BROCKER TECHNOLOGY GROUP LTD
FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000
<PAGE>
BROCKER TECHNOLOGY GROUP LTD
CONSOLIDATED BALANCE SHEETS
AS AT SEPTEMBER 30, 2000 AND 1999
2000 1999
$ $
ASSETS
Current Assets
Cash 3,809,383 194,753
Accounts receivable 18,321,068 21,401,823
Other receivables 1,584,244 1,798,862
Inventories 16,725,768 20,236,470
Prepaid expenses and deposits 67,740 1,056,381
Income taxes recoverable 679,628 643,366
Future tax asset 1,000,342 314,162
----------- -----------
42,188,173 45,645,817
Deferred Development Costs 1,615,855 1,144,474
Capital Assets 4,728,765 5,255,550
Investment in Associated Company 818,244 678,128
Goodwill 3,081,383 1,635,115
----------- -----------
52,432,420 54,359,084
=========== ===========
LIABILITIES
Current Liabilities
Accounts payable 18,015,431 35,761,670
Accrued liabilities 2,774,019 1,939,153
Taxation Payable 406,034 0
Financing Facility 9,783,441 7,028,684
Current portion of long-term debt 184,135 198,353
----------- -----------
31,163,060 44,927,860
Long -Term Debt 1,510,353 2,070,224
Future Tax Liability 74,355
----------- -----------
32,747,768 46,998,084
SHAREHOLDERS' EQUITY
Share Capital 23,395,504 6,906,721
Foreign Currency Translation Reserve (3,974,938) (1,104,541)
Retained Earnings 264,086 1,558,820
----------- -----------
19,684,652 7,361,000
----------- -----------
52,432,420 54,359,084
=========== ===========
Signed on behalf of the Board
--------------------------------- ---------------------------------
Director Director
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BROCKER TECHNOLOGY GROUP LTD
CONSOLIDATED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
2000 1999
$ $
Revenue 55,059,484 74,233,131
Cost of Goods Sold 48,091,144 64,667,335
----------- -----------
Gross Margin 6,968,340 9,565,796
12.66% 12.89%
Operating Expenses
Depreciation and amortisation 702,710 765,675
Net interest expense 338,695 544,347
Salaries and commissions 4,237,500 4,950,463
Other operating expenses 2,891,181 3,384,553
----------- -----------
Total operating expenses 8,170,086 9,645,038
14.84% 12.99%
----------- -----------
Operating Income (1,201,746) (79,242)
Equity accounted losses of associated company 13,930 45,720
----------- -----------
Income before Income Tax Provision (1,215,676) (124,962)
Income Tax Provision 354,801 22,950
----------- -----------
Net Earnings for the period (860,875) (147,912)
=========== ===========
Earnings Per Common Share (0.06) (0.05)
=========== ===========
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BROCKER TECHNOLOGY GROUP LTD
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
2000 1999
$ $
Retained Earnings, Beginning of the period 1,124,961 1,706,732
Net Earnings for the period (860,875) (147,912)
Discount on redemption of preferred shares -- --
Preferred dividends paid -- --
---------- ----------
Retained Earnings, End of the period 264,086 1,558,820
========== ==========
BROCKER TECHNOLOGY GROUP LTD
MOVEMENTS IN FOREIGN CURRENCY TRANSLATION RESERVE
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
2000 1999
$ $
Beginning of the period (1,745,415) (799,084)
Difference arising on the translation of
foreign operations (2,229,523) (305,457)
---------- ----------
End of the period (3,974,938) (1,104,541)
========== ==========
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BROCKER TECHNOLOGY GROUP LTD
CONSOLIDATED CASH FLOW STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
$ $
<S> <C> <C>
Cash flows from operating activities
Receipts from customers 54,071,915 74,299,551
Payments to suppliers and employees (57,613,504) (73,795,105)
Interest paid (338,695) (544,347)
Taxation refunded 10,169 (155,278)
----------- -----------
Cash flows from operating activities (3,870,115) (195,179)
Cash flows from investing activities
Proceeds from the sale/(purchase) of Fixed Assets 30,789 0
Purchase of capital assets (536,182) (396,978)
Investment in associated company (88,222) (147,098)
Acquistion of subsidiaries (206,291) (33,831)
----------- -----------
Cash flows from investing activities (799,906) (577,907)
Cash flows from financing activities
Proceeds from shares, options and warrants issued and exercised 202,837 1,145,000
Repayment of mortgage principle (164,096) (124,267)
----------- -----------
Cash flows from financing activities 38,741 1,020,733
----------- -----------
Net Increase in cash equivalents (4,631,280) 247,647
Cash at the beginning of the year 8,637,357 (55,433)
Translation of cash equivalents to reporting currency (196,696) 2,539
----------- -----------
Cash at the End of the period 3,809,381 194,753
=========== ===========
</TABLE>
<PAGE>
BROCKER TECHNOLOGY GROUP LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 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.
On August 21, 2000 the company additionally listed on the NASDAQ 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, all of which are consolidated
using the purchase method, are as follows:
Brocker Technology Group (NZ) Limited
Brocker Technology Group (Australia) Pty Limited formerly (Brocker
Investments (Australia) Pty Limited)
Brocker Financial Limited
Easy PC Computer Rentals Limited
Image Craft Australia Pty Limited
Industrial Communications Service Limited
Powercall Technologies Limited
Pritech Australia Pty Limited
Brocker Professional Services Limited (formerly Pritech Corporation
Limited)
Pritech Corporation Limited
Brocker Online Services Limited
Sealcorp Australia Pty Limited
Sealcorp Computer Products Limited
Sealcorp Telecommunications Group Limited
1World Systems Limited
Tech Support Limited
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.
At September 1, 2000 Certus Project Consulting Limted was purchased and
renamed Broker Professional Services Limited.
During the 1998 Brocker Technology Group Ltd took a 20% founding
shareholding in Highway Technologies Limited. This investment has been
recorded using the equity method.
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
goodwill is recognised until the final acquisition price can be reasonably
determined.
<PAGE>
BROCKER TECHNOLOGY GROUP LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
2 SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 period for items
included in the statement of earnings, period 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.
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 - 40%
Plant and Equipment 20 - 26%
Leasehold improvements 1 to 4 years
Computer hardware held for rental 2 to 3 years
f) Revenue recognition
The Company earns substantially all of its revenue for 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 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.
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BROCKER TECHNOLOGY GROUP LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
2 SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 on the assumptioin that all vested options 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 option is not determined or recorded. Any consideration
received on the exercise of the stock option 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.
3 ACQUISITIONS
During the period the company purchased the assets of Communica Limited for
a consideration of NZ$368,732. Communica Limited is involved in the
provision of Toll and Cellular Services to its customers.
During the period the company purchased the assets of Certus Project
Consulting Limited ("Certus") for a maximum consideration $1,542,250.
Certus is involved in the provision of Information Technology and
Telecommunications Management Consulting. The maximum purchase price
payable is to be based on the lesser of 1.5 times the sales revenue of
Certus for the fiscal year ended August 31, 2000 or 21.72 times the net
profit before tax in the same period, subject to a maximum price of
approximately $1,542,250 and will settled by issuing shares at $7.00. As at
September 30, 2000 these shares have been categorised as "To be issued"
(Note 8).
4 CAPITAL ASSETS
During the 1998 Brocker Investments (NZ) Limited have acquired new premises
in Auckland, New Zealand. The $2.350M purchase price of this property has
been settled by way of mortgage finance of $2,103,000
5 DEFERRED DEVELOPMENT COSTS
As at September 30, 2000 development costs of $1,615,855 have been
capitalised. These costs principally relate to the development of software
applications.
6 INVESTMENT IN ASSOCIATED COMPANY
During 1998 Brocker Investments (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.
In addition to the investment, Brocker Technolgy Group (NZ) Limited has
entered an agreement to loan Highway Technologies Limited funds during the
Company's establishment phase up to a maximum of NZ$1,500,000. Interest is
payable on these funds at 30% per annum. As at September 30, 2000 amounts
advanced to Highway Technologies Limited amounted to NZ$1,481,925
<PAGE>
BROCKER TECHNOLOGY GROUP LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
7 INDEBTEDNESS
(a) The components of indebtedness are follows
Mortgage finance liability 1,616,169
Less current portion (152,302)
-----------
1,463,867
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. 35,136
Less current portion (31,833)
-----------
3,303
===========
An unsecured term liability repayable in New Zealand dollars 43,183
-----------
1,510,353
===========
(b) During the year ended March 31, 2000 Sealcorp Computer Products Limited,
Sealcorp Telecommunications Group Limited and Selacorp Australia Pty
Limited (all subsidiaries of the company) have successfully renegotiated
their financing arrangements. A new $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
7.15%.
8 SHARE CAPITAL
Authorised
Unlimited number of common shares
Unlimited number of Preferred Shares
10,000,000 Series A Preferred Shares 6 1/2% cumulative
Issued and outstanding 2000 1999
$ $
Common shares 23,455,772 5,339,125
Series A Preferred -- 1,609,365
Shares to be issued 1,922,941 --
Less: Share issue costs (1,983,209) (41,769)
----------- -----------
23,395,504 6,906,721
As at September 30, 2000 1,015,421 shares are being held in escrow pursuant
to Escrow Agreements which provide for the release of such shares on a
performance basis.
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BROCKER TECHNOLOGY GROUP LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Earnings Per Common Share
Earnings per share has been calculated on the basis of the weighted average
number of common shares outstanding for the period.
2000
Weigthed average number of shares 18,282,131
Net Profit after tax (860,875)
----------
Basic Earnings per share ($0.05)
==========
For the current quarter and previous financial year the effect on earnings per
share of the exercise of outstanding options and conversion of prefered shares,
for the calculation of fully diluted earnings per share, is anti-dilutive.
9. SEGMENTAL OPERATIONS
The group operates in two geographical segments, New Zealand and Australia. The
Canadian opertaions shown relate to administrative items only.
The reporting of business segments is consistent with those reported in the
prior year, including Vendor Services and Application Hosting which have been
renamed to better reflect the opertaions of the segments.
<TABLE>
<CAPTION>
2000 ($) Canada New Zealand Australia Total
<S> <C> <C> <C> <C>
Sales -- 43,597,016 11,462,468 55,059,484
Net Profit /(loss) -- (960,208) 99,333 (860,875)
Depreciation & amortisation -- 619,418 83,292 702,710
Net Interest Expense (75,300) 267,912 146,083 338,695
Identifiable Assets 11,533,430 33,409,478 7,489,512 52,432,420
Capital Asset Expenditure -- 463,299 72,883 536,182
</TABLE>
The Group principally operates in four industry segments, being divisons by
which the Group is managed, as follows:
* Distribution and sale of computer and telecommunicatioins hardware and
software ("Vendor Services")
* The hosting of client hardware and software services including technical
support and services for the Technology Industry ("Online Services")
* Software application design and development ("Application Development")
* 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 ($) Professional Online Application Corporate
Services Services Development Vendor Services Services Total
<S> <C> <C> <C> <C> <C> <C>
Sales 2,720,864 464,833 61,189 51,782,450 30,148 55,059,484
Intersegment Revenue (35,030) 14,235 -- 140,145 (119,350) --
Net Profit /(loss) 24,376 (290,410) (548,877) (58,306) 12,342 (860,875)
Depreciation & amortisation 33,654 50,011 51,302 242,461 325,282 702,710
Net Interest Expense 37,749 110,464 25,189 458,084 (292,791) 338,695
Identifiable Assets 1,126,931 (520,987) 477,098 26,159,785 25,189,593 52,432,420
Capital Asset Expenditure 13,695 28,592 -- 137,283 356,612 536,182
</TABLE>
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BROCKER TECHNOLOGY GROUP LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
10. SUBSEQUENT EVENTS
Subsequent to the end of the period the company has completed and signed a
formal agreement to acquire the Generic Technology Group, the private holding
company of the Datec Group ("Datec") which is a leading developer and marketer
of information technology , and a major telecommunications and network
management consulting firm. The company will pay $19,911,00 to purchase the
Group with an initial issue of 1,393,770 common shares (deemed value of $10 per
share) plus a cash payment to of $1,493,325. The balance of $4,479,975 is to be
paid in four installlments, with the last payment due June 30, 2003.
Subsequent to the end of the period the company has completed and signed a Heads
of Agreement (Letter of Intent) to acquire the KyxPyx Technologies Incorporated,
which has developed a multi-channeled media streaming system based on the
company's proprietary technology.
