Annual Report
2000
[GRAPHIC]
The Directors are pleased to
present the annual report of
Brocker Technology Group Limited
for the year ended 31 March 2000.
For and on behalf of the Board of Directors
[PHOTO] [PHOTO]
----------------------- -----------------------
Casey O'Byrne - Mike Ridgway -
Chairman Chief Executive Officer
2
<PAGE>
The Business Opportunity
for Broker
We live and work in an online world. Businesses are looking
to e-commerce applications to drive down costs and fulfill
customer expectations. At the same time they are looking to
customer relationship management (CRM) systems to boost
revenue by enhancing the value of those relationships. The
challenge of understanding and predicting the new ways
businesses will interact in the internet-enabled world
presents tremendous opportunities for a visionary company
like Brocker Technology Group.
In this online, global marketplace effective communication
is one of the key drivers of success. Yet the concept of B2B
(business-to-business) communication is often misunderstood.
Full B2B communication encompasses:
o Telephony
o Messaging
o Internet
o E-commerce
o Customer relationship management
o Market research.
The challenge for businesses - and the opportunity for
Brocker - is to integrate these technologies, simplifying
and improving the efficiency of the B2B communication
process. This is the focus of Brocker's business.
From its origins distributing IT and telecommunication
products, Brocker has been carefully crafting itself into an
innovator in B2B communication, developing and acquiring
intellectual property with global application. Brocker
actively seeks out and acquires companies with innovative
technologies that complement and enhance the Company's range
of solutions.
Brocker also acquires professional services companies to
provide the means for greater market penetration and the
opportunity to build our global footprint. In turn, Brocker
provides these acquisitions with a unique selling
proposition - Brocker's intellectual property. The Company
has completed a total of fourteen acquisitions, eight of
which were completed since the beginning of fiscal 1998.
3
<PAGE>
Brocker's Business to Business
Communication Solutions
A suite of innovative products is currently being taken to
market and there are several other products under
development.
While all of these products may be purchased individually,
four of them - Supercession, Bloodhound, Feedback and
Powerphone - are also marketed together as the Enterprise
Communication Suite. They address the four key B2B
communication requirements:
making people more accessible - Bloodhound
providing better access to customer information - Powerphone
making it easier to process e-commerce transactions -
Supercession
providing better market intelligence - Feedback
Bloodhound - is a one-number personal communication service
and unified messaging system
Supercession - is an application that enables a company to
build a B2B e-commerce web site that integrates seamlessly
with its ERP (enterprise resource planning), or other back
office system
Feedback - is a rapid response, Web-based electronic
research tool, for Full 360 o performance management and
other feedback
Powerphone - seamlessly integrates your computer and
telephone, for improved customer contact management
Other Brocker intellectual property includes:
E-Marketer - is a product that utilizes Microsoft Outlook,
CRM database and Microsoft Exchange to produce email
marketing materials using various merge and formatting
functions
MLM Prospector - integrates messaging, fax-on-demand and
prospecting functions to service network marketing
businesses
Movieline - provides IVR (interactive voice response) credit
card verification and transaction processing for movie
ticket purchases
Fixed Cellular Terminal - is an alternative method of
providing telephone services, via a cellular network, when a
conventional telephone line is unavailable, non-existent or
too expensive
Extended Email Repository - provides the means by which
selected incoming and outgoing correspondence is stored in a
central repository, making it available to authorized users
without having to be forwarded
Multipath Alarm Communicator - allows high speed reporting
of an alarm status to a security monitoring company, both
through a dial-up line and/or a cellular network.
Vehicle System - is a vehicle tracking and monitoring system
combining cellular and GPS technology.
4
<PAGE>
Brocker Professional Services -
Applying B2B Communication
Solutions
Brocker's Professional Services division is a world-class consulting and
services organization that is focused on addressing the B2B communication
requirements of its clients. Brocker's consultants understand their clients'
businesses and earn their trust, leaving them well positioned to apply the
Com-pany's relevant B2B communications solutions.
Businesses are increasingly looking for end-to-end solutions that provide a
high level of support for current and future business initiatives. For these
enabling technologies to be successful in achieving business objectives,
effective consulting, implementation and project management practices must be
employed. There is considerable global demand for world class consulting advice
and implementation expertise and these are the core strengths of Brocker's
Professional Services practice. Brocker's focus is on providing solutions that
deliver measurable business outcomes, such as improving efficiency, enhancing
growth and addressing the competitive issues facing today's organizations. The
range of disciplines encompassed includes: business consulting and analysis,
application development and implementation, systems integration, and lifecycle
management.
[GRAPHIC]
<PAGE>
Brocker Online Services -
Lowering the Barrier to Entry
Many companies recognize the need for B2B
communication solutions, but lack the
infrastructure and expertise to implement them
effectively. To lower the barrier to entry Brocker
is providing access to these and other related
applications via the internet.
[GRAPHIC]
This gives small companies access to sophisticated
applications they could otherwise not afford and it
gives large companies a more cost-effective method
of keeping their technology infrastructure up to
date. It assists companies that want to compete in
the global marketplace, to reduce the cost and risk
of putting their business online.
Brocker's unique online solutions appeal to a
broad, international SMB (small to medium business)
market. These solutions are best described as
online utilities'. They are web-enabled products
and services that provide:
o website development tools (that are very easy
to use)
o website location portals
o data vaulting & backup o scalable e-commerce
solutions
o remote network management & monitoring
o unified communication platforms
o market research.
Brocker Vendor Services -
Distributing Solutions
The Vendor Services division has been built around Brocker's
heritage business, Sealcorp. Established since 1987, this
business provides the other Brocker divisions with a valuable
marketing channel (in Australia and New Zealand) - its network of
reseller customers. Brocker is leveraging these relationships to
expand the sales channel for its own intellectual property.
The Vendor Services division markets and distributes the world's
leading brands of computer hardware and software to dealers,
systems integrators and retail stores in Australia and New
Zealand. Brands carried include Acer, Compaq, Digi, Hitachi Data
Systems, Intel, IBM, Lotus, Novell, Shiva, SGI and Symantec.
Vendor Services also provides high margin value-added services,
such as technical advice relating to product selection,
installation, networking and product compatibility.
In addition, Vendor Services is New Zealand's largest distributor
of wireless telecommunications hardware products - cellular
phones, related accessories and pagers - carrying the Ericsson,
Motorola, Nokia and Philips brands. Brocker is part of the global
wireless revolution currently under way. The Company has been
involved with the technology for a number of years and continues
to explore several opportunities to add new technology to its
communication solutions.
6
<PAGE>
Directors Board of Directors
[LOGO]
Michael Ridgway of Auckland, New Zealand has been both Chief
Executive Officer of the Corporation and a member of the Board of
Directors since December 1994. Prior to 1994, Mr. Ridgway was
Managing Director of Sealcorp Computer Products Limited (which is
now a subsidiary of Brocker), a company he founded in 1987.
Sealcorp was sold to Brocker in 1994.
Richard Justice of Auckland, New Zealand has been both Chief
Financial Officer of the Corporation and a member of the Board of
Directors since September 1997 and was appointed Chief Operating
Officer in October 1999. Mr. Justice was previously Financial
Controller of Sealcorp Computer Products Limited. Mr. Justice
completed his Masters of Business Administration from Auckland
University in 1990 and has been a licensed accountant in New
Zealand since 1979.
Casey O'Byrne of Edmonton, Alberta has been Chairman of the Board
since November 1998 and has been a member of the Board of
Directors since Brocker's incorporation in November 1993. A
graduate of the University of Cambrensis School of Law in the
United Kingdom in 1984, Mr. O'Byrne has been practising law with
the firm of Tarrabain, O'Byrne & Company in Edmonton, Alberta
since 1990.
Daniel Hachey of Toronto, Ontario has been a member of the Board
of Directors since January 1998. Mr. Hachey is the Vice President
and Director of Corporate Finance of HSBC James Capel Canada Inc.
Prior to holding this position he was Senior Vice President and
Director of Midland Walwyn Capital Inc.
Julia Clarkson of Boston, Massachusetts has been a member of the
Board of Directors since October 1998. Ms. Clarkson is Director
of Revenue for a new internet portal being developed by Imagitas
of Newton, Massachusetts. Prior to Imagitas, she was with ZOOTS,
a dry-cleaning start-up launched by the founders of Staples. Ms.
Clarkson completed her Masters of Business Administration at
Harvard Business School in 1998.
Andrew Chamberlain of Edmonton, Alberta was appointed Company
Secretary in November 1998 and was elected to the Board of
Directors in December 1999. A graduate of the University of
Alberta School of Law in 1984, Mr. Chamberlain has been
practising law with the firm of Chamberlain-Hutchinson in
Edmonton, Alberta since 1997.
Senator Robert Singer, a New Jersey Senator since 1993, was
elected to the Board of Directors in August 2000. Senator Singer
has distinguished himself over almost 20 years of public service,
during which time he was instrumental in legislative
accomplishments in the electronic, software, health, environment
and energy industries.
7
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Financial Highlights
[THE FOLLOWING TABLES WERE REPRESENTED BY BAR GRAPHS IN THE PRINTED MATERIAL.]
Revenue ($000)
1996 22,932
1997 50,110
1998 70,811
1999 133,303
2000 136,323
Delivered Revenue of $136.3m.
EBITDA ($000)
1996 1,100
1997 1,901
1998 2,588
1999 3,297
2000 2,473
Earnings before interest, tax,
depreciation and amortization
decreased to $2,473,217.
TOTAL ASSETS ($000)
1996 11,725
1997 19,926
1998 32,500
1999 50,743
2000 61,529
Increased Total Assets to $61.5m.
Gross Margin ($000)
1996 5,489
1997 9,099
1998 14,401
1999 17,691
2000 17,388
Gross Margin decreased to $17.4m.
Earnings ($000)
1996 323
1997 838
1998 797
1999 515
2000 (429)
Achieved a Net Loss of $429,028.
Earnings Per Common Share ($)
1996 0.4
1997 0.6
1998 0.6
1999 0.3
2000 (0.4)
8
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Chairman & Chief Executive Officer
Letter to Shareholders
[LOGO]
Re-focusing Our Business
2000 was another year of growth for your Company with revenue of CDN$136.3m
recorded from operations in Australia and New Zealand. Earnings did not
reflect this growth in 2000, however, due to an increase in operating
expenses. This increase was due to the investment required in developing
the exciting new solutions we are bringing to market.
The year saw substantial progress made in Brocker's transition from
Australasian distribution company to global B2B (business to business)
communications innovator. This is the most significant and exciting
development in the Company's history and it is this re-definition of our
mission and business strategy that will ensure our continued growth and
prosperity.
B2B Communications
In an online, global marketplace effective communication is a key driver of
business success. As we discuss earlier in this Annual Report, in the
section titled The Business Opportunity for Brocker, we are hard at work
bringing to market an innovative suite of B2B communication solutions.
We have launched the Brocker Enterprise Communication Suite - currently
consisting of Bloodhound, Powerphone, Supercession and Feedback. This
stable of innovative products has been created through both acquisition and
in-house development and we will continue to enhance and expand it.
The Brocker Brand
We have also been reorganizing the structure of our business to better
reflect our new focus. Over the last several years we have made a number of
strategic acquisitions, buying companies that have complementary
technologies. We recognized that the time had come to fully incorporate all
these different entities within one corporate structure and one brand -
Brocker.
This cannot happen over night, but in 2000 we began the process and are
continuing to roll it out. The benefits of this reorganization will be a
greater synergy between different parts of our business and a greater
market awareness of the Brocker brand.
Global Alliances
A key part of our global strategy is the establishment of strategic
alliance relationships with market leaders in the IT sector. In December
1999 we signed an Alliance Partnership contract with PeopleSoft Inc., under
which Brocker has become a Software Alliance Partner. Under this program,
PeopleSoft partners with industry leaders and visionaries to deliver
superior solutions to their customers and to provide a comprehensive range
of choices.
9
<PAGE>
Chairman & Chief Executive Officer
Letter to Shareholders
[LOGO]
NASDAQ
The other major business initiative of 2000 was the filing of our
documentation with the US SEC (Securities & Exchange Commission) for our
listing on the NASDAQ stock exchange.
Looking Ahead
2000 was a year of important developments in our business direction and
organization. Looking forward, we will continue to react to the changing
B2B communications needs of the global market, both in terms of the
solutions we take to market and the ways in which we deliver them.
We will also continue to acquire other companies that fit logically and
strategically into this evolving vision. By year-end 2001 we expect to have
expanded our operations into new geographies, specifically North America,
Europe and Asia, making Brocker a truly global business.
We continue to attract employees of the highest calibre - talented and
committed people who are excited by the Brocker vision. It is through their
unstinting efforts that we will see sustainable growth and improved
earnings performance.
/s/ Casey O'Byrne /s/ Mike Ridgway
------------------------------------ --------------------------------------
Casey O'Byrne - Chairman Mike Ridgway - Chief Executive Officer
10
<PAGE>
Management's Discussion,
Analysis of Financial Condition
and Results of Operations
Results of Operations
Revenue
2000 Change 1999 Change 1998
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136,322,933 2.3% 133,302,640 88.3% 70,811,220
================================================================================
Brocker Technology Group delivered revenues of $136.3 million for the fiscal
year ended March 31, 2000 (Fiscal 2000), an increase of 2.3% over the revenues
of $133.3 million for the March 1999 year (Fiscal 1999).
Revenues from the distribution of computer-based technology products in
Australia increased by approximately $26 million. This increase reflected a
combination of internal growth and growth from acquisitions of approximately $9
million. Despite this, the increase in total revenue for Fiscal 2000 was modest,
principally reflecting the net effect of:
1 Sales of computer-based technology products in New Zealand decreasing by
approximately $4.6 million. This decrease principally reflected the fact
that, after Compaq acquired the Digital Equipment Corporation in June 1998,
Brocker lost the exclusive right to distribute Digital personal computers
in New Zealand.
2 The negative impact on revenue towards the end of calendar 1999 and early
calendar 2000, as some customers reduced their purchase levels due to
concern over Year 2000 issues.
3 Sales of wireless telecommunication products in New Zealand decreasing by
approximately $14 million. This decrease primarily reflected the fact that
a new competitor, Cellect Distribution Warehouse, entered the market in
February 1999. However, Brocker still retains 60% market share.
The revenues from Brocker's other business divisions were as follows: (i)
Professional Services - $5.5 million in Fiscal 2000 ($3.5 million in Fiscal
1999); (ii) Application Development - $1.4 million in Fiscal 2000 ($2.1 million
in Fiscal 1999); and (iii) Application Hosting - $2.7 million in Fiscal 2000
($2.7 million in Fiscal 1999).
Gross Margin
2000 Change 1999 Change 1998
--------------------------------------------------------------------------------
17,388.165 (1.7%) 17,691,092 22.8% 14,400,850
================================================================================
Brocker's gross margin as a percentage of revenues was 12.8% in Fiscal 2000,
compared to 13.3% for Fiscal 1999. However, the financial statements for Fiscal
1999 included the reclassification of interest and depreciation in relation to
the treatment of the rental finance liability, as described in Note 7 of the
Financial Statements. If the accounting treatment in relation to the rental
finance liability had been the same for Fiscal 1999 as for Fiscal 2000, the
comparable Fiscal 1999 gross margin would have been 12.6%.
11
<PAGE>
Management's Discussion, Analysis
of Financial Condition and Results of
Operations continued
The gross margin as a percentage of revenues, of each business division, changed
as follows:
1 The gross margin of the Vendor Services division increased to 9.2% of
revenues for Fiscal 2000, from 9.1% for Fiscal 1999. This increase
primarily reflected the fact that computer-based products, which generally
have a higher margin than wireless telecommunication products, accounted
for a greater percentage of the sales mix in Fiscal 2000, and the fact that
improved margins were also experienced in some aspects of the wireless
telecommunications business.
2 The gross margin of the Professional Services division increased to 41.5%
of revenues for Fiscal 2000, from 36.1% for Fiscal 1999. This increase
primarily reflected the fact that the Corporation expanded into the
Australian market in calendar 1999 and was able to achieve higher margins
in this market.
3 The gross margin of the Application Development division decreased to 51.1%
for Fiscal 2000, from 59.8% for Fiscal 1999, reflecting higher costs in
connection with the Company's call center operation.
4 The gross margin of the Application Hosting division decreased to 62.8% for
Fiscal 2000, from 73% for Fiscal 1999, reflecting higher costs.
Operating Expenses
2000 Change 1999 Change 1998
-------------------------------------------------------------------------------
Depreciation 1,782,483 (11.4%) 2,010,703 18.8% 1,692,585
Net Interest 1,122,586 (20.3%) 1,409,187 110.7% 668,845
Salaries 8,904,799 40.3% 6,348,910 (1.2%) 6,431,431
Other 5,926,969 (15.8%) 7,043,157 66.7% 4,225,153
Total 17,736,837 5.5% 16,811,957 29.1% 13,018,014
% Revenue 13.0% 12.6% 18.4%
================================================================================
The operating expenses in Fiscal 2000 increased to $17.7 million, or 13.0% of
revenues, up from $16.8 million, or 12.6% of revenues, in Fiscal 1999. Operating
expenses included approximately $2.3 million of expenditures related to the
development of proprietary software applications, up from $1.9 million in Fiscal
1999.
1 Depreciation and Amortization. These expenses decreased to $1.8 million, or
1.3% of revenues, in Fiscal 2000 from $2.0 million, or 1.5% of revenues, in
Fiscal 1999. This is primarily because certain assets, related to the
leasing of equipment to customers, were treated as off-balance sheet items
for the reasons discussed in Note 7. This decrease has been largely offset
by the increase in the amortization of deferred development costs,
increasing to $500,518 in Fiscal 2000 from $152,355 in Fiscal 1999.
2 Net interest expense. The Corporation's net interest expense decreased to
$1.1 million in Fiscal 2000, from $1.4 million in Fiscal 1999. This
decrease was primarily attributable to the fact that: (1) interest charges
recorded in Fiscal 1999, relating to the leasing of equipment to customers,
were not recorded in Fiscal 2000, because these leases are now treated as
off-balance sheet items for the reasons discussed in Note 7; (2) the
re-negotiation, during Fiscal 2000, of the funding facility employed within
the Vendor Services division, resulting in a reduction in the interest rate
payable.
12
<PAGE>
Operating Expenses continued
Recent Financing Transactions continued
3 Salaries and Commissions. These expenses increased to $8.9 million, or 6.5%
of revenues, in Fiscal 2000, from $6.3 million, or 4.7% of revenues, in
Fiscal 1999. This increase was principally attributable to growth in
headcount throughout the organization, due to acquisitions and additional
hiring to support organic growth, product development and associated
administration. It should be noted that a number of the personnel recruited
for the Professional Services and Application Development business
divisions, being highly skilled and scarce in supply, typically require
remuneration above the average paid by the Corporation.
4 Other Operating Expenses. These expenses were $5.9 million, or 4.3% of
revenues, in Fiscal 2000, compared to $7.0 million, or 5.3% of revenues, in
Fiscal 1999.
Operating (Loss)/Income
2000 Change 1999 Change 1998
--------------------------------------------------------------------------------
(429,028) (183.3%) 514,814 (35.4%) 796,816
--------------------------------------------------------------------------------
The operating income decreased to a loss of $429,028 in Fiscal 2000, from a
profit of $514,814 in Fiscal 1999. This primarily reflects the increase in
operating expenses as a percentage of revenues, discussed above. In addition,
the final quarter results were impacted by the increase in salaries and other
remuneration, as discussed above.
Equity accounted losses of associated company. These losses amounted to $83,180
in Fiscal 2000 and $91,330 in Fiscal 1999. They represent the Corporation's
share of the losses of Highway Technology, a company in which Brocker has a 20%
equity interest. As at March 31, 2000, Highway Technology had completed
successful field trials of its product in Tasmania, Australia and is currently
preparing a bid to provide services to the same Australian customer.
Liquidity and Capital Resources
Shareholders Equity
2000 Change 1999 Change 1998
--------------------------------------------------------------------------------
21,141,616 217.0%) 6,669,369 14.2% 5,841,606
--------------------------------------------------------------------------------
Recent Financing Transactions
The Corporation completed the following financing transactions in Fiscal 2000:
1 In July 1999, Brocker sold, in a private placement, 1,000,000 units at a
price per unit of either $1.25 (280,000 Units) or $1.00 (720,000 Units).
Each unit was comprised of: (1) a common share and (2) a warrant to
purchase an additional common share at a price of $1.25 per share. Brocker
received gross proceeds of approximately $1.1 million from this
transaction.
2 In December 1999, Brocker sold the First Special Warrants at a price per
special warrant of $2.70. Each of these First Special Warrants may be
exchanged, without additional consideration, for one common share plus a
Half Warrant; two Half Warrants will entitle the holder to purchase one
additional Common Shares at a price of $3.15 per Common Share. The
Corporation received gross proceeds of approximately $4.9 million from this
transaction. In connection with this transaction, Brocker issued agents'
options to purchase 486,000 Common Shares at an exercise price of $3.15 per
share.
13
<PAGE>
Recent Financing Transactions continued
3 In January 2000, Brocker sold Second Special Warrants at a price of $6.25
per special warrant. Each of these warrants may be exchanged, without
additional consideration, for 1.1 common share. The Corporation received
gross proceeds of approximately $11.3 million from this transaction. In
connection with this transaction, Brocker issued the Agent's Special Option
and Undertakings exercisable into options to purchase an aggregate of
228,400 Common Shares at an exercise price of $6.25 per Common Share.
The aggregate net proceeds from the financing transactions described above
amounted to approximately $15.8 million.
Funding of Operations
Cash flows from:
2000 1999 1998
--------------------------------------------------------------------------------
Operations (5,482,452) 2,981,643 1,469,019
Investing (1,432,315) (5,463,290) (1,854,552)
Financing 15,603,467 2,224,125 (112,149)
Net cash flows 8,688,700 (257,522) (497,682)
--------------------------------------------------------------------------------
In Fiscal 2000 the cash generated from operations was not sufficient to
completely fund the cash outlays associated with the business. More
specifically, cash from operating activities in Fiscal 2000 was approximately
negative $5.5 million, compared with approximately positive $3.0 million in
Fiscal 1999. Cash from investing activities was approximately negative $1.4
million compared to approximately negative $5.5 million in Fiscal 1999. The
Corporation principally funded its Fiscal 2000 cash shortfall from the proceeds
of the financing transactions described above. In Fiscal 1999 mortgage financing
was raised to fund the purchase of new premises in Auckland, New Zealand, which
gave rise to the negative cash flow from investing activities during that
period.
Brocker had cash-on-hand of approximately $8.6 million as of March 31, 2000,
representing the remaining net proceeds of the financing transactions described
above. Management believes that its currently available cash resources are
adequate to support the existing operations at their current levels for the next
12 months without additional financing. However, the Corporation plans to seek
additional financing before then in order to grow the business. More
specifically, Brocker may seek additional financing for a variety of purposes,
including: (1) expanding product development efforts, (2) marketing proprietary
product and (3) making additional acquisitions. However, there is no assurance
that any additional financing will be available or, if available, will be
available on terms that are satisfactory to the Corporation.
Accounts Receivable Financing Facility
In July 1999, Brocker obtained a financing facility from The National Bank of
New Zealand that allows Brocker to borrow, on a revolving basis, up to 80% of
the value of the Corporation's eligible accounts receivable. The maximum amount
of principal and unpaid interest that can be outstanding under this facility at
any time is New Zealand $20 million (equivalent to approximately CDN$14.5
million, based on the exchange rate on March 31, 2000). Outstanding loans under
this facility bear interest at a floating rate of interest equal to 0.5% above
the 90 day bank rate. As of July 26, 2000, the outstanding amount under this
facility was approximately $13.4 million and the applicable interest rate was
7.15%.
14
<PAGE>
Certain Balance Sheet Changes
Set forth below is information concerning certain changes in the March 31, 2000
balance sheet relative to the March 31, 1999 balance sheet.
Working capital
2000 Change 1999 Change 1998
--------------------------------------------------------------------------------
Current Assets 51,990,125 25.4% 41,459,203 55.9% 26,587,194
Current Liabilities 38,429,633 (7.9%) 41,733,548 61.9% 25,776,495
Working capital 13,560,492 (274,345) 810,699
The Corporation completed a number of financing transactions subsequent to March
31, 1999, as described above. These transactions are the principal reason why:
(1) cash increased to approximately $8.6 million at March 31, 2000, from
approximately nil at March 31, 1999; (2) working capital increased to
approximately $13.6 million at March 31, 2000 from a deficit of $274,345 at
March 31, 1999; and (3) shareholders' equity increased to approximately $21.1
million at March 31, 2000 from approximately $6.7 million at March 31, 1999.
The increase in working capital was also supported by a 32.8% increase in
inventories to $20,293,533, representing the increase in stocks held to meet
increased turnover and customer demand, notably in the Australian Vendor
Services business division.
Accounts receivable funding facility
2000 Change 1999 Change 1998
--------------------------------------------------------------------------------
Accounts receivable 19,068,160 (16.8%) 22,909,294 64.6% 13,915,450
Funding Facility 7,502,880 133.5% 3,213,122 (44.9%) 5,827,883
Accounts payable 26,467,639 (27.8%) 36,648,724 110.4% 17,422,333
--------------------------------------------------------------------------------
During Fiscal 2000 the Corporation borrowed under its accounts receivable
financing facility and used the proceeds to reduce payables. This is the
principal reason why: (1) the financing facility indebtedness increased to
approximately $7.5 million at March 31, 2000, from approximately $3.2 million on
March 31, 1999; and (2) accounts payables decreased to approximately $26.5
million at March 31, 2000, from approximately $36.6 million on March 31, 1999.
In addition to utilizing the accounts receivable funding facility, a portion of
equity raised, as described above, was used to reduce amounts payable to
suppliers.
Deferred development costs
2000 Change 1999 Change 1998
--------------------------------------------------------------------------------
1,593,621 27.3% 1,252,368 155.3% 490,513
--------------------------------------------------------------------------------
Deferred development costs increased to approximately $1.6 million at March 31,
2000, from approximately $1.3 million on March 31, 1999. This increase
principally reflected deferred development costs relating to the Supercession
and Bloodhound products.
15
<PAGE>
Management's Discussion, Analysis
of Financial Condition and Results of
Operations continued
Management's Responsibility for Consolidated Financial Statements
Management of Brocker Technology Group is responsible for the integrity of the
accompanying consolidated financial statements and all other information in this
Annual Report. Management has prepared the financial statements in accordance
with accounting principles generally accepted in Canada.
The preparation of the consolidated financial statements necessitates the use of
estimates and careful judgement, particularly in those circumstances where
transactions affecting a current period are dependent on future events. All
financial information presented in the Annual Report is consistent with the
consolidated financial statements.
The Audit Committee of the Board of Directors has met with management and the
independent auditors to ensure that each is discharging its respective
responsibilities relating to the financial statements.
The financial statements have been audited by KPMG.
16
<PAGE>
Auditor's Report to
the Shareholders
We have audited the consolidated balance sheets of Brocker Technology Group Ltd
as at March 31, 2000 and 1999 and the consolidated statements of earnings,
retained earnings, foreign currency translation reserve and cash flows for the
years then ended. 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 Canadian generally accepted auditing standards. Those standards require
that we plan and perform an audit to obtain reasonable assurance 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. In our opinion, these
consolidated financial statements present fairly, in all material respects, the
financial position of the company as at March 31, 2000 and 1999 and the results
of its operations and its cash flows for the years then ended in accordance with
Canadian generally accepted accounting principles.
Chartered Accountants
/s/ [illegible] Auckland, New Zealand
----------------------------
July 27, 2000
17
<PAGE>
Brocker Technology Group Ltd
Consolidated Balance Sheets
as at March 31, 2000 and 1999
Note 2000 1999
$ $
ASSETS
Current Assets
Cash 8,637,357 --
Accounts receivable 19,068,160 22,909,294
Other receivables 11 2,266,494 1,435,325
Inventories 20,293,533 15,276,865
Prepaid expenses and deposits 154,708 917,009
Income taxes recoverable 791,212 554,538
Future tax assets 10 778,661 366,172
=========================
51,990,125 41,459,203
Deferred Development Costs 5 1,593,621 1,252,368
Capital Assets 4 5,307,852 5,551,068
Investment in Associated Company 6 833,000 604,433
Goodwill (Net of accumulated
amortisation of $1,312,810;1999 $1,036,327) 1,803,957 1,876,325
----------- -----------
$61,528,555 $50,743,397
=========================
18
<PAGE>
Brocker Technology Group Ltd
Consolidated Balance Sheets
as at March 31, 2000 and 1999
Note 2000 1999
$ $
LIABILITIES
Current Liabilities
Bank Overdraft -- 55,433
Accounts payable 26,467,639 36,648,724
Accrued liabilities 3,824,673 1,596,241
Income taxes payable 430,910
Financing facility 8 7,502,880 3,213,122
Current portion of long-term debt 8 203,531 220,028
----------------------------
38,429,633 41,733,548
Long-Term Debt 8 1,872,229 2,284,578
Future Tax Liability 10 85,077 55,902
----------------------------
40,386,939 44,074,028
============================
SHAREHOLDERS' EQUITY
Share Capital 9 21,762,070 5,761,721
Foreign Currency Translation Reserve (1,745,415) (799,084)
Retained Earnings 1,124,961 1,706,732
----------------------------
21,141,616 6,669,369
============================
Commitments 16
Contingencies 17
Subsequent Events 18
----------------------------
$ 61,528,555 $ 50,743,397
============================
Signed on behalf of the Board
Richard Justice Andrew Chamberlain
/s/ [illegible] /s/ [illegible]
----------------------------------- -----------------------------------
Director Director
Date: July 27, 2000
See the accompanying notes to the consolidated financial statements.
19
<PAGE>
Brocker Technology Group Ltd
Consolidated Statement of Earnings
for the years ended March 31, 2000 and 1999
Note 2000 1999
$ $
Revenue
Sales 136,322,933 133,302,640
Cost of Goods Sold 118,934,768 115,611,548
---------------------------
Gross Margin 17,388,165 17,691,092
===========================
Operating Expenses
Depreciation and amortisation 1,782,483 2,010,703
Net interest expense 8 1,122,586 1,409,187
Salaries and commissions 8,904,799 6,348,910
Other operating expenses 5,926,969 7,043,157
---------------------------
Total operating expenses 17,736,837 16,811,957
===========================
Operating (Loss)/Income (348,672) 879,135
Equity accounted losses of associated company 6 83,180 91,330
---------------------------
(Loss)/Income before Income Tax Provision (431,852) 787,805
Income Tax Provision 10 (2,824) 272,991
---------------------------
Net (Loss)/Earnings for the year $ (429,028) $ 514,814
===========================
Earnings Per Common Share 9(d) (0.04) $ 0.03
===========================
See the accompanying notes to the consolidated financial statements.
20
<PAGE>
Brocker Technology Group Ltd
Consolidated Statements of Retained Earnings
for the years ended March 31, 2000 and 1999
2000 1999
$ $
Retained Earnings, Beginning of the year 1,706,732 1,355,240
Net (Loss)/Earnings for the year (429,028) 514,814
Preferred dividends paid (152,743) (163,322)
----------------------------
Retained Earnings, End of the year $ 1,124,961 $ 1,706,732
============================
Consolidated Statements of Movements in
Foreign Currency Translation Reserve
for the years ended March 31, 2000 and 1999
2000 1999
$ $
Beginning of the year (799,084) (881,364)
Difference arising on the translation
of foreign operations (946,331) 82,280
---------------------------
End of the year $(1,745,415) $(799,084)
===========================
See the accompanying notes to the consolidated
financial statements.
21
<PAGE>
Brocker Technology Group Ltd
Consolidated Cash Flow Statements
for the years ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
Note 2000 1999
$ $
<S> <C> <C> <C>
Cash flows from operating activities
Receipts from customers 138,510,831 124,528,860
Payments to suppliers and employees (142,616,495) (119,790,928)
Interest paid (1,122,586) (1,338,547)
Taxation paid (254,202) (417,742)
-----------------------------
Cash flows from operating activities 14 (5,482,452) 2,981,643
Cash flows from investing activities
Proceeds from the sale of capital assets 44,750 51,597
Purchase of capital assets (1,086,880) (4,673,881)
Investment in associated company (356,354) (428,440)
Purchase of subsidiaries (33,831) (412,566)
-----------------------------
Cash flows from investing activities (1,432,315) (5,463,290)
Cash flows from financing activities
Proceeds from shares and warrants issued 15,738,616 --
Proceeds from share options exercised 261,600 29,500
Proceeds from mortgage finance raised -- 2,428,692
Repayment of mortgage finance (244,006) (70,745)
Payment of dividend on preferred shares (152,743) (163,322)
-----------------------------
Cash flows from financing activities 15,603,467 2,224,125
-----------------------------
Net increase/(decrease) in cash equivalents 8,688,700 (257,522)
Cash/(Overdraft) at Beginning of the year (55,433) 205,365
Translation of cash equivalents to
reporting currency 4,090 (3,276)
-----------------------------
Cash/(Overdraft) at End of the year $ 8,637,357 $ (55,433)
=============================
</TABLE>
See the accompanying notes to the consolidated financial statements.
22
<PAGE>
Brocker Technology Group Ltd
Notes to Consolidated Financial Statements
for the years ended March 31, 2000 and 1999
1. BASIS OF PRESENTATION
a) General
Brocker Technology Group Ltd, ("the Company"), was incorporated under
the Business Corporation Act (Alberta) on November 25, 1993, and
obtained its listing on the Alberta Stock Exchange on April 14, 1994.
On February 28, 1998 the Company transferred its listing to the
Toronto Stock Exchange.
These financial statements have been prepared in accordance with the
generally accepted accounting principles of Canada.
b) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
a) Principles of Consolidation
The consolidated financial statements include the financial statements
of the Company and all of its subsidiary companies since the dates of
their acquisition. Its wholly owned subsidiaries, are as follows:
Brocker Technology Group (NZ) Limited (formerly Brocker
Investments (NZ) Limited)
Brocker Investments (Australia) Pty Limited
Brocker Financial Limited
Sealcorp Computer Products Limited
Sealcorp Telecommunications Group Limited
Sealcorp Australia Pty Limited
Easy PC Computer Rentals Limited
Image Craft Limited
Image Craft Australia Pty Limited (formerly Parilott Pty Limited)
Industrial Communications Service Limited
Northmark Technologies Limited
Photo Magic Limited
Powercall Technologies Limited
Pritech Corporation Limited
Pritech Australia Pty Limited
1 World Systems Limited (formerly Microchannel Limited)
Tech Support Limited
During 1998 Brocker Technology Group Ltd took a 20% founding
shareholding in Highway Technologies Limited. This investment has been
recorded using the equity method.
As at March 31, 2000 the operations of Image Craft Limited, Northmark
Technologies Limited and Photo Magic Limited were amalgamated with
Brocker Technology Group (NZ) Limited.
23
<PAGE>
Brocker Technology Group Ltd
Notes to Consolidated Financial Statements continued
for the years ended March 31, 2000 and 1999
2. SIGNIFICANT ACCOUNTING POLICIES continued
b) Goodwill
The excess of cost over the fair value of identifiable net assets of
subsidiaries acquired is recorded as goodwill and is amortised on a
straight-line basis over its estimated useful life, considered to be
three to ten years. On an ongoing basis, management reviews the
valuation and amortisation of goodwill taking into consideration any
events and circumstances which might have impaired the fair value.
Where an acquisition price is contingent on a future event or events,
no additional goodwill is recognised until the final acquisition price
can be reasonably determined.
c) Foreign Currency
Foreign currency transactions are recorded at the exchange rates in
effect at the date of settlement. Monetary assets and liabilities
arising from trading are translated at closing rates. Gains and losses
due to currency fluctuations on these items are included in the
statement of earnings.
The financial statements of foreign operations are translated to
Canadian dollars using weighted average exchange rates for the year
for items included in the statement of earnings, year end rates for
assets and liabilities included in the balance sheet and historical
rates for equity transactions. The cumulative translation adjustment
represents the deferred foreign exchange gain or loss on the
translation of the financial statements.
The following rates were used in the preparation of the financial
statements:
New Zealand dollar Average rate Rate at March 31
2000 0.7565 0.7238
1999 0.7862 0.7976
Australian dollar Average rate Rate at March 31
2000 0.9436 0.8903
1999 0.9318 0.9455
d) Inventories
Inventories principally comprise finished goods and are carried at the
lower of cost and net realisable value. Cost is determined on a
weighted average or first in first out basis.
e) Capital Assets
Capital assets are recorded at cost. Depreciation is calculated on a
declining balance basis (except for leasehold improvements where a
straight line basis is used) using the following rates:
Land 0%
Buildings 2%
Office equipment 20%
Vehicles 20 and 26%
Furniture and fixtures 20%
Computer hardware 20 to 30%
Computer software 30 to 40%
Plant and Equipment 20 to 26%
Leasehold improvements 1 to 4 years
Computer hardware held for rental 2 to 3 years
24
<PAGE>
Brocker Technology Group Ltd
Notes to Consolidated Financial Statements continued
for the years ended March 31, 2000 and 1999
2. SIGNIFICANT ACCOUNTING POLICIES continued
f) Revenue recognition
The Company earns substantially all of its revenue from the sale and
delivery of products to its customers. Revenue is recorded when the
products are shipped to customers.
g) Research and development expenditures Research costs, other than
capital expenditures, are expensed as incurred. Development costs are
expensed as incurred unless they meet the criteria under generally
accepted accounting principles for deferral and amortisation. Deferred
development costs are amortised over the expected life of the
developed product, currently a maximum of three years.
h) Future Income Taxes
Income taxes are accounted for under the asset and liability method.
Under this method, future tax assets and liabilities are recognised
for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Future tax assets and
liabilities are measured using enacted or substantively enacted tax
rates expected to apply when the asset is realized or the liability
settled. The effect on future tax assets and liabilities of a change
in tax rates is recognised in income in the period that substantive
enactment or enactment occurs.
Change in Accounting Policy
In December 1997, the Canadian Institute of Chartered Accountants
issued Handbook Section 3465, Income Taxes. The standard required a
change from the deferred method of accounting for income taxed under
Handbook Section 3470, Corporate Income Taxes, to the asset and
liability method of accounting for income taxes.
The Company has adopted Section 3465 retroactively with a minor
reclassification of the 1999 balance sheet comparative figures. The
adoption of Section 3465 has had no impact on the earnings for the
year ended March 31, 2000.
i) Earnings Per Share
Earnings per share have been calculated based on the weighted average
number of common shares outstanding. The fully diluted earnings per
share have been calculated based on the assumption that all options
would have been exercised.
In both cases, common shares to be issued, or held in escrow, in
respect of the settlement of earn-out consideration in relation to
acquisitions are only taken into account in the calculation of
earnings per share once the number of shares can be reasonably
determined.
j) Stock options
The Company has a stock option plan. When stock options are issued,
the value of the options is not determined or recorded. Any
consideration received on the exercise of stock options is credited to
share capital.
k) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and balances with
banks, and investments in money market instruments. Cash and cash
equivalents included in the cash flow statement are comprised solely
of balances with banks.
25
<PAGE>
Brocker Technology Group Ltd
Notes to Consolidated Financial Statements continued
for the years ended March 31, 2000 and 1999
3. ACQUISITIONS
2000 Acquisitions
On August 1, 1999 Brocker Technology Group (NZ) Limited acquired Tech
Support Limited for a total cash consideration of $33,831 (NZ$45,000). Tech
Support Limited offers technical support and advice to a wide range of
customers in Auckland, New Zealand.
No additional amounts are payable in respect to this acquisition. The
purchase price may, however, be reduced in the event certain warranties
made by the Vendors do not eventuate.
The acquisition has been accounted for using the purchase method. Net
assets acquired and consideration paid are as follows:
2000
$
Net current assets 37,470
Capital assets 9,555
Net current liabilities (22,822)
Goodwill attributed 9,628
-------
Consideration paid 33,831
========
1999 Acquisitions
Pritech Corporation Limited
On May 15, 1998 Brocker Technology Group (NZ) Limited acquired Pritech
Corporation Limited ("Pritech") for an initial cash consideration of
$207,609 (NZ$265,620). Pritech is principally involved with software
consultation and knowledge management. Pritech is a Lotus Premium Partner
whose target market is enterprise and government customers in New Zealand
and Australia.
The maximum purchase price payable is based on the profit earned by the
company for the year ended September 30, 1998 at a four times multiple.
Additional consideration, however, is only payable based on the cash
earned, as defined, by Pritech for the years ended September 30, 1999 to
2000, being the earn out period. That is the maximum price must be
subsequently earned by Pritech, during the earn out period, before it is
payable.
Any additional consideration will be satisfied by the issue of common
shares which will be held in escrow until the earn out criteria are met.
This acquisition was accounted for using the purchase method. Net assets
acquired and consideration paid were as follows:
1999
$
Net current assets 472,515
Capital assets 51,987
Net current liabilities (316,893)
Goodwill attributed --
---------
Consideration paid 207,609
=========
26
<PAGE>
Brocker Technology Group Ltd
Notes to Consolidated Financial Statements continued
for the years ended March 31, 2000 and 1999
3. ACQUISITIONS continued
1999 Acquisitions continued
1 World Systems Limited (formerly Microchannel Limited)
On June 16, 1998 Brocker Technology Group (NZ) Limited acquired 1 World
Systems Limited ("1 World") for an initial consideration of $81,091
(NZ$103,750). 1 World is principally involved with the distribution,
implementation and support of accounting software.
The maximum purchase price payable is based on the profit earned by 1 World
for the year ended March 31, 1999 at a four times multiple. Additional
consideration, however, is only payable based on the cash earned, as
defined, by 1 World for the years ended March 31, 2000 to 2001, being the
earn out period. That is the maximum price must be subsequently earned by 1
World, during the earn out period, before it is payable.
Any additional consideration will be satisfied by the issue of common
shares which will be held in escrow until the earn out criteria are met.
This acquisition was accounted for using the purchase method. Net assets
acquired and consideration paid were as follows:
1999
$
Net current assets 281,790
Capital assets 43,341
Net current liabilities (182,365)
Term liabilities (61,675)
Goodwill attributed --
--------
Consideration paid 81,091
========
Additional future consideration will be added to goodwill when it becomes
determinable. Additional goodwill of $207,411 has been recognised in
respect of shares determined to be issuable as at March 31, 2000.
QSoft Pty Limited
On February 8, 1999 Sealcorp Australia acquired the net assets of QSoft Pty
Limited ("Qsoft") for a cash consideration of $142,170 (AUD$150,000). QSoft
is a Software Distribution company based in Brisbane Australia.
The net assets acquired were valued at their fair value, and as a result no
goodwill arose on acquisition.
Motorola Service Contract
During March 1999 Industrial Communications Service Limited acquired the
net assets of a division of Hart Candy in order to fulfil the requirements
of the Motorola Service contract awarded to the company.
This acquisition was accounted for using the purchase method. Net assets
acquired and consideration paid were as follows:
1999
$
Net current assets 8,774
Capital assets 55,677
Net current liabilities (16,595)
Goodwill attributed 47,856
-------
Consideration paid 95,712
=======
27
<PAGE>
Brocker Technology Group Ltd
Notes to Consolidated Financial Statements continued
for the years ended March 31, 2000 and 1999
4. CAPITAL ASSETS 2000
Cost Accumulated Net Book
Depreciation Value
----------------------------------------
Land (Note 8a) 564,564 -- 564,564
Buildings (Note 8a) 2,559,064 110,494 2,448,570
Office equipment
- leased 1,918 782 1,136
- non-leased 448,460 258,070 190,390
Vehicles
- non-leased 99,096 59,655 39,441
Furniture and fixtures
- non-leased 424,424 223,068 201,356
Computer hardware
-leased 34,163 21,010 13,153
-non leased 1,666,874 962,961 703,913
-held for rental 1,220,305 850,910 369,395
Computer software 774,687 172,898 601,789
Plant and Equipment 290,917 183,381 107,536
Leasehold improvements 103,493 36,884 66,609
----------------------------------------
$8,187,965 $2,880,113 $5,307,852
========================================
Notes to Consolidated Financial Statements
28
<PAGE>
Brocker Technology Group Ltd
Notes to Consolidated Financial Statements continued
for the years ended March 31, 2000 and 1999
4. CAPITAL ASSETS 1999
Cost Accumulated Net Book
Depreciation Value
----------------------------------------
Land (Note 8a) 622,128 -- 622,128
Buildings (Note 8a) 2,684,411 37,860 2,646,551
Office equipment
- leased 72,260 31,036 41,224
- non-leased 368,147 184,704 183,443
Vehicles
- leased 105,285 69,380 35,905
- non-leased 107,222 45,302 61,920
Furniture and fixtures
- leased 37,456 8,317 29,139
- non-leased 464,038 172,221 291,817
Computer hardware
- non-leased 1,750,998 901,607 849,391
- held for rental 830,688 369,218 461,470
Computer software 156,292 88,467 67,825
Plant and Equipment 316,838 161,297 155,541
Leasehold improvements 147,402 42,688 104,714
----------------------------------------
$7,663,165 $2,112,097 $5,551,068
========================================
29
<PAGE>
Brocker Technology Group Ltd
Notes to Consolidated Financial Statements continued
for the years ended March 31, 2000 and 1999
5. DEFERRED DEVELOPMENT COSTS
2000 1999
$ $
Development costs deferred as at March 31, 1,252,368 521,428
Development costs deferred during
the year ended March 31 841,771 883,295
------------------------
2,094,139 1,404,723
Amortised as at March 31 (500,518) (152,355)
-------------------------
Development costs deferred as at March 31 1,593,621 1,252,368
=========================
Development costs deferred principally relate to the development of
software applications.
Management has reviewed the status of the projects to which deferred
development costs relate and are satisfied that the recovery of such costs
is reasonably assured. However the eventual recovery of these costs is
ultimately dependent on actual sales volumes being achieved in subsequent
periods and as such recovery is not certain.
6. INVESTMENTS
INVESTMENT IN ASSOCIATED COMPANY
During 1998 Brocker Technology Group (NZ) Limited took a 20% founding
shareholding in Highway Technologies Limited. This company has developed new
technology capable of providing transport and highway management, operation and
funding solutions. The Board of Highway Technologies Limited has identified
other sources of revenue in order to reduce the amount owing to Brocker
Technology Group Limited. These sources include the provision of financial and
technical consulting services to parties external to the Group.
In addition to the investment, Brocker Technology Group (NZ) Limited has entered
an agreement to loan Highway Technologies Limited funds during the company's
establishment phase up to a maximum of $1,085,700. Interest is payable on these
funds at 30% per annum. As at March 31, 2000 amounts advanced to Highway
Technologies Limited amounted to $1,001,270 ($689,523, 1999). No interest has
been recorded on the loan for the current year (nil, 1999). Notes to
Consolidated Financial Statements
30
<PAGE>
Brocker Technology Group Ltd
Notes to Consolidated Financial Statements continued
for the years ended March 31, 2000 and 1999
6. INVESTMENTS continued
2000 1999
Carrying value of investment $ $
Initial cost of investment 87,366 87,366
Amounts owing from associate 1,001,270 689,523
Equity accounted losses to date (255,636) (172,456)
--------------------------
833,000 604,433
==========================
The financial position of Highway
Technologies Limited as at March 31, is
represented as follows:
Net Current Assets* 127 3,718
Net Current Liabilities (including
amounts owing to Brocker Technology
Group Limited inclusive of accrued
interest) (1,124,060) (803,523)
--------------------------
Net Liabilities (1,123,933) (799,805)
==========================
* All research and development expenditure has been expensed.
Management has assessed the recoverability of the funding loan to Highway
Technologies Limited, which is ultimately dependent on the future revenue
stream of the software technology under development and the revenue stream
from consultancy services, and are satisfied on the basis of the current
status of the projects concerned that no impairment provision is required
as at March 31, 2000. Management will continue to assess the need for an
impairment provision in light of the actual revenues generated.
7. RENTAL FINANCE LIABILITY
Easy PC Computer Rentals Limited, a subsidiary of Brocker Technology Group
(NZ) Limited, acts as an intermediary between an independent finance
company, which arranges finance for the purchase of equipment, and its
customers.
During March 1999 Easy PC Computer Rentals Limited renegotiated its Rental
Recourse Dealer Deed, with the independent finance company, to ensure that
all significant risk of recourse from the individual finance agreements was
transferred to the independent finance company. Due to the renegotiation
the Group risk of recourse as at March 31, 2000 is limited to $109,364
($167,245, 1999).
During 2000 arrangements were agreed with the independent finance company
to ensure all subsequent agreements had no recourse.
31
<PAGE>
Brocker Technology Group Ltd
Notes to Consolidated Financial Statements continued
for the years ended March 31, 2000 and 1999
8. INDEBTEDNESS
<TABLE>
<CAPTION>
2000 1999
$ $
a) Long Term Debt
<S> <C> <C>
Mortgage finance liability, payable in New Zealand Dollars 1,975,527 2,357,142
witha current interest rate of 7.66%, collateralised by
land and buildings situated at 17 Kahika Road, Beachaven,
Auckland, payable over 10 Years
Less: Current portion (171,561) 183,352)
-------------------------
1,803,966 2,173,790
Capital lease obligations payable in New Zealand dollars,
with interest rates ranging from 6.6% to 14.5% per annum,
collateralised by related assets, payable over 1 to 3 years. 49,567 91,632
Less: Current portion (31,970) (36,676)
-------------------------
Capital lease obligations payable over 1 year 17,597 54,956
Unsecured Term Liability, repayable in NZ$ 50,666 55,832
-------------------------
$ 1,872,229 $ 2,284,578
=========================
The total interest expense for the year in relation to long term debt, was
$158,104 ($258,957, 1999).
Capital lease obligations are repayable as follows:
2000 -- 36,676
2001 31,970 36,821
2002 17,597 18,135
-------------------------
$49,567 $91,632
-------------------------
b) Mortgage Finance Liability $1,975,527 $ 2,357,142
=========================
<CAPTION>
On October 1,1998 Brocker Technology Group (NZ) Limited purchased new
premises in Auckland, New Zealand. The purchase price of $2,460,920
(NZ$3,400,000) was financed by mortgage finance of $2,203,971
(NZ$3,045,000). As at March 31, 2000 the amount remaining outstanding was
$1,975,527, (1999, $2,357,142) and is repayable as follows:
In less than 1 year 171,561 183,352
1 to 2 years 185,174 196,080
2 to 3 years 199,867 209,691
3 to 4 years 215,726 224,247
4 to 5 year 232,844 239,813
5 years and over 970,355 1,303,959
-------------------------
1,975,527 2,357,142
=========================
</TABLE>
32
<PAGE>
Brocker Technology Group Ltd
Notes to Consolidated Financial Statements continued
for the years ended March 31, 2000 and 1999
8. INDEBTEDNESS continued
2000 1999
$ $
c) Financing Facility $7,502,880 $3,213,122
------------------------------
During the year ended March 31, 2000 Sealcorp Computer Products Limited,
Sealcorp Telecommunications Group Limited and Sealcorp Australia Pty
Limited (all subsidiaries of the company) have successfully renegotiated
their financing arrangements. A new NZ$20 million financing facility,
secured by a registered first debenture on the assets and undertakings of
these companies, replaces the previous facility of similar terms, which was
terminated during the period. The current interest rate on this facility is
6.65%.
9. SHARE CAPITAL
a) Authorised
Unlimited number of common shares
Unlimited number of Preferred Shares
10,000,000 Series A Preferred Shares
61/2% cumulative
Issued and outstanding 2000 1999
$ $
Common shares 7,428,680 3,353,490
Series A Preferred -- 2,450,000
Warrants Issued 16,110,000 --
Shares to be issued 359,441 --
Less: Share issue costs (2,136,051) (41,769)
-------------------------------
$21,762,070 $5,761,721
===============================
As at March 31, 2000 963,602 shares were being held in escrow pursuant to
Escrow Agreements which provide for the release of such shares on a
performance basis. In the prior year 963,602 shares were held in escrow.
33
<PAGE>
Brocker Technology Group Ltd
Notes to Consolidated Financial Statements continued
for the years ended March 31, 2300 and 1999
9. SHARE CAPITAL continued
b) Share Transactions
<TABLE>
<CAPTION>
2000 1999
Common Shares Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares outstanding - at March 31, 12,125,854 4,937,365 11,704,554 4,214,324
Issue of shares for acquisition
of 1 World Systems Ltd (formerly
Microchannel Ltd) 46,337 81,090 -- --
Issue of shares for acquisition
of Powercall Technologies Limited
(Note (ii)) -- -- 284,733 498,283
Issue of shares for acquisition of
Easy PC Computer Rentals Limited
(Note (iii)) -- -- 111,567 195,258
Conversion of Preference shares 1,884,613 2,450,000 -- --
Exercise of share warrants -- -- 25,000 29,500
Exercise of stock options 177,000 261,600 -- --
Shares issued pursuant to July
private placement 1,000,000 1,070,000 -- --
Other shares issued 25,000 212,500 -- --
----------------------------------------------------------
Shares issued - at March 31, 15,258,804 9,012,555 12,125,854 4,937,365
Acquisition shares held in escrow
(Note( i) and (iii)) (963,602) (1,583,875) (963,602) (1,583,875)
----------------------------------------------------------
Shares outstanding - at March 31, 14,295,202 7,428,680 11,162,252 3,353,490
Shares issueable in relation to
Warrants (Note 9(b)) 3,780,000 16,110,000 -- --
----------------------------------------------------------
Shares and warrants outstanding -
at March 31, 18,075,202 $ 23,538,680 11,162,252 $ 3,353,490
==========================================================
</TABLE>
(i) During 1998 share script was issued in respect of the acquisition of
Industrial Communications Service Limited. These shares (760,500) are
currently held in escrow and are only released as earn-out provisions
are achieved. As at March 31, 2000 no earn-out amounts have been
determined, resulting in a prescribed value of nil.
3433
<PAGE>
Brocker Technology Group Ltd
Notes to Consolidated Financial Statements continued
for the years ended March 31, 2300 and 1 999
9. SHARE CAPITAL continued
b) Share Transactions (Continued)
(ii) During 1999 shares were issued, at $1.75, in relation to the
acquisition of Powercall Technologies Limited in respect to
earn-out targets that were achieved.
As at March 31, 2000 186,317 of these shares were being held in
escrow.
(iii) During 1999 additional shares were issued, at $1.75 in relation
to the acquisition of Easy PC Computer Rentals Limited in respect
to earn-out targets that were achieved.
As at March 31, 2000 16,785 of these shares were being held in
escrow.
(iv) During the year 46,337 shares were issued at $1.75 in relation to
the acquisition of 1 World Systems Limited
<TABLE>
<CAPTION>
Preferred Shares 2000 1999
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Series A shares outstanding at March 31, 2,450,000 2,450,000 2,450,000 2,450,000
Converted to Common Shares (2,450,000) (2,450,000) -- --
---------------------------------------------------
Series A shares outstanding at March 31, -- -- 2,450,000 $2,450,000
===================================================
</TABLE>
In 1995 the Company acquired Brocker Investment (NZ) Limited and a
liability was established in the accounts for the purchase consideration.
In 1996 the liability was satisfied by the issuance of Series A preferred
shares.
During the year 2,450,000 shares were converted to common shares.
During the year a dividend was paid at 6.5% of preferred shares outstanding
at September 30, 1999.
Warrants
Warrants outstanding at March 31, 2000
Number Amount
First Special Warrants 1,800,000 4,860,000
Second Special Warrants 1,800,000 11,250,000
Other Warrants 1,000,000 --
Agents Warrants 486,000 --
Agents Options 228,400 --
----------------------
5,314,400 16,110,000
======================
35
<PAGE>
Brocker Technology Group Ltd
Notes to Consolidated Financial Statements continued
for the years ended March 31, 2300 and 1999
9. SHARE CAPITAL continued
b) Share Transactions (Continued)
Warrants continued
The first private placement occurred on December 15, 1999 and
consisted of the issuance of 1,800,000 Special Warrants (the "First
Special Warrants") at a price of $2.70 per First Special Warrant. This
entitled the holder thereof to acquire one Common Share and one Half
Warrant, at no additional cost, at any time until 4:00 p.m. (Edmonton
time) (the "First Expiry Time") on the earlier of:
(i) five days after the date the Company receives a receipt from
the Alberta Securities Commission for the filing of a
prospectus; and
(ii) December 15, 2000.
Two Half Warrants entitle the holder thereof to purchase one
additional Common Share at a price of $3.15 per Common Share on or
before June 15, 2001.
The First Special Warrants will be deemed to have been exercised at
the First Expiry Time
The second private placement of Special Warrants occurred on January
21, 2000 and consisted of the issuance of 1,800,000 Special Warrants
(the "Second Special Warrants") at a price of $6.25 per Second Special
Warrant. Each Second Special Warrant entitles the holder thereof to
acquire 1.1 Common Shares, at no additional cost, at any time until
4:00 p.m. (Edmonton time) (the "Second Expiry Time") on the earlier
of:
(i) the fifth day following the date upon which a receipt for
the final prospectus is issued by the securities commission
in each of the provinces of Alberta, British Columbia and
Ontario (the "Filing Provinces"); and
(ii) January 21, 2001, subject to adjustment in certain events.
Any Second Special Warrant not exercised prior to the Second Expiry
Time shall be deemed to have been exercised at the Second Expiry Time.
Other warrants were created as part of the private placement that was
undertaken in June 1999. These warrants entitles the holder thereof to
acquire 1,000,000 Common Shares, at the cost of $1.25 per Common
Share, and expire on January 16, 2002.
In addition to the fee paid in connection with the offering of the
First Special Warrants, the Company also granted Finders' Warrants to
acquire 486,000 Common Shares at a price of $3.15 per share on or
before June 15, 2001.
In addition to the Agent's and Sub-Agents', fee, the Company has also
granted to the Agent an option entitling the Agent to acquire a
further option exercisable to acquire in the aggregate 200,000 Common
Shares of the Company at a price of $6.25 per Common Share until
January 21, 2002, and granted to the Sub-Agents an option to acquire
an aggregate of 28,400 Common Shares at a price of $6.25 per share
until January 21, 2002.
As at March 31, 2000 no Agents Warrants or Options had been exercised.
Shares to be issued
At March 31, 2000 there were 103,422 shares due to be issued in
relation to the earn out of Powercall Technologies Limited. These
shares have been valued $1.47 being the market value of these shares
as at June 30, 1999 being the date the conditions for their issue were
met.
Also at March 31, 2000 there were 17,652 shares due to be issued in
relation to the earn out of iWorId Systems Limited. These shares have
been valued at $11.75, being the market value of these shares as at
March 31, 2000 being the date the conditions for their issue were met.
36
<PAGE>
Brocker Technology Group Ltd
Notes to Consolidated Financial Statements continued
for the years ended March 31, 2000 and 1999
9. SHARE CAPITAL continued
c) Unexercised Options
2000 1999
Options outstanding at March 31,
Granted 889,000 $1.56 769,000 $1.57
Exercised 696,000 $6.36 120,000 $1.50
Forfeited (177,000) $1.48 -- $ --
(90,000) $1.46 -- $ --
------------------------------------
Options outstanding at March 31, 1,318,000 $4.11 889,000 $1.56
====================================
As at March 31, 2000 all outstanding options are able to be exercised.
Options held by the Directors of the Company (387,000, 1999) are as
follows:
Number of options Exercise price Expiry date
--------------------------------------------------------
350,000 $11.25 02/29/05
145,000 $1.18 01/12/01
57,000 $1.31 01/12/01
30,000 $1.90 11/20/92
50,000 $1.50 11/30/02
118,000 $1.41 07/02/04
Options are held by employees of the Group as follows (502,000 - 1999):
Number of options Exercise price Expiry date
--------------------------------------------------------
228,000 $1.41 07/02/04
300,000 $1.90 11/20/02
40,000 $1.18 01/12/01
There are no criteria that need to be met before the Options can be
exercised by the holder. Options are forfeited in the event the holder
ceases to be a Director or employee of the Company or one of its
subsidiaries.
d) Earnings Per Common Share
Earnings per share has been calculated on the basis of the weighted
average number of common shares outstanding for the year. Net income
has been adjusted for dividends paid on preferred shares of$ 152,743
($163,322, 1999).
<TABLE>
<CAPTION>
2000 1999
----------------------------------------------------------------------------------------------
<S> <C> <C>
Weighted average number of shares 13,756,593 11,012,887
Net (loss)/income attributable to shareholders after deduction of
preference dividends (581,771) 351,492
Basic (loss)/earnings per share ($0.04) $0.03
----------------------------------------------------------------------------------------------
For the current, and previous, financial year the effect on earnings per share
of the exercise of outstanding options and conversion of preferred shares, for
the calculation of fully diluted earnings per share, is anti-dilutive.
37
<PAGE>
Brocker Technology Group Ltd
Notes to Consolidated Financial Statements continued
for the years ended March 31, 2000 and 1999
10. INCOME TAX
Income tax expense attributable to income from earnings was $(2,824) and
$272,991 for the years ended March 31, 2000 and 1999, respectively, and
differed from the amounts computed by applying the Canadian income tax rate
of 44.6% to pretax income from continuing operations as a result of the
following:
2000 1999
$ $
Expected income tax expense calculated at the
Statutory Rate on Earnings before Taxation (192,606) 346,635
Income tax expense
Amortisation of goodwill 123,311 114,487
Adjustment for foreign tax rates 41,322 (109,765)
Other 25,149 (78,366)
-----------------------
(2,824) 272,991
=======================
Total income tax expense is made up of:
Current taxation expense 17,775 180,380
Future taxation expense (20,599) 92,611
-----------------------
(2,824) 272,991
=======================
</TABLE>
The significant components of future income tax expense attributable to
income from continuing operations for the years ended March 31, 2000 and
1999 are as follows:
Future tax expense (exclusive of the effects of
other components below) (20,599) 92,611
Adjustments to future tax assets and
liabilities for enacted changes in laws and rates -- --
Increase (decrease) in beginning-of-the-year
balance of the valuation allowance for future
tax assets -- --
-----------------------
(20,599) 92,611
=======================
38
<PAGE>
Brocker Technology Group Ltd
Notes to Consolidated Financial Statements continued
for the years ended March 31, 2000 and 1 999
10. INCOME TAX continued
The tax effects of temporary differences that give rise to significant
portions of the future tax assets and future tax liabilities at March 31,
2000 and 1999 are presented below.
<TABLE>
<S> <C> <C>
2000 1999
$ $
Future tax assets:
Accounts receivable principally due to
allowance for doubtful accounts 77,436 99,596
Inventories, principally due to allowance for 136,695 93,277
obsolescence
Compensated absences, principally due to accrual
for financial reporting purposes 205,935 157,570
Share issue costs 952,679 --
Net operating loss carry forwards 345,291 --
Other 13,304 15,729
-------------------------
Total gross future tax assets 1,731,340 366,172
Less valuation allowance (952,679) --
-------------------------
Net future tax assets 778,661 366,172
=========================
Future tax liabilities:
Plant and equipment, due to differences in
depreciation (85,077) (55,902)
-------------------------
Total future tax liability $(85,077) $(55,902)
=========================
</TABLE>
In assessing the realizability of future tax assets, management considers
whether it is more likely than not that some portion or all of the future
tax assets will not be realized. The ultimate realization of future tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible.
Management considers the scheduled reversal of future tax liabilities,
projected future taxable income, and tax planning strategies in making this
assessment. In order to fully realize the future tax asset, the Company
will need to generate future taxable income. Based upon the level of
historical taxable income and projections for future taxable income over
the periods which the future tax assets are deductible, management believes
it is more likely than not the Company will realize the benefits of these
deductible assets. The amount of the future tax asset considered
realizable, however, could be reduced in the near term if estimates of
future taxable income during the carryforward period are reduced.
At March 31, 2000, the Company has operating losses which are available to
offset future taxable income, in New Zealand, subject to minimum continuity
of shareholding tests.
39
<PAGE>
Brocker Technology Group Ltd
Notes to Consolidated Financial Statements continued
for the years ended March 31, 2000 and 1999
11. RELATED PARTY TRANSACTIONS
a) During the year, the Group provided an interest free short-term
advance to the Chief Executive Officer of Company. The balance
outstanding at March 31, 2000 was $4,230 ($4,663, 1999) This balance
is included in other receivables.
b) The Chief Executive Officer of the Company, as at March 31, 2000, held
no (923,453, 1999) preferred shares on which a dividend of $60,024
($60,783 1999 ) was paid during the year. All preferred shares
previously held were converted to 710,348 common shares during the
period.
c) Directors of the Company have exercised stock options. The funds
required to exercise these options have a a, been loaned to the
Directors by Brocker Technology Group (NZ) Limited.
As at March 31, 2000 the amount outstanding was $540,115 ($749,375,
1999). The current market value of the shares, held as security
over these loans is in excess of $3.8 million ($1.6 million, 1999).
Interest of $17,066 ($16,692, 1999) was charged during the year. This
balance is included in other receivables. The maximum amount
outstanding during the year in respect of these loans was $749,375.
The loan to each Director is repayable on demand or within 30 days of
the individual ceasing to be a Director of the Company or one of its
subsidiaries. The beneficial ownership of the shares are held as
security over the loan, and the Company retains the right to either
sell or cancel the shares to settle any outstanding amounts and the
employee may not sell or transfer the shares prior to settlement of
the amounts outstanding.
All loans to directors and officers of the company are full recourse
loans
d) Directors, of various subsidiary companies, have advances owing to the
Group as at March 31, 2000 totaling $182,501. In all cases these
Directors were shareholders of the subsidiary prior to acquisition by
Brocker Technology Group (NZ) Limited. No interest is charged on the
amounts outstanding and the balance is included in other receivables.
e) During the year to March 31, 2000 payments of $39,186 have been made
to Chamberlain Hutchison the Company's Canadian based legal advisor.
During the year Andrew Chamberlain, a Principal/Partner of Chamberlain
Hutchison, was appointed a Director of the Company.
f) A number of Group companies transact business with each other on a
regular basis. These transactions are entered into on normal
commercial terms and are eliminated on consolidation. See Note 13 for
Inrersegment revenues.
Unless otherwise stated the maximum amount outstanding during the year was
the balance at March 31, 2000 or March 31, 1999.
40
<PAGE>
Brocker Technology Group Ltd
Notes to Consolidated Financial Statements continued
for the years ended March 31, 2000 and 1999
12. EMPLOYEE SHARE OWNERSHIP PLAN
In November 1996 the Company established a plan to enable a number of
senior management employees to acquire stock options in the Company.
Brocker Technology Group (NZ) Limited has provided financial assistance to
some of these employees to exercise the options offered.
The loan to each employee is repayable on demand or within 30 days of the
individual ceasing to be an employee of the Company or one of its
subsidiaries. The beneficial ownership of the shares are held as security
over the loan, and the Company retains the right to either sell or cancel
the shares to settle any outstanding amounts and the employee may not sell
or transfer the shares prior to settlement of the amounts outstanding.
As at March 31, 2000 the amounts outstanding in respect of these shares
amounted to $86,939 ($84,297, 1999) and is included within other
receivables. Interest of $11,167 ($13,729, 1999) was charged on these loans
during the year. The current market value of the shares held as security is
in excess of $2.35 million ($600,000, 1999).
The maximum amount outstanding during the year was $86,939 ($130,855, 1999)
13. SEGMENTED OPERATIONS
The Group operates in two geographical segments, New Zealand and Australia.
The Canadian operations shown relate to administrative items only.
The reporting of all business segments is consistent with those reported in
the prior year, including Vendor Services and Application Hosting which
have been renamed to better reflect the operations of the segments.
<TABLE>
<CAPTION>
2000 ($) Canada New Zealand Australia Total
--------------------------------------------------------
<S> <C> <C> <C> <C>
Sales -- 86,851,142 49,471,791 136,322,933
Intersegment revenue -- -- -- --
Net profit/(loss) -- (1,000,852) 571,824 (429,028)
Depreciation and amortisation -- 1,615,994 166,489 1,782,483
Net interest expense (67,056) 948,337 241,305 1,122,586
Identifiable assets 6,796,721 42,633,492 12,098,342 61,528,555
Capital asset expenditure -- 936,416 150,464 1,086,880
--------------------------------------------------------
<CAPTION>
2000 ($) Canada New Zealand Australia Total
--------------------------------------------------------
<S> <C> <C> <C> <C>
Sales -- 109,887,630 23,415,010 133,302,640
Intersegment revenue -- 18,058 (18,058) --
Net profir/(loss) -- 204,103 310,711 514,814
Depreciation and amortisation -- 1,894,449 116,254 2,010,703
Net interest expense -- 1,270,935 138,252 1,409,187
Identifiable assets -- 41,473,664 9,269,733 50,743,397
Capital asset expenditure -- 4,349,113 324,768 4,673,881
--------------------------------------------------------
</TABLE>
41
<PAGE>
Brocker Technology Group Ltd
Notes to Consolidated Financial Statements continued
for the years ended March 31, 2000 and 1999
13. SEGMENTED OPERATIONS (Continued]
The Group principally operates in four industry segments, being the
divisions by which the Group is managed, as follows:
o Distribution and sale of computer and telecommunications hardware and
software ("Vendor Services");
o The hosting of client hardware and software services including the
provision of technical support and services for the Technology
Industry ("Application Hosting");
o Software application design and development ("Application
Development"); and
o Provision of professional consulting services ("Professional
Services").
The corporate services operation shown relates to the Group's
administrative functions in New Zealand, Australia, and Canada.
<TABLE>
<CAPTION>
2000 ($) Vendor Application Application Professional Corporate Total
Services Hosting Development Services Services
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales 126,697,563 2,687,771 1,406,155 5,528,550 2,901 136,322,940
Intersegment revenue 673,636 (44,729) (6,470) (622,437) -- --
Net profit/(loss) 1,814,532 (154,154) (1,108,803) (664,677) (315,926) (429,028)
Depreciation and
amortisation 142,913 50,341 552,218 366,206 670,805 1,782,483
Net interest expense 803,957 43,118 319,984 165,278 (209,751) 1,122,586
Identifiable assets 39,882,005 667,427 1,536,333 2,193,936 17,248,854 61,528,555
Capital asset expenditure 81,880 43,455 9,326 548,342 403,877 1,086,880
-------------------------------------------------------------------------------------------------------------------------
1999 ($) Vendor Application Application Professional Corporate Total
Services Hosting Development Services Services
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales 124,995,192 2,661,745 2,124,378 3,519,855 1,470 133,302,640
Intersegment revenue 465,306 (38,691) (62,525) (364,090) -- --
Net profit/(loss) 3,137,297 54,278 (407,056) (65,010) (2,204,695) 514,814
Depreciation and
amortisation 1,257,971 82,843 330,630 37,252 302,007 2,010,703
Net interest expense 1,206,905 33,225 126,465 8,651 33,941 1,409,187
Identifiable assets 49,787,311 532,667 189,390 1,100,084 (866,055) 50,743,397
Capital asset expenditure 835,810 185,184 170,388 126,934 3,355,565 4,673,881
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
During 2000 the group conducted business with a single customer that
accounted for revenue of $23,098,677 ($23,792,150, 1999). This revenue was
generated in New Zealand by the Vendor Services segment.
42
<PAGE>
Brocker Technology Group Ltd
Notes to Consolidated Financial Statements continued
for the years ended March 31, 2000 and 1999
14. NOTES TO CASH FLOWS STATEMENT
a) Reconciliation of net profit and cash flow from operating activities
<TABLE>
<CAPTION>
Note 2000 1999
$ $
<S> <C> <C> <C>
Net Earnings for the year (429,028) 514,814
Add/(Less) non cash items:
Depreciation and amortisation 1,782,483 1,273,748
Depreciation on rental finance liability 7 -- 736,955
Interest on rental finance liability 7 -- 173,555
Income on rental finance liability 7 -- (910,550)
Loss of associated company 83,180 91,330
Loss on sale of capital assets 443,038 78,808
Future taxation expense (20,599) 92,611
Unrealised exchange (gain)/loss (22,665)
Impact of changes in working capital items:
Decrease/(Increase) in accounts receivable and
prepayments 474,427 (8,913,357)
Increase in taxation receivable (236,427) (456,569)
Increase in inventories (6,144,101) (5,448,644)
(Decrease )/Increase in accounts payable,
financing facility and accrued liabilities (1,435,425) 15,771,607
---------------------------------
Net cash flow from operating activities (5,482,452) 2,981,643
=================================
</TABLE>
15. FINANCIAL INSTRUMENTS
Currency Risk
The nature of activities and management policies with respect to financial
instruments are as follows:
i) Currency
The Group uses a very limited number of forward exchange contracts and
currency options to hedge purchases of inventory in foreign
currencies. The Group's exchange rate commitments are intended to
minimise the exposure to exchange rate movement risk on the cost of
the Group's products and on the price it is able to sell those
products to its customers. The Group does not use foreign exchange
instruments for trading or any other purpose.
No forward exchange contracts were entered into during the current
financial year (nil, 1999).
ii) Concentration of credit risk
In the normal course of business, the Group incurs credit risk from
trade debtors and transactions with financial institutions. The Group
has a credit policy which is used to manage the risk. As part of this
policy, limits on exposure with counterparties have been set and are
monitored on a regular basis. Anticipated bad debt losses have been
provided for in the allowance for doubtful accounts.
43
<PAGE>
Brocker Technology Group Ltd
Notes to Consolidated Financial Statements continued
for the years ended March 31, 2000 and 1999
15. FINANCIAL INSTRUMENTS continued
The Group has no significant concentrations of credit risk. The Group does
not consider that they require any collateral or security to support
financial instruments due to the quality of financial institutions and
trade debtors.
iii) Interest Rate Risk
The Group has adopted a policy of ensuring that its exposure to changes in
interest rates is on a floating rate basis.
iv) Fair Values
The fair values of the Group's cash accounts and other receivables, bank,
indebtedness, accounts payable, accrued liabilities and lease obligations
approximate their carrying values given their short term nature. The
carrying value of the demand debenture and capital leases, as disclosed in
note 8, also approximate their fair value.
16. COMMITMENTS
a) Brocker Technology Group (NZ) Limited has entered into a number of
acquisitions where the final acquisition price is dependent on the
occurrence of future events. This contingent purchase price is
calculated based on cash flow earned for a given period, and is
settled by way of shares issued but held in escrow.
Shares are released from escrow based on cash flows, as defined with
each party, earned by the subsidiary over a varying number of years
following acquisition, being the "earn-out" period.
44
<PAGE>
Brocker Technology Group Ltd
Notes to Consolidated Financial Statements continued
for the years ended March 31, 2000 and 1999
16. COMMITMENTS (Continued)
As at March 31, 2000 the following earn-outs were in existence.
Subsidiary Acquisition price and earn-out provisions
-------------------------------------------------------------------------------
Industrial Communications Service Maximum purchase price established and
Limited shares issued and held in escrow (refer
Note 9). Earn-out based on defined cash
flowearned in financial years ended
March 31, 1998 - 1999.
It is not currently envisaged that any
shares currently held in escrow will be
released in relation to this acquisition.
-------------------------------------------------------------------------------
Powercall Technologies Limited Shares to be held in escrow based on the
lessor of four times the cumulative cash
flow earned for the years ended March 31,
1998 to 2001 or twelve times profit for
the year ended March 31, 2001, limited to
NZ$20m. Earn-out based on defined cash
flow earned in financial years ended March
31, 1998 - 2002.
-------------------------------------------------------------------------------
Easy PC Computer Rentals Limited Shares to be held in escrow based on cash
flow earned for the year ended March 31,
1998. Earn-out based on defined cash flow
earned in financial years ended March 31,
1999 - 2000.
It is not envisaged any additional shares
will be issued in relation to this
acquisition.
-------------------------------------------------------------------------------
Pritech Corporation Limited Shares to be held in escrow based on cash
flow earned for the year ended September
30, 1998. Earn-out based on defined cash
flow earned in financial years ended
September 30,1999 -2000 (Note 3).
It is not envisaged any additional shares
will be issued in relation to this
acquisition.
-------------------------------------------------------------------------------
1 World Systems Limited Shares to be held in escrow based on
cash flow earned for the year ended March
31, 1999. Earn-out based on defined cash
flow earned in financial years ended March
31, 2001 - 2002 (Note 3).
-------------------------------------------------------------------------------
Based on the latest available information, the directors have estimated
that the maximum number of shares that could potentially be issued,
including those currently in escrow, under the earn-out agreements referred
to in Note 3 and above, is 2.0 million common shares. The number of shares
that will ultimately be issued is dependent upon the subsidiaries concerned
achieving their respective earn-out criteria.
b) Group companies operate from leased premises and have other obligations
under operating leases requiring annual repayments as follows:
2001 $931,008
2002 $806,187
2003 $664,788
Thereafter $821,989
45
<PAGE>
Brocker Technology Group Ltd
Notes to Consolidated Financial Statements continued
for the years ended March 31, 2000 and 1999
17. CONTINGENT LIABILITIES
In the general course of business disputes may arise with customers and
other third parties. The Directors consider adequate provision has been
made for all such instances.
18. SUBSEQUENT EVENTS
On June 13, 2000 the Company filed its registration document, form 20-F,
with the United States Securities and Exchange Commission as part of its
process to obtain a NASDAQ listing.
46
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Market Information Legal Counsel - Canada
The Company's common stock is Chamberlain Hutchison
traded on the Toronto Stock 1310 Merrill Lynch Tower
Exchange under the symbol BKL, 10205 - 101 Street
and on NASDAQ, under the symbol BTGL. Edmonton, Alberta TSJ 2Z2
Legal Counsel - USA
Corporate Headquarters Joe Ehrenreich
Ehrenreich Eilenberg & Krause LLP
Canada 17th Floor, 11 East 44,
Brocker Technology Group Ltd New York, NY, 10017
2150 Scotia Place
Tower One, 10060 Jasper Avenue Transfer Agent
Edmonton, Alberta T5J 3R8 Montreal Trust Company of Canada
Canada 600, 530 8th Avenue, S.W, Calgary Alberta
Phone (+1)780 429 1010 Canada T2P 3S8.
Independent Auditors
New Zealand KPMG
Brocker Technology Group (New Zealand) Ltd. KPMG Centre
17 Kahika Rd 9 Princes Street
Beach Haven Auckland
Auckland New Zealand
PO Box 99-222
Auckland For more information
New Zealand For more information please contact Investor
Phone (+64) 9 481 9988 Relations, Brocker Technology Group Ltd.,
3333 - 23 Street N.E, Calgary, Alberta T2E 6V8 or
Australia telephone 1 800 299 7823.
Brocker Technology Group (Australia) Ltd.
Unit 8 Web Site
12 Mars Road www.brockergroup.com
Lane Cove
Sydney
Phone (+61) 2 9425 7777
</TABLE>
47
