REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Sopheon plc
We have audited the accompanying consolidated balance sheets of
Sopheon plc as of December 31, 2002 and 2001,
and the related consolidated profit and loss accounts and
consolidated statements of total recognised gains and losses,
and cash flows for each of three years in the period ended December
31, 2002. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with United Kingdom auditing
standards and United States 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 from material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statement. An audit also includes assessing the
accounting principles used and significant estimates made by the
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 consolidated financial statements referred to
above present fairly, in all material respects, the
consolidated financial position of Sopheon plc at December 31, 2002
and 2001, and the consolidated results of its
operations and its consolidated cash flows for each of the three
years in the period ended December 31, 2002 in
conformity with accounting principles generally accepted in the
United Kingdom which differ in certain respects from
those followed in the United States (see Note 21 of Notes to the
Financial Statements).
As discussed in Note 1 to the financial statements, the group's
recurring losses from operations and lack of funds raise
substantial doubt about its ability to continue as a going concern.
(Management's plans as to these matters are also
described in Note 1.) The financial statements do not include any
adjustments that might result from the outcome of
this uncertainty.
ERNST & YOUNG LLP
Reading, England
July 3, 2003
SOPHEON plc
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Year ended December 31Notes200220012000
Pound'000Pound'000Pound'000
TURNOVER212,35313,9637,763
Cost of sales(9,002)(10,186)(5,402)
GROSS PROFIT3,3513,7772,361
Sales and marketing expenses(5,437)(7,281)(3,450)
Research and development expenditure(2,331)(3,010)(3,321)
Amortisation and impairment
charges in respect of goodwill(5,922)(21,431)(5,561)
Other administrative expenses(5,727)(6,792)(2,759)
Total administrative expenses(13,980)(31,233)(11,641)
operating loss 3(16,066)(34,737)(12,730)
Share of operating loss
of associated undertaking(46)(63)(76)
Interest receivable260373950
Interest payable
and similar charges5(327)(204)(89)
LOSS ON ORDINARY ACTIVITIES
BEFORE TAXATION(16,179)(34,631)(11,945)
Tax on loss on ordinary activities6126--
RETAINED LOSS FOR THE YEAR (1)(16,053)(34,631)(11,945)
Loss per share
basic and diluted (pence) 7 (19.4)p (76.2)p (33.4)p
_____________
(1)A summary of the significant adjustments to the loss for the year
that would be required if United States generally
accepted accounting principles were to be applied instead of those
generally accepted in the United Kingdom is
set out in Note 21 of Notes to the Financial Statements.
See accompanying Notes
SOPHEON plc
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Year ended 31 December 2002
2001 2000
Pound'000 Pound'000 Pound'000
Loss on ordinary activities after taxation
(16,053) (34,631) (11,945)
Exchange difference on retranslation
of net assets of subsidiary undertakings
75 31 100
Total recognised gains and losses relating to the year
(15,978) (34,600) (11,845)
_________
The statement of comprehensive income required under United States
generally accepted accounting principles is set
out in Note 21 of Notes to the Financial Statements
See accompanying Notes
SOPHEON plc
CONSOLIDATED BALANCE SHEET
At December 31 Notes
2002 2001
Pound'000 Pound'000
fixed assets
Intangible assets
Goodwill 8
5,091 11,124
Less: Negative goodwill 8
(166) (277)
4,925 10,847
Tangible assets 9
900 2,159
Investments 10
- 46
5,825 13,052
current assets
Debtors 12
2,660 3,592
Cash at bank and in hand 13
3,355 13,344
6,015 16,936
creditors: amounts falling due within one year
14 (6,332) (8,584)
net current (LIABILITIES) / ASSETS
(317) 8,352
TOTAL ASSETS LESS CURRENT LIABILITIES
5,508 21,404
creditors: amounts falling due after more than one year
Bank loan 15
- (25)
6% Convertible Unsecured Loan Stock 2004 15
(2,569) (2,553)
PROVISIONS FOR LIABILITIES
AND CHARGES 16 (513) (461)
2,426 18,365
capital and reserves
Called up share capital 18
4,147 4,116
Shares to be issued 19
465 465
Share premium account 19
45,380 45,372
Merger reserve 19
18,384 18,384
Other reserves 19
4,445 5,455
Profit and loss account 19
(70,395) (55,427)
Shareholders' funds (all equity interests)(1)
2,426 18,365
__________
(1) A summary of the significant
adjustments to shareholders' funds that would be required if United
States generally
accepted accounting principles were to be applied instead of those
generally accepted in the United Kingdom is
set out in Note 21 of Notes to the Financial Statements
See accompanying Notes
SOPHEON plc
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31 Notes 2002
2001 2000
Pound'000 Pound'000 Pound'000
NET CASH OUTFLOW FROM OPERATING ACTIVITIES 3 (10,268)
(11,224) (8,793)
return on investments and servicing of finance
Interest received 260
373 950
Interest paid (327)
(204) (88)
Interest element of finance lease rental payments
- - (1)
(67)
169 861
TAXATION
Research and development tax credit 126
- -
CAPITAL EXPENDITURE & FINANCIAL INVESTMENT
Payments to acquire tangible fixed assets (104)
(201) (954)
Receipts from sales of fixed assets 18
- -
(86)
(201) (954)
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary undertakings - (668)
(11,962)
Net cash acquired with subsidiary undertakings -
13,705 (155)
Purchase of investment in associated undertaking -
- (164)
- 13,037
(12,281)
MANAGEMENT OF LIQUID RESOURCES
Decrease / (increase) in short term deposits
8,186 (3,512) (267)
net cash OUTFLOW before financing (2,109)
(1,731) (21,434)
financing
Issues of ordinary share capital 39
1,567 20,222
Issue of convertible loan stock -
2,553 -
Repayment of long-term loans (51)
(36) (30)
Repayment of capital element of finance lease
- (1) (8)
(12)
4,083 20,184
(decrease) / Increase in cash 13 (2,121)
2,352 (1,250)
__________
The significant differences between the cash flow statement
presented above and that required under United States
generally accepted accounting principles are described in Note 21 of
Notes to the Financial Statements.
See accompanying Notes
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Accounting convention
The financial statements are prepared under the historical cost
convention and in accordance with applicable UK
accounting standards, and on the going concern basis. At the year
end the Group reported consolidated net current
liabilities of Pound0.3m and gross cash resources of Pound3.4m.
Whilst the cost base has been substantially reduced, the Group
has continued to incur losses. Since the end of the year the
directors have taken steps to restructure the business,
initially through the divestiture of its US based Information
Management ("IM") business to FIND/SVP Inc. ("FIND"),
in respect of which a definitive agreement was signed on June 25,
2003 and which was completed on July 3, 2003. The
gross value of the transaction amounted to just over $5 million,
including $3 million in immediate cash consideration
and a further $0.4 million in potential earn outs. FIND will also
assume approximately $2.1 million of net current
liabilities and approximately $0.45 million of tangible fixed assets.
The directors also convened an Extraordinary General Meeting of the
holders of the Company's 6% Convertible
Unsecured Loan Stock, held on June 30, 2003, at which loan
stockholders approved a resolution to extend the maturity
date of the stock by a further year to June 2005 and amend the
conversion price to 12p per share, contingent on the
passing of a resolution to be put to ordinary shareholders at the
forthcoming Annual General Meeting to increase the
directors' authority to issue and allot shares.
On June 16, 2003 the Company issued 4,500,000 new ordinary shares by
way of a placing for cash at 12p per share in
order to provide additional working capital.
The directors believe that these steps will provide the group with
adequate funding to support its activities through to
the point at which they forecast that trading becomes cash
generative. Nevertheless, the ability of the Group to
continue as a going concern depends upon shareholders giving the
approvals necessary to implement the rescheduling
of the Convertible Loan Stock at the Annual General Meeting of the
Company to be held on July 30, 2003 and upon
the Group meeting the sales targets on which the trading forecasts
for the Group are based, which include objectives
for the Group's Accolade product that represent substantial growth
over 2002. The directors have a reasonable
expectation that these outcomes will occur, and that together they
will provide adequate resources to enable the group
to continue as a going concern. However, these outcomes are not
certain. In the event that the maturity of loan stock
not extended, or sales targets are not met, and in the absence of
any other appropriate measures that might be available
to the board, the cash generated from sales would continue to be
insufficient to cover the cash outflows of the Group,
and the going concern basis would cease to be appropriate.
The financial statements do not reflect any adjustments which would
be required if the going concern assumption was
not appropriate. Given the uncertainty described above it is not
currently possible to determine the extent and
quantification of such adjustments but these would include the
reclassification of creditors due in more than one year to
less than one year, the write down of the carrying value of goodwill
in the balance sheet to the best estimate of net
realisable value on disposal, and provision for additional
liabilities.
Basis of consolidation
The consolidated financial statements include the results of Sopheon
plc (the "Company") and its subsidiary
undertakings (together the "Group"). The results of Sopheon GmbH
(formerly the Technology and Information
Services Division of Aventis Research & Technologies) and of Orbital
Software Holding plc and its subsidiaries have
been included, using the acquisition method of accounting, since
their respective dates of acquisition, June 29, 2001
and November 15, 2001.
Turnover
Turnover comprises amounts derived from the sale of goods and
services and is stated net of value added tax.
Sales of software products are recognised on delivery, and when no
significant vendor obligations remain. Revenues
from implementation and post contract support services in respect of
software sales are recognised as the services are
performed. Periodic subscription revenue is recognised rateably over
the subscription period. Transaction-based
revenue is billed and recognised as the related services are
rendered. Revenues relating to significant maintenance and
support agreements are deferred and recognised over the period of
the agreements.
Revenues and associated costs under long term contracts are
recognised on a percentage basis as the work is completed
and any relevant milestones are met, using latest estimates to
determine the expected duration and cost of the project.
Tangible fixed assets
Tangible fixed assets are stated at historical cost, less
accumulated depreciation. The costs of developing portals used
to deliver products and services are capitalised as tangible fixed
assets in accordance with UITF29. Tangible fixed
assets are depreciated on a straight line basis over their expected
useful lives over the following periods.
Computer equipment 3 years
Fixtures and fittings 4 to 5 years
Internet portals 3 years
Research and development
Research and development expenditure is written off as incurred. The
cost of registering patents and trademarks are
written off as incurred. Subsidies received from the European Union
and other state agencies are credited to the profit
and loss account over the period to which they relate.
Goodwill
Goodwill arising on consolidation is capitalised and amortised on a
straight line basis over its estimated useful
economic life, which in all cases is three years. Goodwill is
reviewed for impairment at the end of the first full
financial year after acquisition and in other periods if events or
changes in circumstances indicate that carrying values
may not be recoverable. If a subsidiary, associate or business is
subsequently sold or closed, any goodwill arising on
acquisition that has not been amortised is taken into account in
determining the profit or loss on sale or closure.
Deferred taxation
Deferred tax is recognised in respect of all timing differences that
have originated but not reversed at the balance sheet
date where transactions or events that result in an obligation to
pay more, or a right to pay less, tax in the future have
occurred at the balance sheet date, with the following exception.
Deferred tax assets are recognised only to the extent that the
directors consider that it is more likely than not that there
will be suitable taxable profits from which the future reversal of
the underlying timing differences can be deducted.
Deferred tax is measured on a non-discounted basis at the tax rates
that are expected to apply in the periods in which
timing differences reverse, based on tax rates and laws enacted or
substantively enacted at the balance sheet date.
Foreign currencies
The assets and liabilities of the subsidiary undertakings are
translated at the rate of exchange ruling at the balance sheet
date. The profit and loss account is translated at the average rate
of exchange. The exchange differences arising on the
retranslation of subsidiary undertakings are, together with
differences arising on the translation of long-term intra-
Group funding loans which are not intended to be repaid in the
foreseeable future, taken directly to reserves. All other
differences are taken to the profit and loss account.
Pensions
Sopheon contributes to the personal pension arrangements of
employees, the costs of which are charged in the profit
and loss account as incurred. One of its subsidiary companies,
Sopheon GmbH, is committed to providing certain
pensions based on final pensionable salaries of employees. Its
pension liabilities were measured when the subsidiary
was acquired in 2001 using a projected unit method and discounted at
the current rate of return on a high quality
corporate bond of equivalent term and currency to the liabilities.
The provision will be used to offset the future
payments to those employees.
Leasing
Assets held under finance leases, which are leases where
substantially all risks and rewards of ownership of the assets
have passed to the group are capitalised in the balance sheet and
are depreciated over their useful lives. The capital
elements of future obligations under financial leases are included
as liabilities in the balance sheet. The interest
elements of the rental obligations are charged to the profit and
loss account over the period of the lease and represent a
constant proportion of the balance of capital repayments
outstanding. Rentals payable under operating leases are
charged in the profit and loss account on a straight line basis over
the lease term.
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
2. turnover and segmental information
Turnover (excluding valued added tax) represents the amounts derived
from the Group's principal activities which
comprise (a) the design, development, production and marketing of
software products together with associated
implementation and consultancy services and (b) the provision of
information and research services. The Group results
are analysed between three geographical markets, the United States,
the United Kingdom and the rest of Europe.
Analysis of turnover by area of activity
2002 2001 2000
Pound'000 Pound'000 Pound'000
Software and consultancy
3,307 3,654 4,912
Information and research services
9,046 10,309 2,851
12,353 13,963 7,763
Analysis of operating loss by area of activity
2002 2001 2000
Pound'000 Pound'000 Pound'000
Software and consultancy 1,135
719 1,406
Information and research services
2,216 3,058 955
Gross margin 3,351
3,777 2,361
Sales and marketing expenses
(5,437) (7,281) (3,450)
Administrative expenses (including
goodwill amortisation
and impairment charge) (13,980)
(31,233) (11,641)
Operating loss (16,066)
(34,737) (12,730)
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
2. TURNOVER AND SEGMENTAL INFORMATION (Continued)
Analysis of turnover by geographical destination
2002 2001 2000
Pound'000
Pound'000 Pound'000
United Kingdom 829 2,026
2,965
Rest of Europe 4,012 3,239
1,339
North America 7,391 8,471
3,459
Rest of World 121 227
-
12,353 13,963
7,763
Analysis of turnover and operating loss by geographical origin
Operating loss Turnover
2002 2001 2000
2002 2001 2000
Pound'000 Pound'000
Pound'000 Pound'000 Pound'000 Pound'000
United Kingdom 4,686 9,016 4,934
945 2,253 3,942
Rest of Europe 1,146 1,651 1,735
4,032 3,239 500
United States of America 10,234 24,070 6,061
7,376 8,471 3,321
16,066 34,737 12,730
12,353 13,963 7,763
Analysis of net assets by geographical origin
2002 2001 2000
Pound'000
Pound'000 Pound'000
United Kingdom 162 602
5,182
Rest of Europe 92 1,033
476
United States of America 2,893 8,501
25,320
Unallocated cash and loans at Group level (721) 8,229
7,318
2,426 18,365
38,296
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
3. operating loss
(a) This is stated after
charging/(crediting):
2002 2001 2000
Pound'000
Pound'000 Pound'000
Auditors' remuneration - audit services 90
90 67
Auditors' remuneration - non audit services
51 26 19
Research and development expenditure written off
2,331 3,010 3,321
Eureka and other EC subsidies (69)
(19) (78)
Foreign exchange losses / (gains) 15
(20) (645)
Amortisation of goodwill 5,922
12,288 5,561
Impairment charge on goodwill -
9,143 -
Depreciation of owned assets 1,280
1,175 405
Depreciation of assets held under finance leases
- - 4
Operating lease rentals - land and buildings
1,015 916 411
Operating lease rentals - equipment and vehicles
135 191 173
During 2002 PoundNil (2001: Pound95,000 and 2000 Pound114,000) was
charged by the auditors in respect of due diligence and
other work in connection with corporate transactions which has been
capitalised or written off to share premium as
appropriate.
(b) Reconciliation of operating loss
to net cash outflow from operating activities
2002 2001 2000
Pound'000
Pound'000 Pound'000
Operating loss (16,066)
(34,737) (12,730)
Depreciation 1,280
1,175 409
Amortisation of goodwill 5,922
12,288 5,561
Impairment charge in respect of goodwill -
9,143 -
Decrease/(increase) in debtors 948
1,669 (453)
(Decrease) in creditors and provisions (2,352)
(762) (1,580)
Net cash outflow from operating activities (10,268) (11,224)
(8,793)
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
4. Staff costs
2002 2001 2000
Pound'000
Pound'000 Pound'000
Wages and salaries 10,580
12,506 6,834
Social security costs 960
1,082 579
Other pension costs 231
299 173
11,771 13,887
7,586
The fees and emoluments of all directors were as follows:
2002 2001 2000
Pound'000
Pound'000 Pound'000
Fees and emoluments 388
409 490
Pension contributions 16
10 19
404
419 509
Pension contributions are to personal defined contribution schemes
and have been made for four directors who served
during the year. The emoluments of the highest paid director were as
follows:
2002
2001 2000
Pound'000 Pound'000
Pound'000
Salaries and fees
118 136 107
Benefits
6 4 3
Pension contributions to defined contribution scheme
2 2 4
Total
126 142 114
The average monthly number of employees during the year was made up
as follows:
2002 2001 2000
Number Number
Number
Development and operations 151
164 79
Sales and management 81
94 71
232
258 150
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
5. Interest payable and similar charges
2002 2001 2000
Pound'000
Pound'000 Pound'000
Bank loans and overdrafts 155
115 49
Convertible loan stock 172
89 39
Finance charges on finance leases -
- 1
327 204
89
6. Taxation
(a) Tax on loss on ordinary activities
The tax credit is made up as follows:
2002 2001 2000
Pound'000
Pound'000 Pound'000
Research and development tax credits
in respect of prior years 126
- -
(b) Factors affecting current tax credit
The differences between the Group's expected tax credit, using the
Group's standard corporation tax rate of 38% (2001:
39% and 2000: 39%), comprising the weighted average rates of tax
payable across the Group, and the Group's current
tax credit in each year are as follows:
2002 2001 2000
Pound'000
Pound'000 Pound'000
Expected tax credit on loss on ordinary activities before tax
6,148 13,506 4,659
Amortisation and impairment charges in respect of goodwill
(2,250) (8,358) (2,169)
(Shortfall)/excess of tax depreciation compared to book
depreciation (102)
(80) 17
Losses in year not relievable against current tax
(3,796) (5,068) (2,507)
Research & development tax credits in respect of prior year
126 - -
Actual current tax credit (see Note 6(a)) 126 -
-
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
6. TAXATION (Continued)
(c) Deferred taxation
The Group has an unrecognised deferred tax asset arising from its
unrelieved trading losses, which has not been
recognised owing to uncertainty as to the level and timing of
taxable profits in the future.
The unrecognised deferred tax asset is made up as follows:
2002 2001 2000
Pound'000
Pound'000 Pound'000
Shortfall/(excess) of tax depreciation compared to book
depreciation 104
2 (78)
Unrelieved trading losses 20,888
17,923 9,123
Unrecognised deferred tax asset 20,992
17,925 9,045
At 31 December 2002, tax losses estimated at Pound54,342,000 were
available to carry forward by the Group, arising from
historical losses incurred. These losses represent a potential
deferred tax asset of Pound20,888,000. Pound14,712,000 of the tax
losses, and Pound6,455,000 of the potential deferred tax asset,
relate to Sopheon Corporation (Minnesota) and to Orbital
Software Inc. The future utilisation of these losses may be
restricted under section 382 of the US Internal Revenue
Code, whereby the ability to utilise net operating losses arising
prior to a change of ownership is limited to a
percentage of the entity value of the corporation at the date of
change of ownership.
Under Financial Reporting Standard 19, the unrecognised deferred tax
asset in respect of trading losses can only be
recognised if future taxable profits can be foreseen with a greater
degree of certainty.
7. loss per ordinary share
The calculation of basic loss per ordinary share is based on a loss
of Pound16,053,000 (2001 - Pound34,631,000 and 2000
Pound11,945,000), and on 82,669,430 (2001 - 45,471,220 and 2000 -
35,732,477) ordinary shares, being the weighted
average number of ordinary shares in issue during the year.
The loss attributable to ordinary shareholders and the weighted
average number of ordinary shares for the purpose of
calculating the diluted loss per ordinary share are identical to
those used for calculating the basic loss per ordinary
share. This is because the exercise of share options and warrants
and the conversion of the 6% Convertible Loan Stock
2004 would have the effect of reducing the loss per ordinary share
and is therefore not dilutive under the terms of
Financial Reporting Standard 14.
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
8. intangible fixed assets
Negative
Goodwill
goodwill
Pound'000
Pound'000
Cost
At January 1, 2001 36,751
-
Additions 1,509
(332)
At December 31, 2001 38,260
(332)
Additions -
-
At December 31, 2002 38,260
(332)
Amortisation
At January 1, 2001 5,806
-
Provided during the year 12,265
(55)
Impairment charge 9,065
-
At December 31, 2001 27,136
(55)
Provided during the year 6,033
(111)
At December 31, 2002 33,169
(166)
Net book value
At December 31, 2002 5,091
(166)
At December 31, 2001 11,124
(277)
The impairment charge in 2001 resulted from an evaluation of the
recoverable value of goodwill, carried out in
accordance with the requirements of Financial Reporting Standard 11,
and using a discount rate of 15% per annum.
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
9. tangible fixed assets
Computer Furniture &
Internet
Equipment fittings
Portals Total
Pound'000
Pound'000 Pound'000 Pound'000
Cost
At January 1, 2001 1,959 438
820 3,217
Acquired with subsidiary undertakings 586
110 - 696
Additions 149 52
- 201
Disposals (2) (9)
- (11)
Exchange adjustments 18 1
22 41
At December 31, 2001 2,710 592
842 4,144
Additions 91 13
- 104
Disposals (89) (129)
- (218)
Exchange adjustments (68) (14)
(81) (163)
At December 31, 2002 2,644 462
761 3,867
Depreciation
At January 1, 2001 662 145
23 830
Provided during the year 687 193
295 1,175
Disposals - (8)
- (8)
Exchange adjustments (7) (2)
(3) (12)
At December 31, 2001 1,342 328
315 1,985
Provided during the year 836 159
285 1,280
Disposals (80) (115)
- (195)
Exchange adjustments (47) (6)
(50) (103)
At December 31, 2002 2,051 366
550 2,967
Net book value
At December 31, 2002 593 96
211 900
At December 31, 2001 1,368 264
527 2,159
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
10. investments
Share of net
tangible
assets
Goodwill Total
Investment in associated undertaking
Pound'000 Pound'000 Pound'000
At January 1, 2001 103
157 260
Share of retained loss (63)
- (63)
Amortisation of goodwill -
(79) (79)
Impairment charge -
(78) (78)
Exchange difference 6
- 6
At December 31, 2001 46 -
46
Share of retained loss (46)
- (46)
At December 31, 2002 - -
-
The investment in associated undertaking is a 25% interest in
Pro-GRAM BV, a joint venture with three Dutch
teaching hospitals, involved in the provision of software solutions
for the medical and healthcare market. However, the
activity channelled through Pro-GRAM BV was at a low level during 2002.
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
11. BUSINESS COMBINATIONS
Acquisition of Teltech Resource Network Corporation
On September 15, 2000 the Group completed the acquisition of Teltech
Resource Network Corporation. The
consideration for the entire share capital of Teltech Resource
Network Corporation comprised $15,163,000 in cash
(equivalent to Pound10,775,000 at the exchange rate prevailing on
September 15, 2000), 2,094,105 ordinary shares of
Sopheon plc and options to acquire 718,292 ordinary shares in
Sopheon plc with an aggregate exercise price of
Pound1,641,000, as well as attributed costs of Pound1,187,000. The
market value of ordinary shares in Sopheon plc on
September 15, 2000 was 565p. Accordingly, the total cost recorded in
respect of the acquisition was Pound26,211,000.
Analysis of the acquisition of Teltech Resource Network Corporation:
Book value and
fair value
Pound'000
Net assets at the date of acquisition:
Tangible fixed assets1,546
Debtors2,572
Cash893
5,011
Borrowings under line of credit(1,048)
Creditors falling due within one year(3,244)
Deferred subscription income(1,956)
Creditors falling due in more than one year(1,375)
Net deficit(2,612)
Goodwill arising on acquisition28,823
26,211
Discharged by:
Fair value of shares issued11,832
Fair value of options issued2,417
Attributable costs1,187
Cash10,775
26,211
In the view of the directors there were no fair value adjustments
required.
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
11. BUSINESS COMBINATIONS (Continued)
Teltech Resource Network Corporation contributed Pound2,474,000 to
the Group's net operating outflow and utilised
Pound302,000 for capital investment. Teltech Resource Network
Corporation had turnover of $15,892,000 (Pound10,595,000)
and a loss before tax of $5,501,000 (Pound3,667,000) in the year
ended December 31, 2000 (year ended December 31, 1999
turnover of $16,199,000 (Pound10,799,000) and loss before tax of
$92,000 (Pound61,000)).
The summarised profit and loss account of Teltech Resource Network
Corporation for the period from January 1, 2000
to September 15, 2000 (the effective date of acquisition) is as
follows:
Pound'000
Turnover7,405
Operating loss(1,775)
Other interest expense(176)
Loss before and after tax(1,951)
There were no recognised gains and losses other than the loss for
the period.
Acquisition of Sopheon GmbH
Sopheon GmbH was incorporated on February 9, 2001 to acquire the
Technology and Information Services Division of
Aventis Research & Technologies GmbH & Co KG, which was completed on
June 29, 2001. The consideration for the
acquisition comprised 822,598 ordinary shares of Sopheon plc as well
as attributable costs of Pound80,000. In addition,
deferred consideration estimated at Pound465,000 is payable in the
form of Sopheon shares if Sopheon GmbH meets certain
profit targets. The market value of Sopheon shares on the date of
completion was 58.5p and accordingly the total cost
recorded in respect of the acquisition was Pound1,026,000.
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
11. BUSINESS COMBINATIONS (Continued)
Analysis of the acquisition of Sopheon GmbH:
Book value and
fair value
Pound'000
Net assets at the date of acquisition:
Tangible fixed assets302
Deferred costs190
Cash1,828
2,320
Creditors falling due within one year
Accruals(241)
Deferred subscription income(250)
Creditors falling due in more than one year
Pension provision(471)
Net assets1,358
Goodwill arising on acquisition(332)
1,026
Discharged by:
Fair value of shares issued481
Fair value of deferred consideration465
Attributable costs80
1,026
In the view of the directors there were no fair value adjustments
required.
The deferred consideration is payable in the form of Sopheon shares
and is dependant upon the profitability of
Sopheon GmbH in the years 2001 to 2003. The maximum amount payable
is 1,533,000. During the period from
acquisition, Sopheon GmbH contributed Pound218,000 to the Group's
net operating cash outflow and utilised Pound15,000 for
capital investment.
Including the unaudited results of the predecessor business, Sopheon
GmbH had turnover of Pound5,817,000 and a profit
before tax of Pound54,000 in the year ended December 31, 2001.
Amounts for the year ended December 31, 2000 are not
available, since the predecessor business formed part of a larger
division of the vendor. The summarised profit and
loss account for the period from January 1, 2001 to June 29, 2001
(the date of acquisition) is as follows:
Pound'000
Turnover2,952
Profit before tax46
There were no recognised gains and losses other than the profit for
the period.
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
11. BUSINESS COMBINATIONS (Continued)
Acquisition of Orbital Software Holdings plc ("Orbital")
On October 22, 2001 the Group announced an agreed share offer for
the whole of the share capital of Orbital, on the
basis of eight Sopheon shares for every nine Orbital shares. The
offer was declared wholly unconditional on November
15, 2001. The consideration for the acquisition comprised 40,016,715
ordinary shares of Sopheon plc. Attributable
acquisition costs amounted to Pound931,000. In addition, holders of
Orbital in-the-money share options accepted proposals
whereby such options were exchanged for 660,066 Sopheon share
options at 6.193p per share. The market value of
Sopheon shares on the date of completion was 30p and accordingly the
total cost recorded in respect of the acquisition
was Pound13,096,000.
Analysis of the acquisition of OrbitalBook value and
fair value
Pound'000
Net assets at the date of acquisition:
Tangible fixed assets394
Debtors417
Short-term bank deposits10,208
Cash1,669
12,688
Creditors falling due within one year(1,076)
Creditors falling due in more than one year(25)
Net assets11,587
Goodwill arising on acquisition1,509
13,096
Discharged by:
Fair value of shares issued12,005
Fair value of share options issued157
Attributable costs934
13,096
In the view of the directors there were no fair value adjustments
required.
During the period from acquisition, Orbital contributed Pound817,000
to the Group's net operating cash outflow and
utilised Pound2,000 for capital investment. For the nine months to
December 31, 2001, Orbital had turnover of Pound359,000
and a loss before tax of Pound6,934,000 in the year ended December
31, 2001 (year ended March 31, 2001 turnover of
Pound1,090,000 and loss before tax of Pound5,874,000). The
summarised unaudited profit and loss account for the period from
April 1, 2001 to November 15, 2001 (the date of acquisition) is as
follows:
Pound'000
Turnover227
Operating loss(6,587)
Interest receivable510
Interest payable(3)
Loss before tax(6,080)
There were no recognised gains and losses other than the loss for
the period.
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
12. debtors
20022001
Pound'000Pound'000
Trade debtors1,6832,489
Other debtors202121
Prepayments and accrued income775982
2,6603,592
13. NOTES TO STATEMENT OF CASH FLOWS
(a) Reconciliation of net cash flow to movement in net funds.
200220012000Pound'000Pound'000Pound'000
(Decrease) / increase in cash(1,803)1,907(93)
(Increase) / decrease in overdrafts and lines of credit(318)445(1,157)
Net (decrease) / increase in cash and cash
equivalents(2,121)2,352(1,250)
Issue of convertible loan stock-(2,553)-
Repayment of term loans513639
Repayments of capital elements of finance leases-18
Cash inflow from change in liquid resources(8,186)3,512267
Change in net debt resulting from cash flows(10,256)3,348(936)
Loans and finance leases acquired with subsidiary-(63)-
Conversion of convertible loan stock--1,571
Exchange adjustments80(27)30
Other(16)--
Movement in net funds(10,192)3,258665
Net funds at January 110,0036,7456,080
Net debt at December 31(189)10,0036,745
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
13. NOTES TO STATEMENT OF CASH FLOWS (Continued)
(b) Analysis of changes in net funds / (debt)
Cash atShort term OverdraftsConvertibleTerm loans/
bankdeposits/and linesloan stockFinanceTotal
liquidof creditleases
resources
Pound'000Pound'000Pound'000Pound'000Pound'000Pound'000
At January 1, 20007477,004-(1,571)(100)6,080
Cashflow (93)267(1,127)-47(906)
Conversion of convertible
loan stock---1,571-1,571
At December 31, 20006547,271(1,127)-(53)6,745
Cashflow 1,9073,512445-375,901
Exchange adjustment--(27)--(27)
Issue of convertible
loan stock---(2,553)-(2,553)
Acquisitions----(63)(63)
At December 31, 20012,56110,783(709)(2,553)(79)10,003
Cashflow (1,803)(8,186)(318)-51(10,256)
Exchange adjustment--80--80
Other---(16)-(16)
At December 31, 20027582,597(947)(2,569)(28)(189)
14. creditors: amounts falling due within one year
20022001
Pound'000Pound'000
Overdrafts and bank lines of credit947709
Current instalments due on bank loan2854
Trade creditors1,2802,781
Other taxes and social security costs320282
Accruals and deferred income3,5274,528
Other creditors230230
6,3328,584
The bank line of credit is secured against the trade debtors of
Sopheon Corporation Minnesota and bears interest at a
rate of 3% above US prime rate.
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
15. Creditors: amounts falling due after more than one year
20022001
Pound'000Pound'000
6% Convertible Unsecured Loan Stock 20042,5692,553
Bank loan: amounts falling due
From one to two years-25
2,5692,578
Pound2.6 million nominal of 6% Convertible Unsecured Loan Stock 2004
("the Stock"), with 557,143 detachable warrants
to subscribe for Sopheon shares, was issued at par on June 20, 2001.
The Stock is convertible at any time prior to
redemption at a conversion rate of 46p per Sopheon share. In the
event that the Company makes an offer of Sopheon
shares by way of rights issue, placing, open offer or similar issue
at an issue price of less than 46p per share, the
conversion rate will be adjusted to equal the offering price for
such Sopheon shares. The instrument currently requires
that such conversion rate shall not be reduced below 31.5p per
share. The exercise price of the warrants, which expired
unexercised on June 19, 2003, was 70p per Sopheon share. The Stock
is redeemable on June 20, 2004 or earlier at the
Company's option. Holders of the Loan Stock approved at an
Extraordinary General Meeting of stockholders held on
June 30, 2003 changes to the terms of the Stock, which are described
in Note 1 and are contingent on shareholders
giving necessary authorisation for the allotment of shares at the
Annual General Meeting of the Company to be held on
July 30, 2003
The bank loans comprise i) a sterling asset purchase facility at an
implicit rate of 8.8% and is repayable in 36 equal
installments from October 1999 and ii) a sterling loan made under
the Small Companies Loan Guarantee Scheme,
bearing interest at 3% over bank base rate, in respect of which the
lender holds a guarantee for 85% of the loan facility
from the Department of Trade and Industry.
16. provisions for liabilities and charges
20022001
Pound'000Pound'000
Pension provision
At January 1461-
Acquisitions during year-461
Additional amounts provided during year21-
Exchange adjustment31-
At December 31513461
The pension provision represents the commitment of Sopheon GmbH to
provide certain pensions based upon final
pensionable salary. The provision represents an actuarial
calculation of the pension liabilities, as at the date of
acquisition of Sopheon GmbH, based upon the following actuarial
assumptions:
Increase in salaries2.75%
Discount rate6.25%
Inflation assumption1.75%
Additional amounts have been provided during 2002 on a basis
consistent with the above actuarial calculation.
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
17. obligations under leases
The Group had no amounts due under finance leases and hire purchase
contracts.
At December 31, 2001 and 2002 the Group had annual commitments under
operating leases as set out below.
Land &Land &
buildingsOtherbuildingsOther
2002200220012001
Pound'000Pound'000Pound'000Pound'000
Operating leases which expire:
within one year4172645043
in two to five years32899684105
Totals7451251,134148
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
18. share capital
Authorized200220012000
Number of shares
Ordinary shares of 5p each125,000,000125,000,00060,000,000
Deferred shares of 15p each--19,228,885
Pound
Ordinary shares of 5p each6,250,0006,250,0003,000,000
Deferred shares of 15p each--2,884,333
Allotted, called up and fully paid200220012000
Number of shares
Ordinary shares of 5p each82,933,30982,311,57538,624,913
Deferred shares of 15p each--19,228,885
Pound
Ordinary shares of 5p each4,146,6654,115,5791,931,246
Deferred shares of 15p each--2,884,333
4,146,6654,115,5794,815,579
On January 18, 2000 25,000 ordinary shares were issued for cash to
exercising holders of share options at 20p each and
30,000 ordinary shares were issued at 145p per share in
consideration for the provision of marketing services together
with a payment of 20p per share in cash. On February 1, 2000 400,000
ordinary shares were issued for cash to an
exercising holder of share options at 20p each.
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
18. SHARE CAPITAL (Continued)
On March 9, 2000 2,500,000 ordinary shares of Sopheon plc were
placed with institutions at a price of 800p per share,
realising net proceeds of Pound18,953,000 after attributed costs of
Pound1,047,000. On March 22, 2000 a further 122,500
ordinary shares were issued for cash at a price of 800p per share to
certain of the Company's advisers from their
commissions or fees arising from the placing.
On April 25, 2000 20,000 ordinary shares were issued for cash to an
exercising holder of share options at 20p each,
and 45,000 ordinary shares were issued at 145p per share in
consideration for the provision of marketing services
together with a payment of 20p per share in cash. On May 25, 2000
10,000 ordinary shares were issued for cash to an
exercising holder of share options at 89.5p each.
On June 30, 2000 the authorized share capital of the Company was
increased to Pound5,884,333 by the creation of an
additional 17,097,039 ordinary shares of 5p each, and on July 31,
2000 1,075,971 ordinary shares were issued pursuant
to the exercise of conversion rights attaching to the Pound1,571,920
5% convertible loan stock.
On September 15, 2000 2,094,105 ordinary shares were issued as part
consideration for the acquisition of Teltech
Resource Network Corporation and on December 12, 2000 a further 491
ordinary shares representing fractional
entitlements were placed for cash at 180p per share.
On October 10, 2000 170,000 ordinary shares were issued for cash
pursuant to the exercise of share options,
comprising 120,000 shares at 120p each, 30,000 shares at 150p each
and 20,000 shares at 177.5p each
On June 1, 2001 17,441 ordinary shares were issued for cash at 8.6p
per share pursuant to the exercise of a share
option and 7,114 ordinary shares were issued at 146p by way of
deferred consideration to the vendors of Lessenger BV
On June 28, 2001 3,471,191 ordinary shares were issued to Aventis
Research & Technologies GmbH & Co. KG, of
which 822,598 were issued at 58.5p as consideration for the
acquisition of Sopheon GmbH and 2,648,593 ordinary
shares were issued for cash at 58.5p per share.
On June 29, 2001 at the Annual General Meeting shareholders approved
the purchase for cancellation of the issued
deferred shares of 15p each in the Company. Following such
cancellation, the unissued deferred shares of 15p each
were subdivided and re-designated as unissued ordinary shares of 5p
each.
On September 12, 2001 20,000 ordinary shares were issued for cash at
20p per share pursuant to the exercise of a share
option.
On November 7, 2001 at an Extraordinary General Meeting convened to
approve the acquisition of Orbital Software
Holdings plc, the authorised share capital of the Company was
increased to Pound6,250,000 consisting of 125,000,000
ordinary shares of 5p each.
On November 15, 2001, the offer to acquire the share capital of
Orbital Software Holdings plc ("Orbital") was declared
wholly unconditional. On December 4, 2001 Sopheon plc, having
received acceptances to the offer in respect of over
90% of the issued share capital of Orbital, initiated the procedure
under section 429 of the Companies Act 1985 to
acquire compulsorily the remaining Orbital shares. Pursuant to the
offer, 40,016,715 ordinary shares were issued at 30p
per share as consideration for the acquisition of 100% of the issued
share capital of Orbital.
On November 23, 2001 18,941 ordinary shares were issued for cash
pursuant to the exercise of share options,
comprising 1,500 shares at 184p each and 17,441 shares at 8.6p each.
On December 11, 2001 17,441 ordinary shares were issued for cash at
8.6p per share pursuant to the exercise of a share
option.
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
18. SHARE CAPITAL (Continued)
On December 21, 2001 8,720 ordinary shares were issued for cash at
8.6p per share pursuant to the exercise of a share
option, and on December 28, 2001 109,099 ordinary shares were issued
at 565p per share by way of incentive
payments to certain US members of staff, including 41,666 ordinary
shares issued to A. Michuda, a director of
Sopheon plc, pursuant to terms agreed at the time of the acquisition
of Teltech Resource Network Corporation
On January 16, 2002 39,242 ordinary shares were issued for cash at
8.6p per share and 4,760 ordinary shares were
issued at 6.193p per share pursuant to the exercise of share options.
On March 15, 2002 4,360 ordinary shares were issued for cash at 8.6p
per share pursuant to the exercise of a share
option.
On May 3, 2002 450,623 ordinary shares were issued for cash at
6.193p per share pursuant to the exercise of a share
option.
On June 26, 2002 7,672 ordinary shares were issued for cash at
6.193p per share pursuant to the exercise of a share
option.
On December 5, 2002 115,077 ordinary shares were issued for cash at
6.193p per share pursuant to the exercise of a
share option.
Contingent rights to subscribe for Sopheon shares
At December 31, 2000 there were outstanding 900,000 warrants to
subscribe for Sopheon shares at a price of 146p per
share. In December 2000 the latest date for exercise of the warrants
was extended from December 31, 2000 to March
31, 2001. The warrants were issued in July 1998 to the subscribers
of Pound1,570,920 5% Convertible Loan Stock referred
to above. The warrants expired unexercised on March 31, 2001.
On June 19, 2001 Sopheon issued Pound2.6 million of Convertible
Unsecured Loan Stock (the "Stock") with 557,143
detachable warrants to subscribe for Sopheon shares. On November 7,
2001 at an Extraordinary General Meeting of
holders of the Stock, the conversion rate of the Stock was reduced
to 46p, the market price for Sopheon shares
prevailing immediately before the announcement of the offer for
Orbital. In the event of any further offering of
Sopheon shares taking place prior to conversion, whether by way of
rights issue, placing, open offer or similar issue,
the conversion rate shall be adjusted to the higher of offering
price, if lower than 46p, and 31.5p.
Holders of the Loan Stock approved at an Extraordinary General
Meeting of stockholders held on June 30, 2003
changes to the terms of the Stock, which are described in Note 1 and
are contingent on shareholders giving necessary
authorisation for the allotment of shares at the Annual General
Meeting of the Company to be held on July 30, 2003.
The warrants, which were exercisable at 70p per share during the
period June 20, 2002 to June 19, 2003, have expired
unexercised.
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
18. SHARE CAPITAL (Continued)
Employee share option schemes
On August 28, 1996 the directors adopted, and the Company in general
meeting approved, a share option scheme to
provide for the grant to certain directors and employees of PolyDoc
NV (renamed Sopheon NV) of options over
Sopheon ordinary shares in exchange for the surrender by such
directors and employees of their existing options over
shares in PolyDoc NV, and to provide for further grants of share
options to employees of the Sopheon group subject to
Dutch tax. On the same date the directors adopted, and the Company
in general meeting approved, the Sopheon
Executive Share Option Scheme in a form approved by the Inland
Revenue. Subsequently an unapproved executive
share option scheme was established with terms similar to the
approved scheme.
Pursuant to the acquisition of AppliedNet Limited in November 1999,
share options granted under the AppliedNet
unapproved share option scheme were released in exchange for the
grant of new options over Sopheon ordinary shares.
These share options remain subject to the rules of the AppliedNet
unapproved scheme.
On September 29, 2000, following the acquisition of Teltech Resource
Network Corporation, the directors adopted the
Sopheon plc (USA) Stock Option Plan, under which share options can
be granted either as qualifying Incentive Stock
Options (ISOs) or as Non-Qualifying Options (NQOs).
Pursuant to the acquisition of Orbital Software Holdings plc in
November 2001, share options granted under the
Orbital Software Group Limited Share Option Scheme were released in
exchange for the grant of 660,066 new options
over Sopheon ordinary shares. These options remain subject to the
rules of the Orbital Software Group Limited Share
Option Scheme.
At the Annual General Meeting of the Company held on May 29, 2002,
shareholders approved an increase to a
maximum of 6,000,000 Sopheon ordinary shares over which options may
be granted under any employee share option
scheme.
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
18. SHARE CAPITAL (Continued)
A summary of options granted under the share option schemes at
December 31, 2002 is set out below.
Exercise Exercise Period
Year of grantNumberPrice (Pound)FromTo
199640,0000.200008-28-9607-21-06
199812,5001.700006-29-9806-29-03
1998 (1)21,8000.086012-29-0112-29-08
19992,5001.415001-20-0201-20-09
199935,0001.425028-04-9928-04-04
1999 (2)42,5001.500004-28-0004-28-09
1999 (1)8,7200.873206-01-0206-01-09
1999 (1)8,7200.873210-01-0210-01-09
1999 (2) (3)52,5001.500011-03-0011-03-09
199910,0001.500011-03-0211-03-09
1999 (3)100,0001.500011-22-0211-22-09
2000 (2)12,0005.790001-24-0101-24-10
20003,0006.072501-25-0101-25-10
2000 (2)10,0009.600002-08-0102-08-10
2000 (2)10,5004.950006-28-0106-28-10
2000 (2)25,0005.000006-26-0106-26-10
200048,5004.950006-28-0306-28-10
200015,0004.275010-02-0310-02-10
2000 (2)92,5844.275010-02-0110-02-10
2000 (2)10,0003.725011-15-0111-15-10
20005,0001.600012-31-0312-31-10
2000 (2)115,0221.600012-31-0112-31-10
200118,0001.000004-01-0204-01-03
2001 87,000 0.7750 05-02-04 05-02-11
2001 (2) 166,536 0.7750 05-02-02 05-02-11
2001 (4) 79,632 0.061909-14-0109-14-08
2002 781,000 0.147504-30-0504-30-12
2002 378,825 0.147504-30-0204-30-12
2002 (2) 1,745,410 0.147504-30-0304-30-12
__________
(1) Arising from options held by employees of AppliedNet and
rolled over into Sopheon options.
(2) One fourth of these options become exercisable each year
starting on the date indicated. All other options become
exercisable in full from the date indicated.
(3) Includes options which are contingent upon certain
performance targets.
(4) Arising from options held by employees of Orbital Software
Holdings plc and its subsidiaries and rolled over into
Sopheon options.
Other share options
Fully vested options to subscribe for 718,292 Sopheon ordinary
shares at prices between Pound1.84 and Pound5.15 were granted
on September 15, 2000 as part of the consideration payable in
respect of the acquisition of Teltech Resource Network
Corporation. These options, with exercise dates between June 7, 2001
and July 31, 2010, are held by the vendors of
Teltech. At December 31, 2002 311,760 of such options had lapsed,
1,500 had been exercised, and 405,032 remained
outstanding, in respect of which the aggregate exercise price was
Pound1.1 million.
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
19. shareholders' funds
SharesShareProfit &
Shareto bePremiumMergerOtherLoss
capitalissuedAccountreservereservesAccount
Pound'000Pound'000Pound'000Pound'000Pound'000Pound'000
At January 1, 20004,4911010,0207,940-(8,982)
Arising on share issues325-33,300--
Shares to be issued-620----
Issue of share options----2,417-
Retained loss for the year -----(11,945)
Exchange adjustment ---.--100
At December 31 20004,81663043,3207,9402,417(20,827)
Purchase and cancellation
of deferred shares(2,884)---2,884-
Arising on share issues2,184(630)2,05210,444(6)-
Shares to be issued-465----
Issue of share options----160-
Retained loss for the year-----(34,631)
Exchange adjustment-----31
At December 31, 20014,11646545,37218,3845,455(55,427)
Arising on share issues31-8---
Lapsing of share options----(1,010)1,010
Retained loss for the year-----(16,053)
Exchange adjustment-----75
At December 31, 20024,14746545,38018,3844,445(70,395)
The reserve arising from issue of share options in connection with
acquisitions has reduced by Pound1,010,000 during 2002
as a result of the lapsing of certain share options, as disclosed in
Note 18, due to the option-holders ceasing to be
employed by the Group.
The amount recorded in respect of "Shares to be issued" represents
deferred consideration in respect of the acquisition
of Sopheon GmbH, to be satisfied by the issue of Sopheon shares to
the vendors, and which is dependant upon the
profitability of Sopheon GmbH in the years 2001 to 2003. The maximum
amount payable is Euro 1,533,000.
Other reserves comprise:
200220012000
Pound'000Pound'000Pound'000
Capital redemption reserve2,8842,884-
Reserve arising from issues of share options in connection
with acquisitions1,5612,5712,417
4,4455,4552,417
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
20. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
Interest rate risk profile of financial liabilities
The financial liabilities of the Group at each year end are set out
below.
20022001
Pound '000Pound '000
Floating rate line of credit US Dollar917641
Floating rate overdraft Sterling2968
Fixed rate loans Sterling2878
Fixed rate 6% Convertible Unsecured Loan Stock 20042,5692,553
3,5433,340
Other than the 6% Convertible Loan Stock 2004, these financial
liabilities bear interest rates that are based on local
bank rates.
Interest rate risk profile of financial assets
The financial assets of the Group at each year end comprise cash or
cash deposits on money market deposit at call and
monthly rates. The amounts were as follows
20022001
Pound '000Pound '000
Floating rate
Sterling1,84810,511
Euro7491,805
2,59712,316
Non-interest bearing
Sterling161806
US Dollar379115
Euro218107
7581,028
Total financial assets3,35513,344
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
20. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (Continued)
Currency exposures
The table below shows the Group's transactional currency exposures
that give rise to the net currency gains and losses
recognised in the profit and loss account. Such exposures comprise
the monetary assets and monetary liabilities of the
group that are not denominated in the operating currency of the
operating unit involved, and have arisen only in
operating units with a functional currency of Sterling.
Net foreign currency monetary assets
US dollarEuroTotal
Pound'000Pound '000Pound '000
2001 Sterling10272282
2002 Sterling123-123
Maturity of financial liabilities
The maturity profile and interest rates of the Group's financial
liabilities at each relevant period or year end is as set out
in Notes 14 and 15.
Borrowing facilities
The Group had no undrawn committed facilities available at each
relevant period or year end, apart from overdraft
facilities and lines of credit.
Fair values of financial assets and liabilities
The fair values of financial assets and liabilities are set out
below. Finance leases are included in the analysis of long
term borrowings. The directors consider that there were no material
differences between the book values and fair
values of all the Group's financial assets and liabilities at each
year end.
Book value
20022001
Pound '000Pound '000
Cash and short-term deposits3,35513,344
Bank overdrafts and lines of credit(946)(709)
Current portion of long-term borrowings(28)(54)
Long-term borrowings -
(25)
Convertible Unsecured Loan Stock 2004 (2,569)
(2,553)
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
21. Differences between united kingdoM and united states generally
accepted ACCOUNTING
PRINCIPLES
The accompanying financial statements have been prepared in
accordance with accounting principles generally
accepted in the United Kingdom ("U.K. GAAP"), which differ from
generally accepted accounting principles in the
United States ("U.S. GAAP").
The following is a summary of the adjustments to profit after tax
for the financial year and shareholders' funds which
would have been required if U.S. GAAP had been applied instead of
U.K. GAAP.
Equity instruments issued in exchange for services
Under UK GAAP, the value of equity instruments issued in exchange
for services and debt are valued at their intrinsic
value determined at the date those instruments are issued. Under US
GAAP, the value of such equity instruments is
their fair value, measured at the earlier of (i) the date at which a
commitment for performance by the counterparty to
earn the equity instrument is reached; or (ii) the date at which the
counterparty's performance is complete.
Under US GAAP, an additional charge of Pound641,000, in respect of
the year ended December 31, 2000 would have
arisen in connection with:
a) equity instruments issued by the Company in exchange for
marketing services; and
b) equity instruments issued in connection with royalty arrangements.
The equity instruments issued in exchange for marketing services
were reflected in an agreement to issue equity
instruments, the measurement date for which was March 20, 2000. The
equity instruments in connection with royalty
arrangements were issued on June 26, 2000. The fair market value of
the equity instruments was calculated using the
Black Scholes valuation model. The market values of the underlying
ordinary shares at the relevant dates, used in the
computation of fair value for the purposes of the valuation, were
1,022p (on March 30, 2000) and 500p (on June 26,
2000) respectively. Other assumptions used were an expected life of
2.5 years, a risk-free rate of interest of 5% and
volatility of 95%.
Convertible loan stocks with detachable warrants
Under UK GAAP, the accounting for loan stock with a non-detachable
conversion feature should not anticipate
conversion, and accordingly no fair value is attributed to the
conversion feature. Under US GAAP, the conversion
feature should be valued on an intrinsic value basis if it is "in
the money" at the date of issue. Where loan stocks are
issued with detachable warrants, US GAAP requires the proceeds of
the issue to be allocated between the debt and the
warrants. Under US GAAP a fair value is to be attributed to the
warrants and the Black-Scholes method has been
used.
On July 31, 1998 the Company issued Pound1,571,000 of 5% Convertible
Loan Stock with 900,000 detachable warrants.
The conversion price for the Convertible Loan Stock and the exercise
price for the detachable warrants were 146p per
share. The market price for the underlying shares on July 31, 1998
was 197.5p. The conversion terms were valued for
US GAAP purposes at their intrinsic value of Pound554,000. Amortised
evenly over the two year life of the loan, this
discount would have given rise to a charge under US GAAP of
Pound161,000 in the year ended December 31, 2000. In
addition, a charge of Pound219,000 would have arisen in that year
under US GAAP related to the detachable warrants, the
total value of which has been computed as Pound747,000 and amortised
over the two-year life of the underlying convertible
loan stock. Other assumptions used in the Black Scholes calculation
were an expected life of 2.4 years, a risk-free
interest rate of 7% and a volatility of 35%.
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
21. Differences between united kingdoM and united states generally
accepted ACCOUNTING
PRINCIPLES (Continued)
Convertible loan stocks with detachable warrants (continued)
On June 19, 2001 the Company issued Pound2,600,000 of 6% Convertible
Loan Stock with 557,143 detachable warrants.
The conversion price for the Convertible Loan Stock was set at 70p
and the exercise price for the detachable warrants
was 70p. The terms of the Convertible Loan Stock provided that the
conversion price would be adjusted downwards,
should the company, prior to the expiry of the conversion rights,
undertake a placing or similar issue of new shares at a
price of less than 70p per share in which case the conversion price
should be adjusted to equal such lower placing
price. The market price for the underlying shares on June 19, 2001
was 61p. The conversion terms thus had no intrinsic
value at the date of issue of the Loan Stock. As regards the
detachable warrants, charges of Pound83,000 and Pound73,000 would
have arisen in the years ended December 31, 2001 and 2002,
respectively, under US GAAP. The fair value of the
detachable warrants at June 19, 2001 has been computed as
Pound156,000 and is being amortised over the two-year life of
the underlying convertible loan. Other assumptions used in the Black
Scholes calculation were an expected life of 1.5
years, a risk-free interest rate of 5.24% and a volatility of 104%.
Revenue recognition
Sales of software products are recognised on delivery and when no
significant vendor obligations remain, in
accordance with AICPA Statement of Position 97-2, "Software Revenue
Recognition". The Company also provides
implementation and post contract support services for certain of
these software products. As the implementation
services offered by the Company in respect of these arrangements are
not essential to the functionality of the software,
can be performed by other suppliers, and are described in the
arrangement such that the total price of the arrangement
would be expected to vary as a result of the inclusion or exclusion
of these services, these services are accounted for as
a separate element of the arrangement. Vendor specific evidence of
fair value is established by reference either to
established price lists or billable rates, which correspond to the
actual price charged for these elements when they are
sold separately. In respect of the service elements, revenue is
recognised as the services are performed.
Where the Company sells software which includes a significant
element of customer specific development, the entire
arrangement, including the software component, is accounted for in
accordance with AICPA Statement of Position
81-1, "Accounting for Performance of Construction-Type and Certain
Production-Type Contracts". Revenue is
recognised using the percentage of completion method.
Revenues relating to significant Post-contract support agreements
(generally maintenance agreements) are deferred and
recognised over the period of the agreements.
Periodic subscription revenue is recognised ratably over the
subscription period. Estimated losses on fixed fee long-
term subscription contracts are recorded when identified. Deferred
revenue results from the billing of subscription
amounts in advance of when the services are rendered.
Transaction-based revenue is billed and recognised as the
related services are rendered.
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
21. Differences between united kingdoM and united states generally
accepted ACCOUNTING
PRINCIPLES (Continued)
Acquisition accounting
For UK GAAP, the purchase price in respect of an acquisition where
all or part of the consideration is in the form of
equity instruments is based on the market price of the acquiror's
shares on the date the transaction becomes
unconditional. For US GAAP, the purchase price should be based on
the average market price over a reasonable period
before and after the announcement of the transaction.
For UK GAAP purposes, the entire excess of the purchase price over
the net assets acquired is treated as goodwill. For
US GAAP purposes, a proportion of the excess purchase price is
allocated to identifiable intangible assets.
a) Acquisition of AppliedNet Limited
The acquisition of AppliedNet became unconditional on October 27,
1999 on which date the closing market value of
Sopheon shares, which is used for UK GAAP purposes, was 129p. The
acquisition was announced on October 28,
1999. For US GAAP purposes, taking a period covering a few days
around the announcement date gives a price of
140p for Sopheon shares, increasing the overall purchase price for
AppliedNet by Pound704,000. For UK GAAP purposes,
the excess of the purchase price over the net assets acquired of
Pound7,766,000 was treated as goodwill. For US GAAP
purposes, part of the excess has been allocated to identifiable
intangible assets.
The analysis of this allocation, together with the estimated useful
lives to be applied for amortisation purposes, based
on an independent third-party valuation, is as follows:
Category Allocation
Estimated
Pound'000
Life (Years)
Assembled workforce 617
4
Customer list 1,389
2
Current technology 1,389
5
Goodwill 5,075
3
Total 8,470
The effect of the increase in the purchase price and the allocation
of purchase price to intangible assets required for US
GAAP purposes is to decrease the amortisation charged, as compared
with that charged for UK GAAP purposes, on
goodwill by Pound913,000 in the year ended December 31, 2000 and
Pound904,000 in the year ended December 31, 2001, and
to increase the amortisation charged, as compared with that charged
for UK GAAP purposes, on other intangible assets
by Pound1,142,000 in the year ended December 31, 2000 and
Pound1,013,000 in the year ended December 31, 2001. As a result
of the impairment charge referred to in Note e) below, the goodwill
and other intangible assets relating to AppliedNet
have been fully written off for both UK GAAP and US GAAP purposes.
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
21. Differences between united kingdoM and united states generally
accepted ACCOUNTING
PRINCIPLES (Continued)
b) Acquisition of Teltech Resource Network Corporation ("Teltech")
The acquisition of Teltech became unconditional on September 15,
2000 on which date the closing market value of
Sopheon shares, which is used for UK GAAP purposes, was 565p. The
acquisition was announced on March 3, 2000.
For US GAAP purposes, taking a period covering a few days either
side of the announcement date gives a price of
1,325p for Sopheon shares, increasing the overall purchase price for
Teltech by Pound19,959,000.
For UK GAAP purposes, the excess of the purchase price over the net
deficiency acquired of Pound28,823,000 was treated
as goodwill. For US GAAP purposes, part of the excess has been
allocated to identifiable intangible assets. The
analysis of this allocation, together with the estimated useful
lives to be applied for amortisation purposes, based on an
independent third-party valuation, is as follows:
Category Allocation
Estimated
Pound'000
Life (Years)
Assembled workforce 2,469
3
Customer list 8,025
3
Patented technology 926
5
In process research and development 494
Immediate write off
Goodwill 36,868
3
Total 48,782
The effect of the increase in the purchase price and the allocation
of purchase price to intangible assets required for US
GAAP purposes is to increase the amortisation charged, as compared
with that charged for UK GAAP purposes, by
Pound651,000 on goodwill and Pound1,529,000 on other intangible
assets in the year ended December 31, 2000 and by
Pound2,399,000 on goodwill and Pound3,599,000 on other intangible
assets in the year ended December 31, 2001. As a result of
the impairment charge referred to in Note e) below, the value of
goodwill and other intangible assets relating to Teltech
has been reduced to Pound9,678,000 both for the purposes of UK GAAP
and US GAAP as at December 31, 2001. Under
US GAAP, any amount of unamortised goodwill that has not been
amortised with effect from January 1, 2002, upon
implementation of FAS 142, but the carrying value of such goodwill
will be subject to review for impairment on an
annual basis. Furthermore, under US GAAP, as described in note f),
the residual value attributable to the assembled
workforce at January 1, 2002 is subsumed within goodwill. This
amounts to Pound445,000.
The carrying value of the goodwill resulting from the acquisition on
Teltech Resource Network Corporation has been
reviewed for impairment at December 31, 2002 as a result of which a
further impairment charge of Pound4,914,000 is
considered appropriate under US GAAP. Under US GAAP the amounts
attributable to other intangible assets have
continued to be amortised in 2002. Such amortisation under US GAAP
amounted to Pound949,000 in 2002. The aggregate
of these two charges under US GAAP of Pound5,865,000 may be compared
with the goodwill amortisation charge in 2002
under UK GAAP of Pound5,530,000
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
21. Differences between united kingdoM and united states generally
accepted ACCOUNTING
PRINCIPLES (Continued)
c) Acquisition of Sopheon GmbH
The acquisition of Sopheon GmbH (the technology and information
services division of Aventis Research &
Technologies) became unconditional on June 28, 2001 on which date
the closing market value of Sopheon shares,
which is used for UK GAAP purposes, was 58.5p. The acquisition was
announced on June 26, 2001. For US GAAP
purposes, taking a period covering a few business days either side
of the announcement date gives a price of 58p for
Sopheon shares. Under UK GAAP the purchase price included an amount
of Pound465,000 in respect of contingent
deferred consideration, comprising equity securities of Sopheon plc
which would fall to be issued to the vendor if
certain profit targets are met. Under US GAAP such contingent
consideration is not recognised in computing the
purchase price until the contingency is resolved.
The acquisition of Sopheon GmbH gave rise to negative goodwill for
the purposes of UK GAAP. Under US GAAP the
excess of the cost of acquiring Sopheon GmbH over the sum assigned
to the assets and liabilities acquired is allocated
as a reduction to all the acquired assets except current assets. Any
excess remaining after reducing the assigned assets
is recognised as an extraordinary gain. In this instance for the
purposes of US GAAP an excess of Pound495,000 would
have been recognised as an extraordinary gain in the year ended
December 31, 2001.
d) Acquisition of Orbital Software Holdings plc ("Orbital")
The acquisition of Orbital became unconditional on November 15, 2001
on which date the closing market value of
Sopheon shares, which is used for UK GAAP purposes, was 30p. The
acquisition was announced on October 22, 2001.
For US GAAP purposes, taking a period covering a few business days
either side of the announcement date gives a
price of 38p for Sopheon shares, increasing the overall purchase
price for Orbital by Pound3,251,000.
For UK GAAP purposes, the excess of the purchase price over the net
assets acquired of Pound11,587,000 was treated as
goodwill. For US GAAP purposes, part of the excess has been
allocated to identifiable intangible assets. The analysis
of this allocation is set out below. In accordance with US GAAP the
goodwill arising on the acquisition of Orbital
Software Holdings plc is not being amortised (FAS 142 on
acquisitions post June 30, 2001).
Category Allocation
Estimated
Pound'000
Life (years)
Customer list 385
3
Current technology 1,515
3
Goodwill 2,860
Total 4,760
The effect of the allocation of purchase price to intangible assets
and the reversal of the amortisation charge under
UK GAAP required for US GAAP purposes is to increase the
amortisation charged as compared with that charged for
UK GAAP purposes by Pound11,000 in the year ended December 31, 2001.
Under US GAAP, any amount of unamortised
goodwill has not been amortised with effect from January 1, 2002,
upon implementation of FAS 142, but the carrying
value of such goodwill will be subject to review for impairment on
an annual basis.
The carrying values of the goodwill and intangible assets resulting
from the acquisition on Orbital Software Holdings
plc have been reviewed for impairment at December 31, 2002 as a
result of which impairment charges of Pound2,839,000 in
respect of goodwill and Pound211,000 in respect of intangible assets
are considered appropriate under US GAAP. The
impairment charge in respect of intangible assets has been assessed
after taking into account amortisation charges
under US GAAP of Pound1,214,000.
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
21. Differences between united kingdoM and united states generally
accepted ACCOUNTING
PRINCIPLES (Continued)
e) Goodwill impairment charge
Under both UK GAAP and US GAAP the value of goodwill should be
reviewed if there has been a change of
circumstances, which suggests that the carrying value of that asset
may not be recoverable. The Company carried out
an impairment review under UK GAAP of the goodwill arising from the
acquisitions of AppliedNet and Teltech,
which resulted in an impairment charge of Pound9,065,000 being made
in the financial statements for the year ended
December 31, 2001 to reduce the aggregate carrying value of goodwill
in respect of AppliedNet and Teltech to
Pound9,678,000. Under US GAAP an impairment review would result in
carrying values for the goodwill in respect of
AppliedNet and Teltech being in all material respects the same as
under UK GAAP and accordingly under US GAAP a
reduction to the cost of goodwill and other intangibles of
Pound14,508,000 and Pound5,220,000, respectively, would be required
in 2001.
f) Goodwill amortisation
Under UK GAAP goodwill has continued to be amortised during 2002. No
further impairment charge was required
under UK GAAP at December 31, 2002. Under US GAAP on adoption of FAS
142 at January 1, 2002 amortisation of
goodwill is no longer permitted but the carrying value of goodwill
is reviewed annually for impairment. As indicated in
paragraphs b) and d) above, further impairment charges would be
required at December 31, 2002 under US GAAP in
respect of goodwill and intangible assets of Pound7,753,000 and
Pound211,000 respectively.
Under US GAAP the reduced carrying value of goodwill or an
intangible asset following an impairment review is
accounted for as its new cost, whereas under UK GAAP the impairment
is classified as additional amortisation and
accordingly the historical cost is not reduced. Also under US GAAP,
on adoption of FAS 142, any residual amount
attributable to the value of the assembled workforce is subsumed
into goodwill.
Foreign currency assets
The Group treats goodwill arising on acquisitions of overseas
subsidiaries as a sterling asset. Under US GAAP
goodwill arising on overseas acquisitions is treated as a currency
asset and is subject to the impact of foreign currency
movements, For the purposes of US GAAP for the year ended December
31, 2002 a foreign exchange loss of
Pound860,000 (2001: gain Pound1,248,000 and 2000: loss
Pound2,706,000) in respect of the goodwill and other intangibles
arising on
the acquisition of Teltech, would be reflected in the consolidated
statement of comprehensive income.
Stock based compensation
The Company elected to follow APB Opinion No. 25 "Accounting for
Stock Issued to Employees", in accounting for
employee stock options, because the alternative fair value
accounting provided for under SFAS No. 123, "Accounting
for Stock-Based Compensation", requires the use of option valuation
models that were not developed for use in valuing
employee stock options. Under APB No. 25, because the exercise
price of employee stock options equals the market
price of the underlying stock on the date of grant, no compensation
expense is recognised in the financial statements.
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
21. Differences between united kingdoM and united states generally
accepted ACCOUNTING
PRINCIPLES (Continued)
Income
The effect of the adjustment to retained loss for the year which
would be required if US GAAP were to be applied
instead of UK GAAP is summarised as follows:
2002
2001 2000
Pound'000 Pound'000 Pound'000
Retained loss for the year as reported in the consolidated
profit and loss account in accordance with UK GAAP
(16,053) (34,631) (11,945)
Adjustments:
Operating expenses equity instruments issued in
exchange for services -
- (641)
Tangible assets depreciation adjustment
131 78 -
Amortisation of goodwill 6,033
(1,453) 262
Amortisation of negative goodwill
(111) (55) -
Amortisation of other intangible assets
(1,582) (4,665) (2,671)
Impairment charge - goodwill
(7,753) (5,443) -
Impairment charge - other intangible assets
(211) (5,220) -
Interest payable and similar charges
(73) (83) (380)
Extraordinary gain -
495 -
Net loss as adjusted to accord with US GAAP (19,619)
(50,977) (15,375)
Comprising:
Loss before extraordinary gain
(19,619) (51,472) (15,375)
Extraordinary gain -
495 -
Net loss as adjusted to accord with US GAAP
(19,619) (50,977) (15,375)
Per share as so adjusted (basic and diluted)
Loss before extraordinary gain (23.8)p
(113.2)p (43.0)p
Extraordinary gain -
1.1 p -
Net loss (23.8)p (112.1)p
(43.0)p
Shares used in computing amounts per share
82,669,430 45,471,220 35,732,477
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
21. Differences between united kingdoM and united states generally
accepted ACCOUNTING
PRINCIPLES (Continued)
Consolidated Statement of Comprehensive Income
Comprehensive income under US GAAP is as follows:
2002
2001 2000
Pound'000 Pound'000 Pound'000
Net loss in accordance with US GAAP
(19,619) (50,977) (15,375)
Exchange differences on re-translation of net assets
and results of subsidiary undertakings
(785) 1,279 (2,606)
Comprehensive loss in accordance with US GAAP
(20,404) (49,698) (17,981)
Shareholders' funds
The effect of the adjustment to shareholders' funds which would be
required if US GAAP were to be applied instead of
UK GAAP is summarised as follows:
2002 2001
Pound'000 Pound'000
Shareholders' funds as
reported in the consolidated
balance sheet under UK
GAAP 2,426
18,365
Adjustments:
Fixed assets
Intangible assets -
goodwill
-Cost
(35,924) (27,399)
-Amortisation
33,007
26,953
Intangible assets -
negative goodwill
-Cost
332 332
- -Amortisation (166)
(55)
Intangible assets - other
-Cost
2,667 3,739
- -Amortisation (884)
(53)
Tangible assets
-Cost
(302) (302)
- -Depreciation 209
78
Creditors: amounts falling
due after more than one year
6%
Convertible Unsecured Loan Stock 2004
- 73
Shareholders' equity as
adjusted to accord with US GAAP
1,365 21,731
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
21. Differences between united kingdoM and united states generally
accepted ACCOUNTING
PRINCIPLES (Continued)
Consolidated statements of cash flows
The consolidated statements of cash flows prepared under UK GAAP
present substantially the same information as
those required under US GAAP but they differ, however, with regard
to classification of items within them and as
regards the definition of cash and cash equivalents.
Under UK GAAP, cash is defined as cash in hand and at bank and
deposits repayable on demand less bank overdrafts.
Under US GAAP, cash and cash equivalents would not include bank
overdrafts but would include cash deposits
repayable within three months at inception. Under UK GAAP, cash
flows are presented separately for operating
activities, returns on investment, acquisitions, equity dividends,
management of liquid resources and financing. US
GAAP requires only three categories of cash flow activity to be
reported: operating, investing and financing. Cash
flows from taxation and return on investments and servicing of
finance shown under UK GAAP would be included in
the determination of cash flows from operating activities under US
GAAP. Under US GAAP, the payment of
dividends would be included as a financing activity and capital
expenditure and financial investment and acquisitions
would be reported within investing activities.
The categories of cash flow under US GAAP can be summarised as follows:
2002
2001 2000
Pound'000 Pound'000 Pound'000
Cash outflow from operating activities
(10,129) (11,082) (7,902)
Cash (outflow)/inflow from investing activities
(86) 12,836 (13,235)
Cash (outflow)/inflow from financing activities
(12) 4,083 20,184
(Decrease)/increase in cash and cash equivalents
(10,227) 5,837 (953)
Cash and cash equivalents at beginning of year
12,635 6,798 7,751
Cash and cash equivalents at end of year
2,408 12,635 6,798
SOPHEON plc
NOTES TO THE FINANCIAL STATEMENTS (Continued)
22. POST BALANCE SHEET EVENTs
On June 16, 2003 the Company issued 4,500,000 new ordinary shares by
way of a placing for cash at 12p per share to
raise Pound540,000 (before expenses) for additional working capital.
On June 25, 2003 the Company entered into a definitive agreement
with FIND/SVP Inc.("FIND") for the divestiture of
its US based Information Management business. The gross value of the
transaction amounts to just over $5 million,
including $3 million in immediate cash consideration and a further
$0.4 million in potential earn outs. FIND will also
assume approximately $2.1 million of net current liabilities and
approximately $0.45 million of tangible fixed assets.
The transaction completed on July 3, 2003.
On June 30, 2003 the Company held an Extraordinary General Meeting
of the holders of the 6% Convertible Loan
Stock of the Company at which a resolution was passed to extend the
maturity date of the stock by a further year to
June 2005, and amend the conversion price to 12p per share. The
resolution of stockholders is conditional on the
passing by ordinary shareholders of a resolution to be proposed at
the Annual General Meeting on July 30, 2003 to
increase the directors' authority to issue and allot shares.