Portugal 113 0
--- ---
328 143
=== ===
The accounts payable include liabilities to related parties.
1997 1996
---- ----
(DM) (DM)
Argus Q GmbH, Germany 280 0
Antares Ltd., Portugal 537 0
The short term payables to related parties include the advance accounts of the
stockholders.