UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM 20-F
(MARK ONE)
[X] REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR (G) OF THE SECURITIES
EXCHANGE ACT OF 1934 OR
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _______________
COMMISSION FILE NUMBER ____________
BROCKER TECHNOLOGY GROUP LTD.
(Exact Name of Registrant as specified in its charter)
Alberta, Canada
(Jurisdiction of incorporation or organization)
2150 Scotia One, 10060 Jasper Avenue,
Edmonton, Alberta T5J 3R8
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Class Name of Exchange
None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
None
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report:
As at May 19, 2000, 15,414,045 shares of no par value Common Stock
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[ ] Yes [X] No
Indicate by check mark which financial statement item the registrant has elected
to follow:
[X] Item 17 [ ] Item 18
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Brocker Technology Group Ltd.,
an Alberta corporation
Index to Form 20-F Registration Statement
Page
----
General Introduction 3
Part I
1. Description of Business 4
2. Description of Property 11
3. Legal Proceedings 12
4. Control of Registrant 12
5. Nature of Trading Market 13
6. Exchange of Controls and Other Limitations Affecting Security Holders 13
7. Taxation 14
8. Selected Historical Consolidated Financial Information and Other Data 14
9. Management's Discussion and Analysis of Financial Condition and
Results of Operations 16
9A. Quantitative and Qualitative Disclosures About Market Risk 23
10. Management 24
11. Compensation of Directors and Officers 26
12. Options to Purchase Securities from Registrant or Subsidiaries 26
13. Interest of Management in Certain Transactions 27
Part II
14. Description of Securities to be Registered 28
Part III
15. Default Upon Senior Securities 32
16. Changes in Securities and Changes in Securities for Registered
Securities 32
Part IV
17. Financial Statements 32
18. Financial Statements 32
19. Financial Statements and Exhibits 32
19(a) Index to Financial Statements F-1 through F-43
Financial Statements
19(b) Index to Exhibits E-1 through E-752
Exhibits
Signatures 35
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===============================================================================
GENERAL INTRODUCTION
This Registration Statement on Form 20-F ("Form 20-F") specifies certain
forward-looking statements of us within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Forward-looking statements are statements that estimate the happening of future
events that are not based on historical fact. Forward-looking statements may be
identified by the use of forward-looking terminology, such as "may", "shall",
"will", "could", "expect", "estimate", "anticipate", "predict", "probable",
"possible", "should", "continue", or similar terms, variations of those terms or
the negative of those terms. The forward-looking statements specified in this
Form 20-F have been compiled by us on the basis of assumptions made by us and
considered by us to be reasonable. Our future operating results, however, are
impossible to predict and no representation, guaranty, or warranty is to be
inferred from those forward-looking statements. All information regarding our
expected future financial situation, results of operations, cash flows,
financing plans, business strategy, budgets, projected costs and capital
expenditures, competitive situations, growth opportunities, plans and our
objectives for future operations are forward-looking statements. Those
forward-looking statements are inherently uncertain, and our actual future
results and trends may differ materially depending on a variety of factors.
Factors that may affect our plans or results include, without limitation, sales
to customers, actions by competitors, fluctuations in the prices of raw
materials, foreign currency exchange rates, and political and economic
instability in our markets.
The assumptions used for purposes of the forward-looking statements specified in
this Form 20-F represent estimates of future events and are subject to
uncertainty as to possible changes in economic, legislative, industry, and other
circumstances. As a result, the identification and interpretation of data and
other information and their use in developing and selecting assumptions from and
among reasonable alternatives require the exercise of judgment. To the extent
that the assumed events do not occur, the outcome may vary substantially from
anticipated or projected results, and, accordingly, we express no opinion
regarding the achievability of those forward-looking statements. In addition,
those forward-looking statements have been compiled as of the date of this Form
20-F and should be evaluated with consideration of any changes occurring after
the date of this Form 20-F. We can't give any assurance that any of the
assumptions relating to those forward-looking statements are accurate.
We maintain our books and records in Canadian Dollars while our subsidiaries
maintain their books and records in New Zealand or Australian Dollars, as
appropriate, which are then translated to Canadian Dollars. Except as otherwise
specified in this Form 20-F, all monetary amounts specified in this Form 20-F
have been presented in Canadian Dollars. We have prepared our consolidated
financial statements contained in this Form 20-F in accordance with generally
accepted accounting principles in Canada. See "Report of Independent Auditors"
and "Consolidated Financial Statements." All information should be considered in
conjunction with our consolidated financial statements and the notes contained
elsewhere in this Form 20-F.
We were incorporated pursuant to the laws of Alberta, Canada, and certain of our
officers and directors reside outside of the United States. In addition, the
majority of our assets are located outside of the United States, in Canada,
Australia and New Zealand. As a result, it may be difficult for investors to
effect service of process within the United States against us or those officers
and directors or to enforce in the United States any court judgments obtained
against us or those officers and directors and predicated upon the civil
liability provisions of the federal securities laws of the United States. Also,
as a substantial portion of our assets are located outside of the United States
and Canada, any judgment obtained in the United States against us may not be
collectible within the United States or Canada. Canadian courts may enforce
judgments of United States courts in civil matters subject to certain conditions
and exceptions. Also, it may be difficult for investors to obtain and enforce
judgments of Canadian courts based upon the federal securities laws of the
United States.
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ITEM 1. DESCRIPTION OF BUSINESS
Our Background. Brocker Technology Group Ltd., is an Alberta corporation
("Company") and was incorporated on November 23, 1993, as Brocker Investments
Ltd. On December 3, 1998, the Company changed its name to Brocker Technology
Group Ltd. The Company has been listed for trading on the Toronto Stock Exchange
since February 28, 1998. From August 9, 1994 until February 28, 1998, the
Company's shares were listed for trading on the Alberta Stock Exchange.
Overview of Our Industry. The products and services of our subsidiaries are sold
to the Information Technology and Telecommunications ("IT&T") industry in both
Australia and New Zealand. We believe that the IT&T industry is one of the
fastest growing industries in Australia and New Zealand. In Australia, the IT&T
industry's total revenues in 1998 were approximately AU$34 billion, which ranks
it as Australia's third largest industry. In New Zealand, the IT&T industry's
total revenues in 1998 were approximately NZ$6.6 billion, which represents
approximately seven percent (7%) of New Zealand's Gross Domestic Product. The
IT&T industry provides solutions to customers' computer software and hardware
problems, in addition to solutions to customers' telecommunications problems.
IT&T industry products include computer hardware, such as computer network
servers and desktop computers and software, such as Microsoft Windows and Office
products. Telecommunication products include telephone systems, voice mail
systems, cellular phone systems and facsimile systems.
Our Business. We are a provider of technology-related products and services to
the IT&T industries of New Zealand, Australia and North America. Our principal
business activities include (i) the development and sale of technology products,
technology-related services and telecommunications products and services, (ii)
distribution In New Zealand and Australia of technology and telecommunications
products developed and manufactured by third parties. We are currently
developing intellectual property for use in electronic commerce ("e-commerce")
in order to provide Internet based products and services. We believe that
changes in the economic and business environments of the Australian and New
Zealand markets and the rapid evolution and adoption of the Internet and
Internet technologies should enable us to reduce our reliance on the physical
distribution of third party products and increase our development and sale of
e-commerce products. We are investing in hardware, software and training to
build the infrastructure to accommodate the development and growth of our
business.
Our Internet Enterprise Suite. We are developing the Internet Enterprise Suite
("IE Suite"), an Internet based e-commerce system designed to meet the needs of
medium to large corporations. The IE Suite centralizes all functions of sales
and marketing. The IE Suite supports electronic transactions between the
corporation and its customers while storing the customers' profiles and product
preferences into a secure database. The IE Suite will allow sales and marketing
professionals to remotely access sales and marketing information, including
product information, inventory data, account information and product orders. We
anticipate that the IE Suite will encompass a number of the software products
and applications that have been produced by our operating groups.
Our Operating Groups. From our inception in November 1993, we have been
acquiring and managing businesses in the IT&T industries of New Zealand,
Australia and North America. We actively manage the individual businesses within
these operating groups by two wholly-owned holding corporations, Brocker
Technology Group (NZ) Limited (formerly Brocker Investments (NZ) Limited)
("Brocker NZ") and Brocker Investments (Australia) Proprietary Limited ("Brocker
Australia"). We have concentrated our technology-related business services in
distinct operating groups composed of the Application Hosting Group, the
Application Development Group, the Professional Services Group and the Vendor
Services Group. The operating groups utilize our centralized business
infrastructure for distribution and logistics, finance, human resource and
marketing functions.
Our Vendor Services Group includes SealCorp Computer Products Limited ("SealCorp
New Zealand"), SealCorp Telecommunications Group Limited ("STG"), 1World Systems
Limited (formerly Microchannel Limited) ("1World") and SealCorp Australia
Proprietary Limited ("SealCorp Australia"). Our Application Hosting Group is
responsible for the sales and marketing of our intellectual property products,
with such products available as Supersession, Full 360 Degrees Feedback,
Powerphone, Bloodhound and products developed by Image Craft
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Limited ("Imagecraft"). Our Application Development Group includes Industrial
Communications Service Limited ("ICS"), Powercall Technologies Limited
("Powercall"), Highway Technologies Limited ("Highway Technologies") and Tech
Support Limited ("Tech Support"). Our Professional Services Group includes
EasyPC Computer Rentals Limited ("EasyPC"), Pritech Corporation Limited and
Pritech Australia Proprietary Limited (collectively "Pritech"), Brocker
Financial Limited ("Brocker Financial") and Inprise New Zealand.
SealCorp New Zealand. SealCorp New Zealand was incorporated in 1987. SealCorp
New Zealand markets and distributes major brand computer software, computer
peripherals and computer hardware in New Zealand. SealCorp New Zealand has 25
employees.
SealCorp New Zealand's offices are located in Auckland, Wellington and
Christchurch. The Auckland premises, occupied in October, 1998, provides our
distribution partners with a distribution center, in addition to seminar and
training facilities for client presentations. The Wellington office is located
in Central Wellington and provides easy access to all parts of the central
region of New Zealand. The Christchurch office is located in the central
business district of the southern region of New Zealand.
SealCorp New Zealand is comprised of three operating business units, Channels
Technology Group, Vertical Markets Group and the Integration Solutions Group.
The Channels Technology Group markets Acer, Canon, Compaq, Connectix, Digital
Networks, Exbyte and Symantec products to computer resellers and retail chains
and outlets. Those products are generally used by small to medium-sized
enterprises, small office, and home office customers.
The Vertical Markets Group provides software to specialized markets and
consultants who promote software, hardware and peripherals using various
distributors. This software is generally used by imaging, multi media,
publishing and computer-aided design companies, application developers and
programmers. The brands marketed are Agfa, Autodesk, Dantz, NEC, PK Electronics
and Quark.
SealCorp's Integration Solutions Group resulted from the acquisition in October,
1995, of Technicom, a networking and communication corporation. This group
provides software to the government and free enterprise markets. The brands
provided by this group are Digi, Hitachi, IBM, Intel, IT Director, Lotus, NCD,
Novell and Shiva. This software is generally used by remote access, groupware,
enterprise and operation system solutions technology.
STG. STG supplies cellular mobile phones, cellular phone accessories, radio
pagers and other telecommunications products in New Zealand. STG provides
distribution and purchasing operations for Telecom New Zealand, in addition to
supplying cellular handsets to Telecom New Zealand for its consumers. This
business with Telecom New Zealand is secured by an agreement. Under this
agreement, we share the activities and risks normally associated with the
distribution of these products. We order and maintain inventory, carry out
marketing activities and initiate and complete sales. Telecom is required to
protect us against certain risks including inventory obsolescence and bad debts.
In accordance with the terms of our agreement, we are required to limit the
resulting margin that is lower than the typical margin in our industry. Telecom
New Zealand is the largest telecommunications carrier and market leader in all
aspects of telecommunication in New Zealand. STG is New Zealand's largest
telecommunications distributor and supplies cellular products from Ericsson,
Motorola, Nokia and Philips. STG has recently introduced an e-commerce business
which enables customers to place orders and obtain product information on the
Internet.
1World. 1World is the only distributor in New Zealand and the Pacific Islands
for Computer Associate's products, including the accounting software ACCPAC.
Since its introduction into the New Zealand financial software market in 1989,
ACCPAC has won a several industry awards. ACCPAC is distributed by specialized,
certified consultants. 1World offers qualified installer training, sales and
technical support, and marketing services. ACCPAC was one of the first financial
softwares available to organizations enabling them to automate their accounting
processes. Using continuing product development, ACCPAC has remained current
with industry developments and has developed strategic alliances to increase its
market presence. 1World acquired the
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distribution rights to Australia in January 1999, based on its prior performance
in New Zealand and it has a complete sales and support system to service
Australia.
SealCorp Australia. SealCorp Australia was incorporated in January 1992,
following the growth of SealCorp New Zealand. SealCorp Australia has 30
employees and has offices in Sydney, Melbourne and Brisbane. The Sydney Office
is located in North Ryde Sydney's North Shore, in an industrial area surrounded
by technology companies. This office provides sales, marketing, administration
and physical distribution for Australia. SealCorp's Melbourne office is
centrally located at 101 Collins St., in the IBM Building in South Gate, on the
banks of the Yarra River. The Brisbane office is located at 10 Hudson Road,
Albion, Queensland.
SealCorp Australia acquired Sourceware, a large national distributor of computer
software and peripherals, in April, 1996. Sourceware had operated since 1983,
and we believe that it has a reputation for superior technical support.
Sourceware merged its operations into SealCorp Australia, which resulted an
increased market presence and a strategic relationship with IBM.
In September 1996, we acquired The Great Escape Company ("TGE"), a computer
distribution and service company. This company was merged into SealCorp
Australia in January, 1997. TGE was the only distributor of Wyse products in
Australia. TGE also distributes products for other major vendors, including OKI,
Dataproducts, Link, and Specialix. With this acquisition, SealCorp Australia
acquired the resources required to service its products. SealCorp Australia
provides nation-wide warranty and repair facilities in Australia and is the Wyse
warranty agent and parts supplier for Australia. SealCorp Australia is also an
approved service center for OKI products and a servicer of third party products.
As a result of the consolidation of Sourceware and TGE with SealCorp Australia.
SealCorp Australia can now offer complete computer networking solutions for
distributors using relationships with vendors such as Novell, IBM, Lotus, WYSE,
OKI and Digi International. SealCorp Australia provides marketing and consulting
services for internetworking, remote access, multi-user connectivity, e-commerce
and Integrated Services Digital Network.
Early in 1998, we purchased 1World, a provider of remote computer access
technologies to graphic computer designer. The graphic designer market is
currently dominated by Apple computer resellers and we believe is best serviced
by distributors such as 1World. The relationships 1World brought to SealCorp
Australia are 4Sight, Sagem, Hermstedt, Harmonixs, Ascend, Shiva, Eicon, Netcomm
and Dlink. Early in 1999, ACCPAC software was added to this group. 1World is
operated as a separate sales division of SealCorp Australia and concentrates on
graphics design, agency and branch office communications and accounting
solutions.
In February 1999, we purchased certain assets of Q*Soft Australia Proprietary
Limited based in Brisbane, Queensland ("Q*Soft") and a leading distributor of
technology products. We believe that the acquisition of those assets now enables
SealCorp Australia to be a significant distributor with considerable geographic
coverage in Australia. Q*Soft concentrates on reseller distribution by service
agreements and is operated as a separate sales division of SealCorp Australia.
ICS. ICS was established in 1978, as a provider of special communications
systems and for the repair of electronic equipment. Now a wholly owned
subsidiary of the Company, ICS operates in two distinct areas.
ICS has standard telecommunications products marketed using the INDCOM name.
Whenever a customer has a requirement that is not adequately satisfied by
standard equipment, ICS modifies existing products or designs new products to
satisfy that requirement. ICS concentrates on product development using the
latest computer based design systems. Production is either performed by
specialist companies or the customer assists in establishing its production,
with ICS receiving royalties from that production.
With the introduction of cellular in New Zealand, ICS targeted the service of
cellular telephones. ICS is the largest independent service center for cellular
telephones. Certified to ISO9001 (the International Organization for
Standardization Certification that ICS has satisfied the global standards for
its industry), we actively manage processes to ensure continuous improvement of
service and delivery. After market repair is performed for cellular
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products developed by Motorola, Ericsson and Nokia. ICS has contracts with
Vodafone and Telecom to provide service to customers of their networks.
Our technical staff has significant experience with radio, cellular and
communications systems. Training of new and existing staff in new products is an
important aspect of our philosophy. The latest test equipment that has been
certified by the cellular phone manufacturers is used to ensure repairs satisfy
the strict standards of those manufacturers. All repaired products undergo
quality assurance tests before being returned to the customer.
Powercall. Powercall was formed to provide voice mail services. The emergence of
Computer Telephony Integration (CTI) enabled Powercall to improve its voicemail
services and products. The emergence of CTI has enabled us to become involved in
software development and software solutions for our customers. Powercall
concentrates on 3 aspects of operations, (1) CTI development; (2) automated
services with automated voice, fax and information applications; and (3) live
operator services. A combination of technological development and service allows
us to provide a comprehensive range of solutions and services which can be
customized according to each customer's individual requirements.
We concentrate on the development and delivery of CTI solutions, utilizing our
core products. Utilizing 5 years of design and development, specifically in the
area of CTI, these solutions combine the latest hardware with our intellectual
property. Our products allow our customers to manage and deliver information in
an effective manner. CTI solutions are designed to integrate fully with
computers and provide a complete communication system. Those solutions allow
delivery of all telephony requirements, such as how incoming calls are handled,
while reducing ongoing costs. Private Automatic Branch Exchange System ("PABX")
is a telephone system suitable for medium to large offices and capable of
handling thousands of extensions. In some situations, use of our CTI system will
replace the PABX system entirely. Our CTI solutions provide a business with
automated business processes which ensure that the customer's products and
services are completely integrated into our CTI solution.
In contrast to most other CTI solutions, our CTI solution is capable of
operating independently of (1) proprietary, expensive PABX technology; (2) other
types of PABX communication systems; and (3) specialist programmers, engineers
or technicians. Our CTI services include (1) standard voice mail; (2)
interactive television voting; (3) call accounting and credit management; and
(4) a complete and innovative information and booking service designed for the
tourism industry.
In addition to the automated services, our CTI services offer customers live
operator services with inbound and outbound telephone calls throughout New
Zealand. In addition to voice, facsimile and information services, we are
capable of managing the financial aspects of our customers' businesses involving
payment by check, credit card, telephone transactions and Internet payment
methodologies.
Powercall employs more than 55 persons in its five locations to deliver live
operator services, providing numerous services for various customers
simultaneously, utilizing our technology. These services include (1) sales
automation, such as appointment generation, telephone sales, etc.; (2)
information review utilizing Virtual NZ and customer surveys; and (3) direct
mail follow-up.
Image Craft. Image Craft specializes in the development of graphics software and
services. The major products which it distributes are (1) Pictrix, a digital
printing system (Pictrix is exclusively licensed to Hanimex in Australia and New
Zealand and enables the user to scan, import, manipulate and copy images to any
digital media and print these images in a variety of formats and allows for the
transmission of images via the Internet and intranet); and (2) Bluescreen, a
method which enables an image to be inserted into a background. Our Image Craft
services include (1) maintenance of a system for online storage and retrieval of
digital images; (2) digital watermark software; (3) software development; and
(4) creation of different products and services, including mass marketing
systems.
Highway Technologies. Highway Technologies is in the business of developing and
managing solutions for highway management. One example is an electronic system
for collecting road user charges for heavy vehicles to establish whether a new
system for collecting road user charges can improve economic efficiency. We
believe that
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technology will become increasingly important in managing road and highway
networks in the future. We believe Highway Technologies' newly developed Global
Position Satellite-based technology is capable of bringing highway management,
operation and funding into the 21st century. We own 20% of Highway Technologies.
Easy PC. EasyPC is a provider of innovative solutions for the financial
management and control of computer related products. Specializing in the leasing
and rental of IBM-compatible and Macintosh computers, printers and peripherals,
we believe that Easy-PC has become a leader with a reputation for exceptional
personal service, new approaches to off-balance sheet use of equipment, and
advanced asset management systems. We believe that Easy PC makes it easy for
business, government and domestic customers to access new and fast-changing
technology at affordable prices, without the risks associated with a purchase.
Easy PC is an authorized dealer in Compaq, Digital, Hewlett-Packard, Microsoft,
Lotus and WordPerfect products. Easy PC is the first rental company in New
Zealand authorized to supply leading software with Easy PC's rental equipment.
Pritech. We believe that Pritech is a leader in information management,
including software development, implementation and business intelligence,
particularly for the Intranet. The services and products that Pritech provides
include contract management, sales tracking, service management, project
communications, workflow management and human relations management. Incorporated
in 1988, Pritech has been providing consulting services and software development
for information management, especially project management. Pritech has worked
with more than 300 organizations, including major corporations and central and
regional governments. We believe that Pritech is unique, being the first New
Zealand corporation to employ Certified Lotus Notes Professionals and Certified
Lotus Notes Instructors. Pritech has been appointed as New Zealand's first Lotus
Notes Premium Partner, indicating Pritech's significant experience and
investment in Lotus's technology. We believe that Pritech has a significant
market share and provides quite profitable consulting services. Pritech has
offices in Auckland, Wellington, Sydney and Melbourne and employs a staff of 34
persons.
Inprise New Zealand. Inprise New Zealand is the exclusive distributor of the
Inprise products in New Zealand. Inprise New Zealand consults and provides
training for various businesses, using software applications developed by
Inprise Corporation. We believe that Inprise New Zealand is uniquely situated to
take advantage of future business information development, because we have
significant experience in providing similar services and products to a
significant number of different types of businesses, including banking, finance,
manufacturing, science, engineering and government.
Brocker Financial. Brocker Financial was incorporated in January 1999 and
concentrates on providing financial consulting services to large corporations
and governments. The three main areas of its business are (1) providing advice
for technically complex financial projects; (2) representing Internet businesses
active in the securities trading and financial services markets in New Zealand,
Australia and South East Asia; and (3) developing specialized financial software
for liabilities management.
Tech Support. We acquired Tech Support in 1999. Tech Support was established in
October 1996, and provides technical support for computer systems, with a
concentration on small to medium businesses and education providers. Tech
Support supports commercial customers and relies on professional and specialized
consultants, which are independent contractors, which have the skills to provide
specific technical requirements, including Microsoft NT, Novell Netware, and
Lotus Notes.
Products and Services
Supercession. Supercession is an Enterprise Resource Planning (ERP) software
system designed to improve business processes or replace aging business systems.
ERP provides "back-office" functions, such as order management, financial
management, warehousing, distribution production, quality control, asset
management and human resources management and "front-office" functions, such as
sales force and marketing automation, electronic commerce and supply chain
systems. ERP is often referred to as the entire "value chain" of a business,
from prospect and customer management through order fulfillment and delivery.
For medium to large businesses,
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Supercession establishes the initial ERP system, including e-commerce
capabilities, a web server, a database for gathering and storing information and
an object-based Common Object Request Broker Architecture (CORBA) server which
automates many common network programming tasks.
Full 360 Feedback. Full 360 Feedback is Internet based software providing
businesses with a management tool for their employees, as well as client
relations assessment. Feedback is electronically provided by those persons with
whom an employee regularly interacts. These people may include colleagues,
peers, managers, supervisors, suppliers and customers. The information received
can be analyzed to provide employees an understanding of their strengths and
areas for development. The information gathered from clients can be used for
market research and product development.
CMobile. CMobile is a service designed to improve operations of a mobile sales
force or contractor. The computer hardware is a Graphical User Interface touch
screen handheld device with communications links to clients, home offices and
suppliers. The software enables a sales force or mobile contractor to utilize
Internet based services for all aspects of business.
Pritech Extended Email Repository (PEER). PEER provides a method by which
selected incoming and outgoing correspondence is stored making the information
available to persons that could benefit by sharing that information. PEER stores
e-mail and facsimile information by client or supplier and other designated
categories. PEER is used with Lotus Notes, a software program developed by Lotus
Development Corporation, which is designed to manage information between
numerous persons.
Powerphone. PowerPhone combines a business' computer and telephone for improved
customer contact management. PowerPhone uses caller identification to
automatically show (i) the person calling; (ii) complete details of the person's
most contact with the business; (iii) a list of all previous contacts, including
emails and (iv) a prompt for new contact details. PowerPhone extends the
management capabilities of Microsoft Outlook, a Microsoft Office management
program, by allowing all network users to access information stored in the
database. The software component of Powerphone can be downloaded and licensed
via the Internet. ReMote, a remote version of Powerphone, will be available as a
free download on our website.
Bloodhound. Bloodhound is a computer-telephony integration (software which
integrates the computer with a telephone system) service that combines and
automates the duties of a receptionist, secretary and personal assistant.
Bloodhound processes voice and facsimile messages which are received on the same
telephone number into electronic messages through a unified inbox integrated
with a business' existing email system. Voice and facsimile messages can be
delivered to a business at any location as an email attachment. Bloodhound
allows prioritization of calls and can notify a business when new messages are
received.
Network Marketing. Network Marketing is software that combines technology with
the traditional business practices of the network or multi level marketing
industry. Network Marketing software provides electronic messaging, facsimile
and prospecting functions designed specifically for the requirements of
individual distributors within a multi level marketing organization. The
software allows a distributor to deliver information and voice or data messages
to prospects outside of the organization or numerous persons within the
organization.
Cine Line. Cine Line is an e-commerce system which provides online credit card
verification and transaction processing for movie ticket purchases. Cine Line
provides real time scheduling and booking information as a free service to the
moviegoer.
Blue Screen Imaging. Blue Screen Imaging is a digital imaging system utilizing
specialized software which allows the use of digital images (usually a person)
and then the integration of the image into an established photographic template.
Pictrix. Pictrix is digital imaging software designed for the photographic
retailers. The software allows for the capture, manipulation and output of
photographic images. Pictrix features includes repair and reproduction of old
images, production of image templates, screen savers, T-shirts and other
photographic retail products.
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Imageline. Imageline is a secure Internet based image library, which allows
customers to create their own secure library of images, stored remotely, with
online access offering extensive cataloguing and search features. Large image
libraries can be compiled for download, use and sale.
NZ Online. NZ Online is an Internet Service Provider with inexpensive access
charges to the Internet and low service offerings to customers. NZ Online was
built to support customer activities for ImageCraft and is marketed to a limited
number of subscribers.
Fixed Cellular Terminals (FCT). FCT is software designed as an alternative
method of providing telephone services when a conventional wireline telephone is
unavailable, nonexistent or too expensive. FCT uses a cellular telephone network
to provide telephone services to rural communities without the high cost
infrastructure of wired based telephone systems.
Multi-Path Alarm Communicator. The Multi-Path Alarm Communicator allows high
speed reporting of an alarm status to a security monitoring company, through a
wireline telephone or a cellular network. The status of the wireline and
cellular networks are continuously monitored and any irregularities can be
reported to the monitoring company using the alternative network.
Vehicle Systems. Vehicle System is an integrated computer system comprising
three sub-systems, the (i) vehicle data collection unit, (ii) cellular telephone
network, and (iii) central computer and application software. Vehicle System
provides a business the ability to track its vehicles, store the gathered
information and transmit the data via a commercial cellular telephone network to
the central computer for analysis.
Smart Comms. Smart Comms is a short range (50m - 250m) radio frequency wireless
data system suitable for transmitting messages using an existing small broadcast
data protocol format. Smart Comms can be used for security monitoring of
buildings.
Stock Trak. Stock Trak is a short range (25mm - 500mm) radio frequency
identification product suitable for tag device applications. Stock Trak is
designed for use by agricultural businesses for livestock identification and
information tracking. The electronic data tag provides compliance with proposed
European Union animal health regulations governing the origin, production and
transport of animals.
Sales and Marketing
Our objective is to establish and maintain leadership in the e-commerce sales
and marketing information systems market. Our strategy incorporates (i)
targeting large multi-national customers in a comprehensive number of
industries; (ii) maintaining and extending technology leadership; (iii)
strategic global alignment; (iv) exploiting Intranets and the Internet; (v)
expanding global sales capabilities; and (vi) advertising and marketing.
Targeting Large Multi-National Customers in a Broad Range of Industries. We have
designed products to satisfy the requirements of multi-national businesses that
use different distribution methods. Our products and services are intended to be
used on a global basis, provide shared, up-to-date information for field sales,
telemarketing, telesales, marketing, as well as third party resellers. We will
continue to improve our product development, sales and marketing activities, to
expand acceptance of our products and services.
Maintaining and Extending Technology Leadership. Our products and services
utilize advanced technology information. Our software products are designed to
be specifically designed to satisfy a business' requirements while maintaining
the ability to improve our products and services.
Strategic Global Alignment. We will promote widespread acceptance of our
products and services by the establishment of relationships with leading
technology providers and distributors. We anticipate developing technology and
marketing relationships with other businesses in order for us to concentrate on
developing e-commerce products and information systems software.
10
<PAGE>
Exploiting Intranets and the Internet. Our products and services have been
designed to expand the accessibility of information through the use of intranets
and the Internet as a global, low-cost, virtual private network. We believe that
the Internet will enable an entire business information base, currently
available only to users connected over a local area network or wide area
network, to be available without geographic limitation for the low cost of a
local Internet connection. This capability will allow businesses to use informed
sales professionals without the expense of physical offices or private leased
telephone lines. We plan to continue to exploit the Internet, we believe that
the Internet will allow customers to access comprehensive information that will
recommend and deliver customized products, goods and services directly to them
on a worldwide basis.
Expanding Global Sales Capabilities. We intend to expand our global sales
capabilities by increasing the size of our direct sales division in major
markets and continuing to recruit distributors in other selected markets.
Specifically, we plan to expand our direct sales and marketing activities in
North America, Europe, Asia and Latin America.
Advertising and Marketing. We will launch a comprehensive advertising campaign
to introduce our products and services to businesses.
Competition
The market for IT&T products in both Australia and New Zealand is significantly
competitive and we expect competition to continue to increase significantly. Our
subsidiaries compete with many other providers of IT&T products and services. We
have significant competition from other developers of software-related products,
in addition to other providers of telecommunications products. Although we have
diversified our operations by the acquisition of numerous businesses with
different IT&T related services and products, we still have significant
competition, which may result in current and future providers of similar
products and services competing on the basis of price, which could result in a
reduction of our revenues.
On a global basis, we have competition from major software companies who have
developed "back office" software applications, such as JD Edwards, Baan, Oracle
and PeopleSoft. In this competitive global situation, we believe that we have
managed to be a significant competitor in communications and e-commerce. We
believe the IT&T industry is shifting to more customized products at lower
prices, a better understanding of customer requirements, products and services
designed and developed to satisfy those requirements, and improved customer
support.
We believe that our software products and services allow businesses to use
customer information systems, product information systems, competitive
information systems and decision support systems on a global basis. We have
designed our products and services to provide support for interdependent
distribution channels, including direct field sales, telesales, telemarketing,
distribution, retail and Internet-based sales.
The market for our products is significantly competitive, subject to rapid
change and is significantly affected by new product introductions and other
activities of industry participants. Our products and services are targeted at
the emerging market for sales and marketing information systems. We have
competition from customers' internal development efforts, custom system
integration products, in addition to other software providers that offer a
variety of products and services designed for this market.
ITEM 2. DESCRIPTION OF PROPERTY
The following table specifies the descriptions of our properties.
11
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================================
Property Description
----------------------------------------------------------------------------------------------------------------------
<S> <C>
2150 Scotia One, 10060 Jasper Avenue This leased property is our main office .
Edmonton, Alberta, Canada T5J 3R8
----------------------------------------------------------------------------------------------------------------------
Brocker Technology Park This property is our main New Zealand location housing
17 Kahika Road, Beachhaven, SealCorp New Zealand, STG, Easy PC, Inprise, 1World, Brocker
Auckland, New Zealand Financial and Tech Support.
----------------------------------------------------------------------------------------------------------------------
4 Bond Street, Grey Lynn This leased property houses Pritech's Auckland office, in
Auckland, New Zealand addition to being sub-let to other tenants.
----------------------------------------------------------------------------------------------------------------------
14 Putiki Street, Grey Lynn, This leased property, formerly housing some of STG's
Auckland, New Zealand inventory, is now sublet to a picture framing company.
----------------------------------------------------------------------------------------------------------------------
Level 3, PSA House, 11 Aurora Terrace, This leased property houses the Wellington offices of
Wellington, New Zealand SealCorp New Zealand, Easy PC and Pritech.
----------------------------------------------------------------------------------------------------------------------
2nd Floor, Office No. 10 This leased property houses SealCorp New Zealand's
Victoria Business Center, Christchurch Christchurch office.
----------------------------------------------------------------------------------------------------------------------
Unit 2, 343 Church Street This leased property houses the office of ICS.
Penrose, Auckland, New Zealand
----------------------------------------------------------------------------------------------------------------------
Level 2, 25 Dundonald Street, Newton, This leased property houses the call center operations of
Auckland, New Zealand PowerCall.
----------------------------------------------------------------------------------------------------------------------
Unit 5, Macquairie View Estate, 112 Talavera Road, This leased property houses the Sydney operations of
North Ryde, Sydney, New South Wales, Australia SealCorp Australia.
----------------------------------------------------------------------------------------------------------------------
Level 8, 48 Hunter Street, Sydney, This leased property houses the Sydney operations of Pritech
New South Wales, Australia Australia.
----------------------------------------------------------------------------------------------------------------------
Suites 306, 307 and 317, Level 3, 60 City Road, This leased property houses the Melbourne office of SealCorp
South Bank, Melbourne, Victoria, Australia Australia and Pritech Australia.
----------------------------------------------------------------------------------------------------------------------
Unit 8, 10 Hudson Road, Albion, This leased property houses the Queensland operations of
Queensland, Australia Sealcorp Australia.
======================================================================================================================
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
None of our companies nor any of their directors, officers and key personnel are
subject to any litigation, administrative or criminal action which is or has
been material to our operations or financial condition, nor are any of our
companies or their directors, officers or key personnel aware of any such
litigation or pending action.
ITEM 4. CONTROL OF REGISTRANT
The following table furnishes information as to the beneficial ownership of the
outstanding shares of our common stock held by (i) each person known by us to
beneficially own more than 10% of the outstanding shares of our common stock and
(ii) all the directors and officers of our companies as a group.
12
<PAGE>
TITLE OF CLASS NAME AND ADDRESS NUMBER OWNED PERCENTAGE OF CLASS
-------------- ---------------- ------------ -------------------
Common Stock Michael Ridgway, 3,035,848 19.7%
President, Director
Auckland, New Zealand
Common Stock Directors and Officers as a 3,629,638 23.5%
group
Changes in Control. We are not aware of any arrangements which may result in
"changes in control" as that term is defined by the provisions of Item 403(c) of
Regulation S-B.
ITEM 5. NATURE OF TRADING MARKET
Shares of the Company's common stock have been listed and posted for trading on
the Toronto Stock Exchange (trading symbol BKI) since February 28, 1998. As of
December 27, 1999, 15 holders of record in the United States held 3,488,031
shares of the Company's common stock or 23.44% of the outstanding shares as of
that date. Prior to the listing on the Toronto Stock Exchange, shares of the
Company's common stock were listed for trading on the Alberta Stock Exchange.
The following table specifies the reported high and low sales or closing prices
of the Company's common stock on the Toronto Stock Exchange and Alberta Stock
Exchange for the periods indicated.
================================================================================
Period High Low
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
January 1, 2000 - March 31, 2000 $17.20 $8.00
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
October 1, 1999 - December 31, 1999 $12.50 $4.00
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
July 1, 1999 - September 30, 1999 $3.85 $1.40
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
April 1, 1999 - June 30, 1999 $1.55 $1.00
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
January 1, 1999 - March 31, 1999 $1.45 $1.20
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
October 1, 1998 - December 31, 1998 $1.55 $1.15
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
July 1, 1998 - September 30, 1998 $1.48 $1.20
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
April 1, 1998 - June 30, 1998 $1.76 $1.25
================================================================================
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are no governmental laws, decrees or regulations in Canada relating to
restrictions on the export or import of capital. However, the remittances of
interest, dividends or other payments to nonresident holders of our securities
are subject to withholding tax.
There are no limitations in the laws of Canada or in our charter or any other
constituent documents limiting the right of foreign persons to hold or vote our
securities. The Investment Canada Act (the "IC Act") governs the acquisition,
directly or indirectly, by non-Canadians of control of existing Canadian
businesses and the establishment by non-Canadians of new Canadian businesses.
Pursuant to the IC Act, subject to certain exceptions, a non-Canadian proposing
to acquire direct control of a Canadian business which has gross assets equal to
or in excess of CDN$5 million must first file an application for review with
Investment Canada, the federal agency responsible for administering the IC Act,
and receive approval for such investment from the federal Minister (the
"Minister") responsible for the IC Act. Approval is granted when it is
demonstrated, to the Minister's satisfaction, that the proposed investment is or
probably will be of net benefit to Canada. When the non-Canadian has the status
of a North American Free Trade Agreement ("NAFTA") investor (essentially, any
national or government entity of the United States of America or Mexico or any
entity or other prescribed form of
13
<PAGE>
business organization which is controlled by any such national or government
entity) for purposes of the IC Act or when the Canadian business is already
controlled by a NAFTA investor, that dollar requirement is increased to CDN$150
million in 1992 "constant dollars" (as that term is defined in the IC Act),
subject to certain exceptions. When the gross assets of the Canadian business
being acquired are less than the applicable minimum, the non-Canadian person
must file a notice with Investment Canada, either prior to or within 30 days
following the closing of the acquisition. Acquisitions subject to notice filing
pursuant to the IC Act are, subject to certain exceptions, not subject to the
review and approval process pursuant to the IC Act. There are no other
restrictions, pursuant to Canadian law or pursuant to our charter or other
constituent documents, on the ability of foreign residents to hold or vote our
securities. There are no restrictions, pursuant to Canadian law, on the
distribution of dividends or other distributions to shareholders residing in the
United States.
ITEM 7. TAXATION
Capital Gains
A non-resident of Canada is not subject to tax pursuant to the Income Tax Act of
Canada ("ITA") in accordance with a capital gain realized upon the disposition
of a share of a public corporation, unless such share represents "taxable
Canadian property" to the holder thereof. Our common stock is listed on a
prescribed exchange and, therefore, will be taxable Canadian property to a
non-resident holder if, at any time during the period 5 years immediately
preceding the disposition, the non-resident holder, non-arms length persons, or
the non-resident, together with all such persons, owned not less than 25% of the
issued shares of any class of our capital stock. In the situation of a
non-resident holder to whom shares of our common stock represent taxable
Canadian property and who is residing in the United States, no Canadian taxes
will be payable on a capital gain realized on such shares, because of the
Canada-United States Tax Treaty ("Treaty"), unless the value of such shares is
derived from real property or natural resources situated in Canada. However, in
such event, certain transitional relief pursuant to the Treaty may be available.
In certain circumstances, the Treaty allows Canada to tax former residents on
gains from the disposition of taxable Canadian property, when such property was
owned at the time of their departure from Canada or was received in substitution
therefor in a transaction that is tax-free pursuant to Canadian law.
Withholding
Generally, cash dividends paid by Canadian corporations to non-Canadian resident
shareholders are subject to a Canadian withholding tax of 25%. However, pursuant
to Article X (2) of the Treaty, dividends paid to a resident of the United
States are only subject to a 15% Canadian withholding tax. Moreover, if the
United States resident owns 10% or more of the voting shares of the Canadian
corporation paying the dividends, the Canadian withholding tax is reduced to
10%. In addition to a dividend withholding, interest paid to the United States
resident is subject to a 15% Canadian withholding tax, pursuant to Article XI
(2) of the Treaty.
ITEM 8. SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
Summary Financial Information
The summary financial information set forth below is derived from the more
detailed consolidated financial statements and notes thereto appearing elsewhere
in this Form 20-F. We maintain our books and records in Canadian Dollars while
our subsidiaries maintain their books and records in New Zealand or Australian
Dollars, as appropriate, which are then translated to Canadian Dollars. We have
prepared our consolidated financial statements contained in this Form 20-F in
accordance with generally accepted accounting principles in Canada. See "Report
of Independent Auditors" and "Consolidated Financial Statements". All
information should be considered in conjunction with our consolidated financial
statements and the notes contained elsewhere in this Form 20-F.
14
<PAGE>
Periods Ended
(in thousands, except per share data)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
December 31, March 31, March 31, March 31, March 31, March 31,
1999 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $109,817 $133,303 $70,811 $50,110 $22,932 $3,931
------------------------------------------------------------------------------------------------------------------
Gross Profit $13,986 $17,691 $14,401 $9,099 $5,489 $814
------------------------------------------------------------------------------------------------------------------
Net Income $(91) $515 $797 $838 $323 ($146)
------------------------------------------------------------------------------------------------------------------
Net Income Per Share $(0.02) $.03 $.06 $.06 $.04 ($.02)
------------------------------------------------------------------------------------------------------------------
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Balance Sheet Data December 31, March 31, March 31, March 31, March 31, March 31,
1999 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Total Assets $58,172 $50,687 $32,499 $19,926 $11,725 $8,223
--------------------------------------------------------------------------------------------------------------------
Long Term Debt $2,018 $2,285 $881 $115 $111 $1,080
--------------------------------------------------------------------------------------------------------------------
Total Liabilities $41,964 $44,018 $26,658 $14,042 $7,123 $7,382
--------------------------------------------------------------------------------------------------------------------
Shareholders' Equity $16,208 $6,669 $5,842 $5,884 $4,602 $841
--------------------------------------------------------------------------------------------------------------------
</TABLE>
The information for the period ended December 31, 1999 are for the nine months
then ended. The information for the periods ended March 31 of 1999, 1998, 1997
and 1996 are for the years then ended. The information for the period ended
March 31, 1995 are for the seven months then ended, due to a change in our
fiscal year end.
Exchange Rate
The following table sets forth the exchange rate for one Canadian Dollar
expressed in terms of one United States Dollar for the past four years ending
December 31, 1998.
Year Ended December 31
--------------------------------------------------------------------------------
Year's High Year's Low Year's Average Year's Close
--------------------------------------------------------------------------------
1998 $1.57 $1.40 $1.48 $1.53
--------------------------------------------------------------------------------
1997 $1.43 $1.33 $1.38 $1.42
--------------------------------------------------------------------------------
1996 $1.38 $1.33 $1.36 $1.36
--------------------------------------------------------------------------------
1995 $1.42 $1.32 $1.37 $1.36
--------------------------------------------------------------------------------
The exchange rates are based on monthly averages published by the Federal
Reserve for the noon buying rate in New York City for cable transfers and
foreign currencies as certified for customs purposes by the Federal Reserve Bank
of New York. As of December 27, 1999, the exchange rate was 1.46 Canadian
Dollars for one U.S. Dollar.
Dividends
To date, we have paid no dividends on our Common Stock and we have no current
plans to pay dividends for shares of our common stock in the future.
Our Series A Preferred Shares, which have now been fully redeemed or converted,
were paid a preferred dividend rate of 6.5% per year. During the fiscal year
ended march 31, 1999 dividends of $163,322 were paid on the Series A Preferred
Shares.
15
<PAGE>
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
We maintain our books and records in Canadian Dollars while our subsidiaries
maintain their books and records in New Zealand or Australian Dollars, as
appropriate, which are then translated to Canadian Dollars. Except as otherwise
specified in this Form 20-F, all monetary amounts specified in this Form 20-F
have been presented in Canadian Dollars. We have prepared our consolidated
financial statements contained in this Form 20-F in accordance with generally
accepted accounting principles in Canada. See "Report of Independent Auditors"
and "Consolidated Financial Statements." All information should be considered in
conjunction with our consolidated financial statements and the notes contained
elsewhere in this Form 20-F. Significant differences between generally accepted
accounting principles in Canada and in the United States are disclosed in Item
17.
CURRENT TRENDS AND EVENTS SUBSEQUENT TO AUDITED FINANCIAL STATEMENTS.
COMPARISON OF NINE MONTHS ENDED DECEMBER 31, 1999 TO THE NINE MONTHS ENDED
DECEMBER 31, 1998
Results of Operations
Revenues. Our revenues were $109.8 million in the nine months ended
December 31, 1999, representing an increase of 12.1% over our revenues of $98.0
million in the comparable period in 1998. Our distribution business accounted
for approximately 93% of our total revenues during the 1999 period and 93%
during the 1998 period.
The increase in our revenues in the 1999 period principally reflected the
net effect of the following changes relating to our distribution business.
1. Our revenues in Australia from the distribution of computer-based
technology products increased by approximately $23.5 million. This
increase reflected a combination of internal growth and growth from
acquisitions of approximately $9 million
2. Our revenues in New Zealand from the distribution of computer-based
technology products decreased by approximately $4.7 million. This
decrease principally reflected the fact that, when the Digital
Equipment Corporation was acquired by Compaq in June 1998, we lost our
exclusive right to distribute Digital personal computers in New
Zealand and instead obtained a non-exclusive right to distribute
Compaq personal computers. As a result, we began to face competition
from three other authorized Compaq distributors. In addition, our
revenues were negatively impacted because towards the end of 1999 some
customers reduced their purchases due to concern over Year 2000
issues.
3. Our revenues in New Zealand from the distribution of telecommunication
products decreased by approximately $9 million. This decrease
primarily reflected the fact that a new competitor entered the market
in February 1999
During the periods under discussion, the revenues from our other business
lines were approximately as follows: (i) computer consulting ($4.4 million in
the 1999 period and $4.1 million in the 1998 period); (ii) proprietary software
applications ($1.9 million in the 1999 period and $1.4 million in the 1998
period); and (iii) technical services ($0.1 million in the 1999 period and $1.9
million in the 1998 period).
During 1999, substantially all of the revenues relating to our proprietary
software applications were attributable to certain call center services that we
provide for a fee. These services are provided using our proprietary software
and, accordingly, revenues from these service are classified as being part of
our proprietary software business.
16
<PAGE>
Gross Margin. On an overall basis our gross margin as a percentage of
revenues was constant at 13.1% during both periods under discussion. However,
the gross margin as a percentage of revenues of our business lines changed as
discussed below:
1. The gross margin of our distribution business increased to 9.3% of
revenues in the 1999 period from 9.0% in the 1998 period. This
increase primarily reflected the fact that computer-based products,
which generally have a higher margin than telecommunication products,
accounted for a greater percentage of our sales mix in the 1999
period.
2. The gross margin of our consulting business increased to 43.0% of
revenues in the 1999 period from 37.0% in the 1998 period. This
increase primarily reflected the fact that we expanded into the
Australian market in 1999 and were able to achieve higher margins in
this market.
3. The gross margin of our proprietary software business decreased to
42.3% in the 1999 period from 53.1% in the 1998 period, reflecting
higher costs in connection with our call center operation.
4. The gross margin of our technical services business decreased to 68.0%
in the 1999 period from 73% in the 1998 period, reflecting higher
costs.
Operating Expenses and Operating Income. Our operating expenses increased
to $13.9 million, or 12.7% of revenues, in the nine months ended December 31,
1999, from $12.1 million, or 12.4% of revenues, in the comparable period of
1998. Our operating expenses in the 1999 period included approximately $2.0
million of expenditures related to the development of our proprietary software
applications up from $1.1 million in the 1998 period. These expenditures are
expected to provide benefits in future periods as we commercialize our products,
but negatively impacted our results in 1999 and 1998.
Set forth below is additional information concerning certain components of
our operating expenses:
1. Depreciation and Amortization. These expenses decreased to $889,802,
or 0.8% of revenues, in the 1999 period from $1.3 million, or 1.2% of
revenues, in the 1998 period. This decrease in the 1999 period is
primarily attributable to the fact that certain assets carried on our
1998 balance sheet related to our leasing of equipment to customers
are now treated as off-balance sheet items for the reasons discussed
in note 7 to our consolidated financial statements included elsewhere
herein.
2. Net interest expense. Our net interest expense increased to $845,120
in the 1999 period from $779,281 in the 1998 period. This increase was
primarily attributable to (1) long-term mortgage financing that we
incurred in October 1998 when we acquired a new headquarters facility,
(2) increased borrowing required to support our revenue growth in 1999
and (3) increased interest payable to our vendors due to late
payments. This increase was partially offset by the fact that interest
charges recorded in 1998 relating to our leasing of equipment to
customers were not recorded in 1999 because these leases are now
treated as off balance sheet items for the reasons discussed in note 7
to our consolidated financial statements included elsewhere herein.
3. Salaries and Commissions. These expenses increased to $7.9 million, or
7.1% of revenues, in the 1999 period, from $5.4 million, or 5.5% of
revenues, in the 1998 period. This increase was principally
attributable to growth in headcount throughout our organization due to
acquisitions and additional hiring. We believe that this increase in
personnel is necessary to support our future growth and should provide
benefits in future periods.
4. Other Operating Expenses. These expenses were $4.3 million, or 3.9% of
revenues, in the 1999 period and $4.7 million, or 4.8% of revenues, in
the 1998 period. Other operating expenses in the 1999 period included
a $160,000 write-down in the value of certain computer equipment held
for
17
<PAGE>
rental to customers.
Operating Income. Our operating income decreased to $78,795 in the 1999
period from $0.7 million in the 1998 period, primarily reflecting the increase
in our operating expenses as a percentage of revenues discussed above.
Equity accounted losses of associated company. These losses amounted to $67,256
in the 1999 period and $67,177 in the 1998 period. These losses represent our
share of the losses of Highway Technology Limited, a company in which we have a
20% equity interest.
Liquidity and Capital Resources
Recent Financing Transactions
Set forth below is information concerning certain financing transactions that we
completed subsequent to March 31, 1999:
1. In July 1999, we sold in a private placement 1,000,000 units at a
price per unit of either $1.25 or $1.00. Each unit was comprised of
(1) a common share and (2) a warrant to purchase an additional common
shares at a price of $1.25 per share. We received gross proceeds of
$1.1 million from this transaction.
2. In December 1999, we sold in a private placement 1,800,000 special
warrants at a price per special warrant of $2.70. Each of these
warrants may be exchanged, without additional consideration, for one
common share plus a warrant to purchase one-half of a common share at
a price of $1.575 per one-half share. We received gross proceeds of
$4.9 million from this transaction. In connection with this
transaction, we issued agents' options to purchase 486,000 common
shares at an exercise price of $3.15 per share.
3. In January 2000, we sold in a private placement 1,800,000 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. We received gross proceeds of $11.3 million from this
transaction. In connection with this transaction, we issued to a
broker a warrant to purchase 228,400 common shares at an exercise
price of $6.25 per share.
Our aggregate net proceeds from the financing transactions described above
amounted to approximately $15.8 million.
Funding of Our Operations. In the nine months ended December 31, 1999, compared
with the nine months to December 31, 1998, the cash generated from our business
was not sufficient to completely fund the cash outlays associated with our
business. More specifically, our cash from operating activities was negative
$3.6 million, compared with a positive 2.5 million in 1998, and our cash from
investing activities was negative $886,913 compared to negative 4.9 million in
1998. We principally funded our 1999 cash shortfall from the proceeds of the
financing transactions described above while mortgage finance was raised during
1998 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.
We had cash-on-hand of approximately $6.8 million as of March 31, 2000,
representing the remaining net proceeds of the financing transactions described
above. We estimate that our currently available cash resources are adequate to
support our existing operations at their current levels for the next 12 months
without additional financing. However, we plan to seek additional financing
before then in order to grow our business. More specifically, we may seek
additional financing for a variety of purposes, including (1) expanding our
product development efforts, (2) marketing our proprietary product and (3)
making additional acquisitions. We cannot, however, be certain that any
additional financing will be available or, if available, will be available on
terms that are satisfactory to us.
18
<PAGE>
Our Accounts Receivable Financing Facility. In July 1999, we obtained a
financing facility from The National Bank of New Zealand that allows us to
borrow, on a revolving basis, up to 80% of the value of our eligible accounts
receivable. The maximum amount that can be outstanding under this facility at
any time is New Zealand $20 million (equivalent to Cdn. $15.0 million, based on
the exchange rate on December 31, 1999). 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 April 20, 2000, the outstanding amount under this facility was $13.7
million and the applicable interest rate 6.4%.
Certain Balance Sheet Changes.
Set forth below is certain information concerning changes in our December 31,
1999 balance sheet relative to our March 31, 1999 balance sheet.
We completed a number of financing transactions subsequent to March 31, 1999, as
described above. These transactions are the principal reason why (1) our cash
increased to $5.4 million at December 31, 1999, from zero at March 31, 1999, (2)
our working capital increased to $8.4 million at December 31, 1999 from a
deficit of $330,247 at March 31, 1999 and (3) our shareholders' equity increased
to $16.2 million at December 31, 1999 from $6.7 million at March 31, 1999.
During the nine months ended December 31, 1999, we borrowed under our accounts
receivable financing facility and used the proceeds to reduce our payables. This
is the principal reason why (1) our financing facility indebtedness increased to
$11.1 million at December 31, 1999, from $3.2 million on March 31, 1999, and (2)
our accounts payables decreased to $23.9 million at December 31, 1999, from
$36.6 million on March 31, 1999.
Our deferred development costs increased to $1.5 million at December 31, 1999,
from $1.3 million on March 31, 1999. This increase principally reflected
deferred development costs relating to our Supercession product.
COMPARISON OF LAST THREE FISCAL YEARS:
COMPARISON OF YEAR ENDED MARCH 31, 1999, TO YEAR ENDED MARCH 31, 1998
Liquidity and Capital Resources. Our total assets increased approximately 56% to
$50.7 million during the fiscal year ended March 31, 1999 from $32.5 million
during the fiscal year ended March 31, 1998. Our total current assets increased
approximately 55% to $41.4 million from $26.6 million. The increase in current
assets resulted from (1) the 65% increase in our accounts receivable to
approximately $23 million and (2) a 58% increase in our inventories to
approximately $15.3 million. The increases in our accounts receivable and
inventories correspond favorably with increased sales, with our revenue
increasing 88% in fiscal year ended March 31, 1999, compared to the previous
year.
Our current liabilities have increased from $25.8 million in the fiscal year
ended March 31, 1998 to $41.7 million in the fiscal year ended March 31, 1999,
an increase of $15.9 million or 62%. The major components of this increase are
(i) $1,189,000 of our current liabilities had no corresponding amount in 1998
because a number of companies were either formed or acquired during the fiscal
year ended March 31, 1999, (ii) current liabilities for Sealcorp Australia rose
to $9,734,000, and increase of 211% compared to the fiscal year ended March 31,
1998, which matched the 76% increase in Sealcorp Australia's value of products
and services sold, (iii) Sealcorp Australia negotiated extended credit terms
with key suppliers, due to the need to carry higher levels of stock in a rapidly
expanding market, (iv) the current liabilities of STG increased 39% to $22.5
million compared to the fiscal year ended March 31, 1998, which was again due to
the rapid growth in this business where the value of products sold increased
397% from 1998 to 1999, and (v) the general increase in business activity of all
business units together with our extension of credit terms to despite increasing
cash flow requirements.
The increase in our long term debt from $881,070 to $2.3 million results from
Brocker NZ's purchase of new premises in Auckland, New Zealand on October 1,
1998. The purchase price of NZ$3.825 million was financed by a mortgage of
NZ$3.045 million. As of March 31, 1999, the outstanding balance of that mortgage
was
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<PAGE>
approximately NZ$2.9 million. The new premises have allowed the consolidation of
our operating businesses to one location and provides ample space for continued
growth.
Certain of the customers of Easy PC obtain financing of their purchases through
an arms' length financing company. Prior to March 1999, Easy PC was exposed to
recourse from the individual finance agreements and the financing arrangements
together with the associated assets reflected on our balance sheet. During March
1999, the terms of the arrangement between Easy PC and the financing company
were changed and Easy PC was released from substantially all of the recourse
from the individual finance agreements and, accordingly, the liabilities and
associated assets were eliminated from our balance sheet.
The amount of our working capital decreased from $810,699 in 1999 to ($330,247)
with a significant increase in our current liabilities. We completed a fully
subscribed private placement of 1,000,000 units, consisting of one share of our
common stock and one non-transferable warrant entitling the holder to purchase
one share of our common stock, to raise proceeds of $1,070,000 which introduced
additional equity to increase our working capital. We have continued to receive
cash from operations, and we anticipate being able to fund current operations
and capital expenditures with existing cash and short term financial
arrangements. We anticipate that additional funds will be required to sell and
market our intellectual property products on a global basis.
Results of Operations. For the fiscal year ending March 31, 1999, our revenue
increased approximately 88.3% from $70.8 million in fiscal year ending March 31,
1998 to approximately $133.3 million in fiscal year ending March 31, 1999. Our
New Zealand based revenues spurred by the growth in the mobile telephone
marketplace increased to $109.9 million in fiscal year ending March 31, 1999,
which comprised more than 82% of our total revenues. Our Australian revenues
increased approximately 73% from approximately $13.5 million in fiscal year
ending March 31, 1998 to $23.4 million in fiscal year ending March 31, 1999.
Our gross profit increased to approximately $17.7 million, an increase of 22.8%
over the fiscal year ending March 31, 1998. The increased gross profit business
in absolute terms is a result of increased operations. The decreased gross
profit percentage is a result of the size of the telecommunications distribution
business which generates low margins in comparison to other business units. The
margin of this business is low due to the equally low business risks in relation
to other business units.
The increase in our depreciation and amortization expense at $2,010,703 is
because the increase in our assets and the increased information technology
depreciation following the implementation of the software systems developed by
PeopleSoft. Our net interest expense increased to approximately $1.4 million
which was a result of (1) the financing of our new premises in Auckland, New
Zealand, and (2) the increase in interest payments for the increased borrowings
during the period.
Our other expenses accounted for approximately $7 million, a 66.7% increase.
This is due to our acquisitions of PowerCall, ImageCraft, Easy PC, Pritech and 1
World. Our product and development expenses also increased over the year
resulting from our emphasis on the development of e-commerce and information
management in software products.
Our net earnings of $514,814 were reduced by 35.4% compared to the previous
year. The primary reason for the decrease in net earnings is that we invested
significantly in product development, specifically, the development of
e-commerce and information management software products. Accordingly, earnings
per share were reduced similarly to $.03 per share.
Acquisitions. On May 15, 1998, Brocker NZ acquired Pritech for initial cash
consideration of NZ$265,620. The purchase price was determined to be an amount
equal to the net profit earned by Pritech for the fiscal year ended September
30, 1998, multiplied by 4. Additional consideration, however, is only payable
based on the cash received by Pritech for the fiscal years ending September 30,
1999 to 2000. Therefore, any additional purchase price must be subsequently
earned by Pritech, during that period, before such additional purchase price is
payable. Any additional purchase price will be paid by the issuance by the
Company of shares of the Company's common stock.
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<PAGE>
On June 16, 1998, Brocker NZ acquired 1World for initial cash consideration of
NZ$103,750. The maximum purchase price was determined to be an amount equal to
the net profit earned by 1World for the fiscal year ended March 3, 1999,
multiplied by 4. Additional consideration, however, is only payable based on the
cash received by 1 World for the fiscal years ending March 31, 2000 to 2001.
Therefore, any additional purchase must be subsequently earned by 1 World,
during that period, before any such purchase price is payable. Any additional
purchase price will be paid by the issuance by the Company of shares of the
Company's common stock.
On February 8, 1999, SealCorp Australia acquired the net assets of Q*Soft for a
cash consideration of AU$150,000.
COMPARISON OF YEAR ENDED MARCH 31, 1998 TO YEAR ENDED MARCH 31, 1997
Liquidity and Capital Resources. During the comparison period, our total current
assets increased approximately 56% from $17 million at March 31, 1997 to $26.6
million at March 31, 1998. The majority of that amount is represented by
accounts receivable, which increased approximately 56% from $8.9 million at
March 31, 1997 to $13.9 million at March 31, 1998. This increase was primarily
due to the significant increase in our sales in the latter months of the fiscal
year ended March 31, 1998, compared to the same period in the prior year, due to
the successful negotiation of a contract to distribute cellular technology for
Telecom New Zealand Limited. The other increase was in our inventory, which
increased from $6.1 million to $9.7 million during the comparison period, an
increase of approximately 58%. Our increased inventory was required because of
more turnover anticipated for the first quarter of the new year, a significant
increase from the comparable period in the previous year.
Our current liabilities increased from approximately $13.9 million to $25.8
million during the comparison period, which was primarily a result of a 60%
increase in our accounts payable (from $10.9 million to $17.4 million) and was
comparable to the increase in our inventory (increased by approximately 58%).
The inclusion of $1.0 million in liabilities results from our rental finance
liability (which totaled $1.9 million), whereas the offsetting asset entry of
$1.9 million was included in capital assets. Including the entry in capital
assets, as opposed to current assets, which affects the funds specified as our
working capital, was required pursuant to relevant accounting standards.
In addition, our current asset financing facility increased from $1.0 million to
$5.8 million during the comparison period to finance our working capital
requirements. We were required to replace financing provided by a financial
institution that was withdrawing from the New Zealand market. We negotiated new
financing on more favorable terms and conditions with a decreased interest rate
and an increased credit limit.
Our working capital decreased from $3.1 million at March 31, 1997 to $1.3
million at March 31, 1998, a reduction of approximately 58%. Although our assets
increased significantly, there was an even greater increase in our liabilities,
an increase of approximately 85%. The increase in our liabilities principally
relates to the increase in our accounts payable referred to above. We recognize
that, to continue our growth, additional funds were required for our working
capital.
Our total assets increased from $19.9 million to $32.5 million, or an increase
of approximately 63%. Our balance sheet specifies an increase in capital assets
of $2.5 million to $3.7 million during the comparison period, an increase of
approximately 213%. However, $1.9 million of this amount relates to the
off-setting rental finance liability referred to above. The $1.9 million entry
resulted in an actual net increase in capital assets of $2.5 million, the
majority of which was invested in computer hardware as part of the information
services upgrade completed by us during the fiscal year ended March 31, 1998.
Results of Operations. We experienced a significant increase in revenues, with
sales for the fiscal year ended March 31, 1998 totaling $70.8 million, an
increase of approximately 41.3% over the $50.1 million achieved in the previous
year. Sales in our Australian operations increased by approximately 14% for the
fiscal year ended March 31,1998, compared to sales achieved in the fiscal year
ended March 31, 1997. In our New Zealand operations, where the majority of our
revenue is earned, sales increased 50% from $38 million to $57 million.
Decreased per
21
<PAGE>
unit sales prices for computer hardware were offset by increased volumes and
additional sales, in addition to revenue from services such as consulting and
training activities.
Our gross profit increased from $9.1 million to $14.4 million during the
comparison period (an increase of approximately 58.3%) and our gross profit as a
percentage of our sales increased from 18.2% in the previous year to 20.3% in
the fiscal year ended March 31, 1998. The increase was achieved in spite of
declining gross profit percentages industry-wide in the computer distribution
business. Our increased gross profit percentage is attributable to our
acquisition strategy of expanding computer distribution and develop additional
sales using relationships with suppliers and customers. Apart from Sealcorp
Telecommunications Group Limited, a company established to distribute cellular
technology and which operates at a low margin, we continued to invest in
companies in associated segments of the technology business, our emphasis was on
operations with increased gross profit percentages.
The increase in our depreciation and amortization expense (an increase from $0.4
million to $1.7 million) is a result of the inclusion of depreciation associated
with assets financed using a recourse arrangement with an independent finance
company for one of our acquisitions during the fiscal year ended March 31, 1998
(Easy PC Ltd.). That increased depreciation is $0.9 million, with $0.2 million
included in our net interest expense amount. These amounts are off-set by a
comparable in our revenue of $1.1 million. Our balance sheet was also affected
by the total recourse debt of $1.9 million included in our liabilities, with a
comparable figure included in our capital assets. The potential defaults were
not considered significant, considering the risk of 421 individual contracts and
the minimal losses experienced. We experienced 7 defaults with the total write
offs totaling $7,000 during the fiscal year ended March 31, 1998.
Our interest expenses increased from $0.2 million to $0.7 million, as a
consequence of (1) our increased working capital requirements to support
increased borrowings, as a result of increased revenue, and (2) the treatment of
Easy PC Ltd., as specified above. Our other expenses, including salaries,
commissions and other operating expenses increased by approximately 48%.
Our net income of $0.80 million decreased from the $0.84 million achieved in the
prior comparison year, a decrease of 4.9%. Although our net income was less than
our anticipated net income, we believe that the strategies implemented by us
during the fiscal year ending March 31, 1998, should ensure results from our
acquisitions and activities in fiscal year ended March 31, 1999 and subsequent
years. Our first quarter results for the fiscal year ended March 31, 1999
supports this belief, with our net income increasing from $4,085 to $329,703 for
the comparable period. Earnings per share at $0.06 per share were at the same as
last year, which was a continuation of the continual increase in earnings per
share for the years 1994 to 1997.
Acquisitions. At the outset of the fiscal year ended March 31, 1998, we
completed the acquisition of ICS, a company with revenue from the servicing of
telecommunications equipment. ICS also has opportunities for the design and
development of cellular based telecommunications products. ICS has sales in the
Australian telecommunications market and we anticipate increasing the number of
our global customers.
A similar business existed in Powercall (acquired by us in May 1997) where
revenue was earned from call center operations, with product development
concentrated on computer telephony integration.
We identified the rental and leasing of computer equipment as a complementary to
our primary technology. In July 1997, we completed the acquisition of Easy PC, a
company specializing in full service rental and leasing operations for computer
equipment.
With our intent to establish a larger international market for some of our
products, we have identified various acquisition opportunities of start-up
operations. The acquisition of Image Craft was determined to be an opportunity
for us to enhance Image Craft's digital imaging products and the services that
had been established in New Zealand, and promote these products and services
internationally. Subsequent to our acquisition of Image Craft, a new operation
has been established in Australia and we are negotiating opportunities in North
America. At the conclusion of the fiscal year ended March 31, 1998, we completed
2 acquisitions (Pritech and
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<PAGE>
Microchannel Ltd.) which provided us with additional opportunities in
distribution of products, in addition to project management, consulting and
training services, based upon Lotus products. These acquisitions, also, provide
additional international marketing and distribution opportunities.
Our presence in Australia has increased from an initial sales office and
distribution operation for SealCorp Australia to include the distribution
operations from the various companies which we have acquired, including
Sourceware, TGE and 1World. Although there was a $0.4 million loss for fiscal
year ending March 31, 1998, the second half of the year was profitable. Based on
the results for the first quarter of fiscal year ending March 31, 1999, we
believe that our Australian operations will be profitable.
Impact of the Year 2000. The Year 2000 (commonly referred to as "Y2K") issue
resulted from the fact that many computer programs were written using two,
rather than four, digits to identify the applicable year. As a result, many
people were concerned that computer programs with time-sensitive software might
recognize a two digit code for any year in the next century as related to this
century. For example, "00", entered in a date-field for the year 2000, might be
interpreted as the year 1900, resulting in system failures or miscalculations
and disruptions of operations, including, among other things, a temporary
inability to process transactions or engage in other normal business activities.
While companies and governments in the United States spent an estimated $150
billion to $225 billion repairing the problem, countries like Russia and China,
which spent relatively minor amounts, seemed to clear the New Year's Day hurdle
with equal success. Major news media in the United States are reporting that,
after years of work and billions of dollars spent repairing the Year 2000
computer glitch, the technological tranquility of New Year's Day 2000 has raised
a new concern that the United States and other countries overreacted to this
problem. While it is still too soon to state positively that the Y2K transition
has passed without mishap, we believe that Y2K issues will not have a material
adverse affect on our business.
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Potential Risks and Uncertainties
General and Economic Risk. Our New Zealand operations represent the major
geographical component of our business. Last year New Zealand operations
contributed approximately 82.4 % of our turnover for the year ended March 31,
1999, and, accordingly, represents one of the major considerations in terms of
future uncertainties. Our operations have not been detrimentally influenced by
the Asian financial situation. Despite the media focus on negative issues, we
believe the underlying fear of the Asian financial situation significantly
impacting the New Zealand economy may have been over emphasized. For example,
New Zealand's export earnings are up on last year. New markets have been
developed for exports, and New Zealand has become an attractive tourism
destination to other nationalities.
We believe the continued acceptance of technology-based products, including
computers and cellular telephones, has indicated no sign of declining to the
point of impacting us.
Industry and Market Risk. The computer industry has experienced decreasing
prices as technological developments continue to evolve and the margins on
products decrease. Recognizing this trend some time ago, we embarked on a
program to increase the products we distribute, in addition to the traditional
personal computer hardware and software that previously formed the majority of
our business.
Currency and Exchange Rate Risk. We hedge normal trading arrangements when
possible, by purchasing using the currency of sale. For example, New Zealand
operations purchase in New Zealand Dollars, even for goods supplied from
Australia or Asia. Major suppliers to SealCorp and STG use this practice.
However, for some vendors this is not always possible and, in those situations
of significant risk, we purchase foreign currency risk insurance, particularly
where purchases are made to satisfy specific sales contracts.
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<PAGE>
Apart from trading arrangements, our key currency exposures relate to the
geographic location of the assets of our operations in New Zealand, Australia
and Canada. During recent times, fluctuations in exchange rates have adversely
impacted the value of our assets when denominated in Canadian Dollars.
We have occasionally used a very limited number of forward exchange contracts
and currency options to hedge purchases of inventory in foreign currencies. Our
exchange rate commitments are intended to minimize the exposure to exchange rate
movement risk on the cost of our products and on the price we are able to sell
those products to our customers. We do not use foreign exchange instruments for
trading or any other purpose.
The only risk inherent in using forward contracts is the potential that the New
Zealand Dollar will move favorable against the foreign currency that has been
hedged. This is an opportunity cost, which is mitigated by the certainty of
pricing that results from the hedge, which is of course the purpose of the
transaction, to remove the downside risk.
No forward exchange contracts have been entered into during the current
financial year. During the fiscal year ended March 31, 1998, the average value
of these forward contracts amounted to NZ$1,232,000 and were entered as a hedge
against New Zealand purchases made in Australian dollars. Since then the
majority of our major suppliers have changed from invoicing in their home
currency, to invoicing in New Zealand Dollars. This should eliminate our
exchange risk on the transactions and, therefore, eliminates the need for
foreign exchange hedging.
Reliance on Telecom New Zealand
Our business relating to the distribution of wireless telecommunication
products is primarily dependent upon our agreement with Telecom New Zealand.
Sales of wireless telecommunication products under this agreement represented
approximately 57% of our revenues for the fiscal year ended March 31, 1999. The
termination or non-renewal of this agreement, or a reduction in sales under it,
would have a material adverse affect on us. Telecom has entered into a similar
arrangement with another company, which is now in competition with us in that
market.
The agreement with Telecom is also important to us because under the
agreement: (i) Telecom is required to protect us against many of the risks
associated with this business, such as bad debts, product obsolescence and
excess inventory; and (ii) we are required to limit our net profit margin
percentage, from this business to a level lower than is typical for this
industry.
ITEM 10. MANAGEMENT
Our Directors and Officers
Michael B. Ridgway of Auckland, New Zealand has been both our Chief Executive
Officer of the Company and a member of our Board of Directors since December
1994. Prior to 1994, Mr. Ridgway was the Managing Director of SealCorp Computer
Products Limited (which is now a subsidiary of the Company) since 1987 when he
founded SealCorp. SealCorp was sold to us in 1994 and is now the main trading
subsidiary.
Richard Justice of Auckland, New Zealand has been both our Chief Financial
Officer and a member of our Board of Directors since September 1997 and was
appointed Chief Operating Officer in October 1999. Prior to be appointed Chief
Financial Officer, Mr. Justice was the Financial Controller of SealCorp Computer
Products Limited since 1993. Mr. Justice has held various management positions
with distribution corporations prior to establishing Abacus Management Services
Limited, a consultancy corporation. 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 J. O'Byrne of Edmonton, Alberta has been our Chairman of the Board since
November 1998 and has been a member of our Board of Directors since our
incorporation in November 1993. Mr. O'Byrne is a lawyer and has
24
<PAGE>
been practicing with the firm of Tarrabain O'Byrne & Company in Edmonton,
Alberta since 1990. Mr. O'Byrne has been practicing law in Alberta, Canada since
he graduated from the University of Cambrensis School of Law in the United
Kingdom in 1984.
Andrew J. Chamberlain, of Edmonton, Alberta is our Corporate Secretary since
being appointed in November 1998 and was elected to our Board of Directors on
December 14, 1999. Mr. Chamberlain is a lawyer and has been practicing with the
firm of Chamberlain-Hutchinson in Edmonton, Alberta since 1997. Prior to 1997,
Mr. Chamberlain practiced law in Alberta, Canada with Davies & Co. since he
graduated from the University of Alberta School of Law in 1984.
Julia A.E. Clarkson of Allston, Massachusetts has been a member of our Board of
Directors since October 1998, and has been a member of Retail Startup CC, LLC,
an operator of retail dry cleaning outlets in Newton, Massachusetts since July
1998. Ms. Clarkson completed her Masters of Business Administration from Harvard
University in 1998. From 1994 to 1996, Ms. Clarkson was a consultant for Mercer
Consulting (formerly Corporate Decisions Inc.). From 1992 to 1994, Ms. Clarkson
was a financial analyst in the New York investment banking division of Morgan
Stanley.
Daniel Hachey of Toronto, Ontario has been a member of our 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.
Key staff of subsidiary companies
Mike O'Brien is our Sales Manager of Vendor Services. Mr. O'Brien's experience
has grown rapidly with the new cellular distribution channel during the last 3
years. Mr. O'Brien has a strong technical background developed over 8 years with
Telecom and more recently, 6 years consulting in London to the finance and
communication industries in project design, implementation and coordination.
Hal Linstrom is our Operations Manager of Vendor Services. Mr. Linstrom.
Previously, Mr. Linstrom was our General Manager of Mergers and Acquisitions,
completing twelve acquisitions during four years. Mr. Linstrom had previously
worked in various sales and marketing management positions and has held General
Management positions in private companies.
Bruce Busbridge is our Sales Manager of Application Hosting Services, having
joined the corporation on 3rd April, 2000, previously having been with Compaq
Computers (NZ) Ltd as Business Development Manager.
Roger Carter is our Operations Manager of Application Hosting Services. Mr.
Carter started ICS in 1978 after 7 years working for Pye Telecom. In 1994, Mr.
Carter purchased the interests of the minority shareholders and changed the
direction of ICS to concentrate on wholesale service and product design and
manufacture, particularly for the export market. We acquired ICS in 1997.
Stephen Hassall is our General Manager Professional Services. Mr. Hassall joined
us in 1995 as General Manager of SealCorp Computer Products Limited. In October
1998, Mr. Hassall was appointed our General Manager Marketing and Client
Services. From 1987 to 1995, Mr. Hassall held several senior sales and marketing
positions in the financial markets industry of New Zealand and Australia.
Richard MacLean is our Sales Manager of Application Development. Mr. MacLean has
worked for several companies during the last decade in sales, marketing and
technical roles in the IT&T industries of New Zealand and Australia.
Gerrit Hattingh is our Engineering Manager of Application Development since 1st
April 2000. Previously Gerrit was IT Manager of our subsidiary company Powercall
Technologies Ltd.
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Chris Spring is the General Manager of SealCorp Australia. Mr. Spring joined
SealCorp Australia from OKI Australia, where he held the position of General
Manager Sales and Marketing. Mr. Spring has 10 years industry experience in
Australia.
Nick Lyttle is the General Manager of Powercall. Upon completing his degree as a
Veterinary Surgeon and engaging in several years of successful private practice,
Mr. Lyttle became the Managing Director of Christchurch based Canterbury Voice
Mail and, in addition, now manages Powercall in Auckland. Both these companies
specialized in advanced IVR solutions and CTI development serving a significant
number of customers throughout New Zealand.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS.
For the last completed financial year, the aggregate cash compensation,
including bonuses, of all our directors and executive officers specified above
was $519,356. The aggregate set aside by us to provide pension, retirement or
similar benefits to those directors and officers was approximately ten percent
(10%) of the aggregate cash compensation of the executive officers as a group.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
Incentive Stock Options
As of May 19, 2000, the following options to purchase our securities were
outstanding:
<TABLE>
<CAPTION>
=============================================================================================
Name of Optionee Balance of Outstanding Exercise Price Expiration of Option
---------------- Shares Subject to Option -------------- --------------------
------------------------
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Michael Ridgeway* 30,000 $1.90 November 20, 2002
---------------------------------------------------------------------------------------------
Michael Ridgeway* 200,000 $11.25 February 29, 2005
---------------------------------------------------------------------------------------------
Richard Justice* 118,000 $1.41 July 2, 2004
---------------------------------------------------------------------------------------------
Casey O'Byrne* 145,000 $1.18 January 12, 2001
---------------------------------------------------------------------------------------------
Casey O'Byrne* 57,000 $1.31 January 12, 2001
---------------------------------------------------------------------------------------------
Casey O'Byrne* 100,000 $11.25 February 29, 2005
---------------------------------------------------------------------------------------------
Hal Linstrom 70,000 $1.90 November 20, 2002
---------------------------------------------------------------------------------------------
Hal Linstrom 50,000 $1.41 July 2, 2004
---------------------------------------------------------------------------------------------
Steve Hassall 70,000 $1.90 November 20, 2002
---------------------------------------------------------------------------------------------
Steve Hassall 50,000 $1.41 July 2, 2004
---------------------------------------------------------------------------------------------
Mike O'Brien 50,000 $1.41 July 2, 2004
---------------------------------------------------------------------------------------------
Chris Spring 31,000 $1.41 July 2, 2004
---------------------------------------------------------------------------------------------
Richard MacLean 31,000 $1.41 July 2, 2004
---------------------------------------------------------------------------------------------
Roger Carter 16,000 $1.41 July 2, 2004
---------------------------------------------------------------------------------------------
Julia Clarkson* 50,000 $1.50 November 30, 2003
---------------------------------------------------------------------------------------------
M. O'Brien 70,000 $1.90 November 20, 2002
---------------------------------------------------------------------------------------------
Gillian Morgan 20,000 $1.90 November 20, 2002
---------------------------------------------------------------------------------------------
Nigel Guthrie 20,000 $1.90 November 20, 2002
---------------------------------------------------------------------------------------------
Chris Spring 50,000 $1.90 November 20, 2002
---------------------------------------------------------------------------------------------
Gillian Morgan 25,000 $1.18 January 12, 2001
---------------------------------------------------------------------------------------------
Richard Preston 15,000 $1.18 January 12, 2001
---------------------------------------------------------------------------------------------
Andrew J. Chamberlain* 50,000 $11.25 February 29, 2005
---------------------------------------------------------------------------------------------
Officers and Directors as 750,000 $1.18 - $11.25 January 12, 2001 -
a Group February 29, 2005
=============================================================================================
</TABLE>
* Directors and/or officers of the Company
26
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Share Purchase Warrants
As of December 27, 1999, the following warrants of the Company were outstanding,
entitling the holder thereof to purchase one common share for each warrant
exercised:
================================================================================
Number of Warrants Outstanding Exercise Price Expiration Date
------------------------------ -------------- ---------------
--------------------------------------------------------------------------------
1,000,000 $1.25 January 16, 2002
--------------------------------------------------------------------------------
486,000 $3.15 June 15, 2001
--------------------------------------------------------------------------------
228,400 $6.25 January 21, 2002
================================================================================
We have issued 1,800,000 special warrants, each of which is exchangeable for a
unit, each unit consisting of one common share and one half share purchase
warrant. Two half share purchase warrants shall, together, entitle the holder to
purchase one additional common share at a price of $3.15 per share if exercised
by June 15, 2001.
We have issued a further 1, 800,000 special warrants, each of which is
exchangeable for 1.1 Common Shares.
Other than disclosed in this 20-F, no treasury shares or other securities of the
Company are now the subject of any transaction, sale or option agreement.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS.
Conflicts of Interest
One or more of our directors or officers may also serve as directors or officers
of other companies engaged in similar business ventures. Accordingly, business
opportunities may be offered to a director or officer involved with us and other
companies. As a result, there may be situations which involve a conflict of
interest. Our directors and officers will at all times use their best efforts to
act in our best interests. Any interested director would be required to declare
the nature and extent of his or her interest and would not be entitled to vote
at meetings of directors which evoke any such conflict.
Our Secretary and a director, Andrew Chamberlain, is also a director of Loma Oil
& Gas Limited, an Alberta corporation ("Loma Oil"), and Interex Minerals
Limited, an Alberta corporation, both of which are reporting companies on the
Canadian Venture Exchange.
None of our other officers or directors of the Company are officers or directors
of other reporting corporations.
Related Party Transactions
1. Brocker New Zealand entered into a loan agreement with Highway Technologies
Limited for a maximum of One Million Five Hundred Thousand ($1,500,000) New
Zealand Dollars. Interest is payable on these funds at thirty percent (30%)
per annum. As of March 31, 1999, the amount advanced to Highway
Technologies Limited was $689,523.
2. During the fiscal year ended March 31, 1996, we provided an interest-free
short term loan characterized as an advance to Michael Ridgeway, our Chief
Executive Officer. The balance outstanding on this loan at March 31, 1996
was $136,256.
3. In March 31, 1997, we provided an interest-free loan characterized as an
advance to Michael Ridgeway, our Chief Executive Officer. The balance
outstanding at March 31, 1997 was $71,390.
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4. During the fiscal year ended March 31, 1998, we provided an interest-free
loan characterized as an advance to Michael Ridgeway, our Chief Executive
Officer. The balance outstanding at March 31, 1998 was $5,778.
5. During the fiscal year ended March 31, 1999, we provided an interest-free
short term advance to Michael Ridgeway, our Chief Executive Officer. The
balance outstanding at March 31, 1999 was $4,663.
6. We loaned $94,817 to Michael Ridgeway, our Chief Executive Officer.
Interest on this loan accrues at 9.94% per annum and this loan is unsecured
and is payable upon demand.
7. We loaned $130,000 to Casey O'Byrne, our Chairman of the Board. Interest on
this loan accrues at 5% per annum and the loan is unsecured and is payable
by December 21, 2002.
8. Our Directors have exercised certain stock options. The funds required to
exercise these options have been lent to those directors by Brocker New
Zealand. As of March 31, 1999, the amount outstanding on these loans was
the aggregate amount of $749,375. The current market value of the shares of
common stock held as security for these loans is in excess of $1.6 million
dollars. The loan advanced to Richard Justice ($98,603) is interest free.
Interest is charged on other loans at 7.5% per annum. The loan to each
director is repayable on demand or within thirty (30) days of the
individual ceases to be our employee or one of our subsidiaries. The
beneficial ownership of such shares are held as security for the loan, and
we retain the right to either sell or cancel such shares to settle any
outstanding loan amounts. Employees may not sell or transfer such shares
prior to the settlement of any amounts outstanding. The loans to our
directors and officers are full recourse loans.
9. Directors of our various subsidiaries have advances owing as of March 31,
1999 totaling $193,124. In all situations, these directors were
shareholders of the subsidiary prior to acquisition by Brocker New Zealand.
The amounts outstanding will be repaid as the acquisitions are settled. No
interest is charged on the amounts outstanding and the balances are
included in other receivables.
10. Michael Ridgeway was issued 860,755 shares of our Series A Preferred Stock
and warrants to purchase 148,500 shares of our no par value common stock at
a price of $1.10 per share in consideration of the settlement of the
indebtedness to Mr. Ridgeway in the amount of $920,889.34 New Zealand
Dollars which is equal to approximately $860,755.62 Canadian Dollars. The
indebtedness resulted from our purchase from Mr. Ridgeway and another party
of the shares of common stock of SealCorp Computer Products Ltd. for a
total price of $2,750,000 New Zealand Dollars which is equal to
approximately $2,667,500 Canadian Dollars.
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
Common Stock
Our Articles of Incorporation authorize us to issue an unlimited number of
shares of common stock without nominal or par value, and 15,414,045 shares of
such common stock are issued and outstanding as of May 19, 2000. The holders of
the shares of our common stock are entitled to dividends as and when declared by
our Board of Directors, to one vote per share at meetings of our shareholders,
and, upon liquidation, to receive such assets as are distributable to the
holders of such shares.
Escrowed Shares
We have outstanding 998,635 shares of our common stock held in escrow, which
shares are subject
28
<PAGE>
to the terms of the following issued and escrow arrangements:
(a) Pursuant to an Escrow Agreement dated March 31, 1997 (the "ICS Escrow
Agreement"), a total of 760,500 shares of our common stock have been
deposited in escrow with Montreal Trust Company of Canada. The ICS Escrow
Agreement provides that such shares may be released at the rate of one
share for each $1.65 of cash generated by or from Industrial Communications
Service Ltd., subject to a maximum of one-third of such shares being
released each year. To date there have been no releases pursuant to the ICS
Escrow Agreement.
(b) Pursuant to an Escrow Agreement dated April 1, 1997, the shares of our
common stock purchased pursuant to the acquisition of the shares of common
stock of Powercall are to be deposited in escrow. As of September 29, 1999,
there are 238,135 shares of our common stock deposited in escrow to be
released based on the cumulative cash generated by Powercall, using the
share price at March 31, 1998.
(c) Pursuant to an Escrow Agreement dated December 24, 1997, the shares to be
issued pursuant to the acquisition of NZ Online (currently Image Craft) are
to be deposited in escrow. Once deposited, such shares are to be released
based on cash generated by NZ Online for the years ended March 31, 1999 and
March 31, 2000, using the share price as at March 31, 1998.
(d) Pursuant to an escrow agreement ("Easy PC Agreement") dated July 10, 1997
among Montreal Trust Company of Canada ("Easy PC Trustee"), the Company and
Jonathon Barker, Moira Dobson, Riley Thorp Associates, Mick Laverty, Craig
Philipson, Geoff Andoe and Jo Andoe ("Escrowed Easy PC Shareholders"), the
Escrowed Easy PC Shareholders have deposited with the Easy PC Trustee an
aggregate of 16,785 Common Shares ("Easy PC Escrowed Shares"). The Easy PC
Escrowed Shares may not be sold, assigned, hypothecated, alienated,
released from escrow, transferred within escrow, or otherwise in any manner
dealt with, without the prior written consent of the stock exchange on
which our Common Shares are listed and posted for trading. Pursuant to the
terms of the Easy PC Escrow Agreement, the Easy PC Escrowed Shares will be
released at the rate of one share for each $1.75 of cash flow generated by
or on from Easy PC Computer Rentals Limited subject to a maximum of
one-third of such shares being released each year. There have been no
releases pursuant to the Easy PC Escrow Agreement to date.
(e) Pursuant to an escrow agreement ("1World Escrow Agreement") dated June 10,
1998, among the Company, Montreal Trust Company of Canada ("1World
Trustee"), Brocker and Gary McNabb ("McNabb"), McNabb agreed to deposit
with the 1World Trustee certain of the shares issuable pursuant to the
acquisition of 1World ("1World Escrowed Shares"). The 1World Escrow
Agreement provides that the 1World Escrowed Shares may not be sold,
assigned, hypothecated, alienated, released from escrow, transferred within
escrow, or otherwise in any manner dealt with, without the prior written
consent of the Toronto Stock Exchange. Pursuant to the terms of the 1World
Escrow Agreement, the 1World Escrowed Shares will be released at the rate
of one share for each $1.31 of cash flow generated by or from New Zealand
Online Limited. To date, there have been no shares deposited in escrow
pursuant to the 1World Escrow Agreement.
Pooled Shares
There are no shares of our no par value common stock are held in trust or
pooled.
Shares Reserved for Issuance
We have reserved an aggregate of 10,814,555 shares of our common stock for
issuance as follows:
a. 1,000,000 shares of our common stock have been reserved for issuance
in connection with the exercise of warrants included in units sold
pursuant to a private placement at a price of $1.00 per unit for
720,000 units and a price of $1.25 per unit for 280,000 units, each
unit consisting of one
29
<PAGE>
share of our common stock and one non-transferable warrant entitling
the holder to purchase one share of our common stock, exercisable for
a period of 2 1/2 years at a price of $1.25 per share. In compliance
with the requirements of the Toronto Stock Exchange, Richard Justice,
an "insider" who was not allowed to participate in the private
placement at a discount, purchased the 280,000 units at $1.25 per
unit.
b. 1,318,000 shares of our common stock have been reserved for issuance
in connection with the exercise of stock options (see "Options to
Purchase Securities" specified at Item 12 of this Form 20-F).
c. A total of 3,186,000 common shares have been reserved for issuance in
connection with a private placement of special warrants completed on
December 15, 1999. We have issued 1,800,000 special warrants, each of
which may be exchanged, at no additional costs, into one unit, each
unit to consist of one common share and one half share purchase
warrant. Two half share purchase warrants together will entitle the
holder to purchase one additional common share at a price of $3.15 per
share, expiring June 15, 2001; if these half share purchase warrants
are fully exercised this would result in an additional 900,000 common
shares being issued. Pursuant to this private placement, as agents'
compensation, we also issued share purchase warrants to purchase an
additional 486,000 common shares at $3.15 per share, exercisable for a
period of 18 months.
d. A total of 2,208,400 common shares have been reserved for issuance in
connection with a private placement of special warrants completed on
January 21, 2000. We have issued 1,800,000 special warrants, each of
which may be exchanged, at no additional cost, in 1.1 common shares;
this will result in an additional 1,980,000 common shares being
issued. Pursuant to this private placement, as agents' compensation,
we have agreed to issue options to purchase an additional 228,400
common shares at $6.25 per exercisable warrant for a period of 2
years.
e. Pursuant to various acquisition agreements we may issue additional
Common Shares to the vendors of certain companies we have acquired.
The number of shares that may be issued is dependent on the cash flows
generated by those companies in future periods and it is not possible,
at the present time, to determine the number of shares that may be
issued. We have reserved a maximum possible 3,102,155 Common Shares
for these transactions (See "Escrowed Shares") specified at item 14 of
this Form 20-F.
Other Securities Subject to Hold Restrictions
Pursuant to a private placement approved by the Toronto Stock Exchange on July
6, 1999, we issued 720,000 units at a price of $1.00 per unit and 280,000 units
at $1.25 per unit, each unit consisting of one share of our common stock and one
non-transferable warrant entitling the holder to purchase one additional share
of our common stock, exercisable for a period of 2 1/2 years at a price of $1.25
per share until January 16, 2002. These securities are subject to a holding
period requirement which expires on July 16, 2000. To date, none of these
warrants have been exercised.
Pursuant to a private placement completed on December 15, 1999, we issued
1,800,000 special warrants exchangeable for units consisting of common shares
and half share purchase warrants. Two half share purchase warrants will entitle
the holder to purchase one additional common share at a price of $3.15, expiring
June 15, 2001. We have agreed to make reasonable commercial efforts to file a
prospectus to qualify the distribution of common shares and half share purchase
warrants issuable upon the exercise of the half share purchase warrants, in
which case such common shares and half share purchase warrants would be issued
without any hold restrictions. However, if any of the special warrants are
exercised before we receive a receipt for a qualifying prospectus, or if no such
receipt is issued, then the securities will be subject to a holding period
requirement which expires on December 15, 2000. To date, none of these special
warrants have been exercised.
30
<PAGE>
A total of 2,208,400 common shares have been reserved for issuance in connection
with a private placement of special warrants completed on January 21, 2000. We
have issued 1,800,000 special warrants, each of which may be exchanged, at no
additional cost, in 1.1 common shares; this will result in an additional
1,980,000 common shares being issued. Pursuant to this private placement, as
agents' compensation, we have agreed to issue options to purchase an additional
228,400 common shares at $6.25 per exercisable warrant for a period of 2 years.
We have agreed to make reasonable commercial efforts to file a prospectus to
qualify the distribution of the Common Shares issuable upon the exercise of the
special warrants and options, in which case the Common Shares would be issued
without any hold restrictions. However, if any of the special warrants or
options are exercised before we receive a receipt for a qualifying prospectus,
or if no such receipt is issued, then the Common Shares will be subject to a
holding period requirement that expires January 21, 2001.
There are no issued shares of our common stock subject to any holding period
requirement, other than as disclosed above.
Preferred Stock
Our Articles of Incorporation authorize us to issue an unlimited number of
shares of preferred stock none of which are issued and outstanding as of May 19,
2000. Our directors may authorize the issuance of additional shares of such
preferred stock in one or more series, and may determine at the time of issuance
the designation, rights, privileges, restrictions and conditions relating to
such shares. To date one series of our preferred stock has been authorized as
follows:
The holders of shares of our Series A preferred stock are entitled to a
cumulative preferred dividend of 6.5% per annum of the specified capital of that
preferred stock ($1.00 per share) to be paid annually on September 1 of each
year, and upon our liquidation to receive the stated capital thereof together
with any accrued but unpaid dividends in priority to our common stock and other
series of preferred stock ranking junior to Series A, but shall not be entitled
to participate further in any such liquidation.
At our election, our Series A preferred stock may be redeemed at any time by us
for a redemption amount equal to $1.10 per share plus the amount of accrued but
unpaid dividends (representing a 10% redemption premium).
The Series A preferred stock may, at the holders option, be convertible into
shares of our common stock at any time until March 31, 2001. The conversion
price was $2.00 per common share until March 31, 1999, and for each of the 2
years thereafter is equal to the market price calculated as at the beginning of
each year. The market price is to be the average trading price for the 20
trading days prior to April 1 of each such year. For the period from April 1,
1999 to March 31, 2000, the conversion price was $1.30 per share.
If we fail to make two consecutive annual dividend payments, the holders of
shares of our Series A preferred stock, as a class, shall have the right to
elect a majority of our directors.
The holders of shares of our Series A preferred stock shall have the right to
approve, by special resolution:
(a) any change to the rights of the holders of shares of our Series A preferred
stock,
(b) the creation of a series of preferred stock having rights superior to those
of our Series A preferred stock, and
(c) the creation of a series of preferred stock having rights equal to our
Series A preferred stock, unless we receive net proceeds from the issuance
of such shares equal to at least 110% of the liquidation preference of such
shares.
Except as described above or as otherwise prescribed by the Alberta Business
Corporations Act, the holders of shares of our Series A preferred stock are not
entitled to receive notice of, or vote at, any meeting of our shareholders.
31
<PAGE>
PART III
ITEM 15. DEFAULT UPON SENIOR SECURITIES
We are not in default upon any senior securities or indebtedness.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITIES FOR REGISTERED
SECURITIES
Not applicable.
ITEM 17. FINANCIAL STATEMENTS
We maintain our books and records in Canadian Dollars while our subsidiaries
maintain their books and records in New Zealand or Australian Dollars, as
appropriate, which are then translated to Canadian Dollars.
Reconciliation to Generally Accepted Accounting Principles in the United States.
We have prepared our consolidated financial statements contained in this Form
20-F in accordance with generally accepted accounting principles in Canada.
These principles differ in certain respects from generally accepted accounting
principles in the United States as summarized in note 18 to the attached
financial statements.
<PAGE>
Financial Statements of
Brocker Technology
Group Limited
Unaudited nine months ended December 31, 1999 and audited
for the years ended March 31, 1999, 1998 and 1997
<PAGE>
Auditors' Report to the Board of Directors
and Shareholders
We have audited the consolidated balance sheets of Brocker Technology Group
Limited as at March 31, 1999, 1998 and 1997 and the consolidated statements of
earnings, retained earnings, foreign currency translation reserve and cash flows
for each of the years in the three year period ended March 31, 1999. 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, 1999,
1998 and 1997 and the results of its operations and its cash flows for each of
the years in the three year period ended March 31, 1999 in accordance with
Canadian generally accepted accounting principles.
Canadian generally accepted accounting principles vary in certain significant
respects from accounting principles generally accepted in the United States.
Application of accounting principles generally accepted in the United States
would have affected results of operations for each of the years in the three
year period ended March 31, 1999 and shareholders' equity as at March 31, 1999,
1998 and 1997 to the extent summarized in note 18 to the consolidated financial
statements.
Signed "KPMG LLP"
Chartered Accountants
Auckland, New Zealand
August 18, 1999, except for note 17 which is as of May 15, 2000
<PAGE>
Brocker Technology Group Limited
Consolidated Balance Sheets
(Canadian Dollars)
December 31, 1999 and March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
===================================================================================================================
December 31, March 31, March 31, March 31,
1999 1999 1998 1997
-------------------------------------------------------------------------------------------------------------------
(Unaudited)
Assets
<S> <C> <C> <C> <C>
Current assets:
Cash $ 5,386,768 $ -- $ 205,365 $ 602,233
Accounts receivable 23,574,081 22,909,294 13,915,450 8,917,099
Other receivables (note 11) 1,869,214 1,435,325 1,636,758 1,114,562
Inventories 15,674,069 15,276,865 9,673,446 6,120,143
Prepaid expenses and deposits 294,555 917,009 538,610 197,664
Income taxes recoverable 1,221,042 554,538 403,334 --
Deferred tax asset 309,771 310,270 214,231 72,182
-------------------------------------------------------------------------------------------------------------------
48,329,500 41,403,301 26,587,194 17,023,883
Deferred development costs (note 5) 1,450,773 1,252,368 490,513 --
Capital assets (note 4) 5,890,574 5,551,068 3,679,572 1,174,875
Investment in associated company (note 6) 811,306 604,433 263,113 --
Goodwill, net of accumulated amortization
of $1,258,141 (March 31, 1999 - $1,036,327;
March 31, 1998 - $779,583; March 31,
1997 - $576,476) 1,690,210 1,876,325 1,478,779 1,727,742
-------------------------------------------------------------------------------------------------------------------
$ 58,172,363 $ 50,687,495 $ 32,499,171 $ 19,926,500
===================================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Bank overdraft $ -- $ 55,433 $ -- $ --
Accounts payable 23,869,848 36,648,724 17,422,333 10,907,853
Accrued liabilities 4,147,323 1,596,241 1,387,512 1,297,283
Rental finance liability (notes 7 and 8) -- -- 1,094,464 --
Financing facility (note 8) 11,076,510 3,213,122 5,827,883 998,485
Income taxes payable 652,071 -- -- 73,959
Bank indebtedness -- -- -- 552,047
Current portion of long-term debt (note 8) 199,963 220,028 44,303 97,313
-------------------------------------------------------------------------------------------------------------------
39,945,715 41,733,548 25,776,495 13,926,940
Long-term debt (note 8) 2,018,376 2,284,578 881,070 115,005
-------------------------------------------------------------------------------------------------------------------
41,964,091 44,018,126 26,657,565 14,041,945
Shareholders' equity:
Share capital (note 9) 16,012,050 5,761,721 5,367,730 5,263,740
Foreign currency translation reserve (1,266,716) (799,084) (881,364) (82,609)
Retained earnings 1,462,938 1,706,732 1,355,240 703,424
-------------------------------------------------------------------------------------------------------------------
16,208,272 6,669,369 5,841,606 5,884,555
Deferred development costs (note 5)
Investment in associated company (note 6)
Commitments (note 15)
Contingencies (note 16)
Subsequent events (note 17)
-------------------------------------------------------------------------------------------------------------------
$ 58,172,363 $ 50,687,495 $ 32,499,171 $ 19,926,500
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
On behalf of the Board:
1
<PAGE>
Director Director
--------------------------- ---------------------------------
2
<PAGE>
Brocker Technology Group Limited
Consolidated Statements of Earnings
(Canadian Dollars)
Unaudited nine months ended December 31, 1999 and 1998 and
audited for the years ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
===================================================================================================================
Nine months Nine months Year Year Year
ended ended ended ended ended
December 31, December 31, March 31, March 31, March 31,
1999 1998 1999 1998 1997
-------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue $109,816,816 $ 98,003,568 $ 133,302,640 $ 70,811,220 $ 50,109,539
Cost of goods sold 95,830,402 85,146,124 115,611,548 56,410,370 41,010,489
-------------------------------------------------------------------------------------------------------------------
Gross margin 13,986,414 12,857,444 17,691,092 14,400,850 9,099,050
Operating expenses:
Depreciation and amortization 889,802 1,276,573 2,010,703 1,692,585 429,875
Net interest expense 845,120 779,281 1,409,187 668,845 161,764
Salaries and commissions 7,864,419 5,355,516 6,348,910 6,431,431 4,307,111
Other operating expenses 4,308,278 4,719,481 7,043,157 4,225,153 2,890,862
-------------------------------------------------------------------------------------------------------------------
13,907,619 12,130,851 16,811,957 13,018,014 7,789,612
-------------------------------------------------------------------------------------------------------------------
Earnings before undernoted items 78,795 726,593 879,135 1,382,836 1,309,438
Equity accounted losses
of associated company (note 6) 67,256 67,177 91,330 79,953 --
-------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 11,539 659,416 787,805 1,302,883 1,309,438
Income taxes (note 10) 102,590 275,842 272,991 506,067 471,788
-------------------------------------------------------------------------------------------------------------------
Net earnings (loss) for the period $ (91,051) $ 383,574 $ 514,814 $ 796,816 $ 837,650
===================================================================================================================
Earnings (loss) per common share
[note 9(d)] $ (0.02) $ 0.03 $ 0.03 $ 0.06 $ 0.06
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Brocker Technology Group Limited
Consolidated Statements of Retained Earnings
(Canadian Dollars)
Unaudited nine months ended December 31, 1999 and 1998 and
audited for the years ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
===================================================================================================================
Nine months Nine months Year Year Year
ended ended ended ended ended
December 31, December 31, March 31, March 31, March 31,
1999 1998 1999 1998 1997
-------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Retained earnings,
beginning of period $ 1,706,732 $ 1,355,240 $ 1,355,240 $ 703,424 $ 164,362
Net earnings (loss) for the period (91,051) 383,574 514,814 796,816 837,650
Discount on redemption
of preferred shares (note 9) -- -- -- 50,000 (50,000)
Preferred dividends paid (152,743) (105,895) (163,322) (195,000) (248,588)
-------------------------------------------------------------------------------------------------------------------
Retained earnings, end of period $ 1,462,938 $ 1,632,919 $ 1,706,732 $ 1,355,240 $ 703,424
===================================================================================================================
See accompanying notes to consolidated financial statements.
<CAPTION>
Statements of Movements in Foreign Currency Translation Reserve
(Canadian Dollars)
Unaudited nine months ended December 31, 1999 and 1998 and
audited for the years ended March 31, 1999, 1998 and 1997
-------------------------------------------------------------------------------------------------------------------
Nine months Nine months Year Year Year
ended ended ended ended ended
December 31, December 31, March 31, March 31, March 31,
1999 1998 1999 1998 1997
-------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Beginning of period $ (799,084) $ (881,364) $ (881,364) $ (82,609) $ (104,830)
Difference arising on the
translation of foreign operations (467,632) 136,708 82,280 (798,755) 22,221
-------------------------------------------------------------------------------------------------------------------
End of period $ (1,266,716) $ (744,656) $ (799,084) $ (881,364) $ (82,609)
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Brocker Technology Group Limited
Consolidated Statements of Cash Flows
(Canadian Dollars)
Unaudited nine months ended December 31, 1999 and 1998
and audited for the years ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Nine months Nine months Year Year Year
ended ended ended ended ended
December 31, December 31, March 31, March 31, March 31,
1999 1998 1999 1998 1997
-----------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Receipts from customers $ 108,012,642 $ 88,767,205 $ 124,528,860 $ 62,560,393 $ 46,841,394
Payments to suppliers
and employees (110,653,499) (85,432,398) (119,790,928) (59,656,639) (45,587,412)
Interest paid (799,922) (664,336) (1,338,547) (463,756) (143,947)
Taxation paid (154,836) (208,613) (417,742) (970,979) (562,338)
-----------------------------------------------------------------------------------------------------------------------------------
Cash flows from
operating activities (3,595,615) 2,461,858 2,981,643 1,469,019 547,697
Cash flows from investing activities:
Proceeds from sale of
capital assets -- -- 51,597 56,814 75,114
Purchase of capital assets (552,177) (4,381,251) (4,673,881) (1,045,119) (512,485)
Investment in associated company (300,905) (284,602) (428,440) (343,066) --
Purchase of subsidiaries (note 3) (33,831) (188,928) (412,566) (523,181) --
-----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities (886,913) (4,854,781) (5,463,290) (1,854,552) (437,371)
Cash flows from financing activities:
Proceeds from issue of
share capital 10,250,329 29,510 -- -- 399,123
Proceeds from share
options exercised -- -- 29,500 130,900 --
Proceeds from share
warrants exercised -- -- -- 495,000 --
Proceeds from mortgage
finance raised -- 2,636,725 2,428,692 -- 126,071
Redemption of preferred shares -- -- -- (543,049) (50,000)
Repayment of mortgage finance (175,313) (84,975) (70,745) -- (65,266)
Payment of dividend
on preferred shares (152,743) (105,895) (163,322) (195,000) (248,588)
-----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities 9,922,273 2,475,365 2,224,125 (112,149) 161,340
-----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
cash equivalents 5,439,745 82,442 (257,522) (497,682) 271,666
Cash (overdraft), beginning of period (55,433) 205,365 205,365 602,233 320,814
Translation of cash equivalents
to reporting currency 2,456 6,385 (3,276) 100,814 9,753
-----------------------------------------------------------------------------------------------------------------------------------
Cash (overdraft), end of period $ 5,386,768 $ 294,192 $ (55,433) $ 205,365 $ 602,233
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
1. Basis of presentation:
(a) General:
Brocker Technology Group Limited (the "Company") was incorporated
under the Business Corporations Act of 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 by management in
accordance with generally accepted accounting principles of Canada.
These principles are different in some respects from United States
generally accepted accounting principles and the significant
differences are described in note 13.
(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, are as follows:
o Brocker Technology Group (NZ) Limited [formerly Brocker
Investments (NZ) Limited]
o Brocker Investments (Australia) Pty Limited
o Sealcorp Computer Products Limited
o Sealcorp Telecommunications Group Limited
o Sealcorp Australia Pty Limited (formerly TGE Pty Limited)
o Easy PC Computer Rentals Limited
o Image Craft Limited (formerly NZ Online Limited)
o Image Craft Australia Pty Limited (formerly Parrilott Pty
Limited)
o Industrial Communications Service Limited
o Photo Magic Limited
o Powercall Technologies Limited
o Pritech Corporation Limited
6
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
2. Significant accounting policies, continued:
(a) Principles of consolidation, continued:
o Pritech Australia Pty Limited
o Northmark Technologies Limited
o 1 World Systems Limited (formerly Microchannel Limited)
o Tech Support Limited
As at December 31, 1999, the operations of Image Craft Limited,
Northmark Technologies Limited and Photo Magic Limited were
amalgamated with Brocker Technology Group (NZ) Limited.
During 1998, Brocker Technology Group Limited 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 amortized on a
straight-line basis over its estimated useful life, considered to be
five to ten years. On an ongoing basis, management reviews the
valuation and amortization 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,
additional goodwill is recognized when the additional amounts 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 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.
7
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
2. Significant accounting policies, continued:
(c) Foreign currency, continued:
The following rates were used in the preparation of the financial
statements:
----------------------------------------------------------------------
New Zealand dollar Average rate Rate at period end
----------------------------------------------------------------------
1999 December 31 0.7696 0.7533
1999 March 31 0.7862 0.7976
1998 December 31 0.7789 0.8062
1998 March 31 0.8833 0.7816
1997 March 31 0.9338 0.9490
----------------------------------------------------------------------
Australian dollar Average rate Rate at period end
----------------------------------------------------------------------
1999 December 31 0.9539 0.9478
1999 March 31 0.9318 0.9455
1998 December 31 0.9234 0.9439
1998 March 31 1.0055 0.9408
1997 March 31 1.0680 1.0736
----------------------------------------------------------------------
(d) Inventories:
Inventories principally comprise finished goods and are carried at the
lower of cost and net realizable 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:
----------------------------------------------------------------------
Asset Rate
----------------------------------------------------------------------
Buildings 2%
Office equipment 20%
Vehicles 20% and 26%
Furniture and fixtures 20%
Computer hardware 20% to 30%
Computer software 20% to 40%
Plant and equipment 20% to 26%
Leasehold improvements 1 to 4 Years
Computer hardware held for rental 2 to 3 Years
8
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
9
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
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 are expensed as incurred. Development costs are
expensed as incurred unless they meet the criteria under generally
accepted accounting principles for deferral and amortization. Deferred
development costs are amortized over the expected life of the
developed product, currently a maximum of three years.
(h) Deferred income taxes:
The Company follows the deferral method of income tax allocation such
that deferred income taxes are recognized when income and expense
items are reported for income tax purposes in years different from
those in which they are recorded for financial reporting purposes.
Effective April 1, 2000, the Company will adopt the liability method
of accounting for income taxes.
(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 vested
options would have been exercised.
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.
10
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
3. Acquisitions:
1999 Acquisitions:
Tech Support Limited
Effective August 1, 1999, Brocker Technology Group (NZ) Limited
acquired the net assets of 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.
This acquisition has been accounted for using the purchase method. Net
assets acquired and consideration paid are as follows:
======================================================================
1999
----------------------------------------------------------------------
Current assets $ 37,470
Current liabilities (22,822)
----------------------------------------------------------------------
14,648
Capital assets 9,555
Goodwill attributed 9,628
----------------------------------------------------------------------
Consideration paid $ 33,831
======================================================================
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
Pritech 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.
11
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
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.
12
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
3. Acquisitions, continued:
1999 Acquisitions, continued:
Pritech Corporation Limited, continued
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
======================================================================
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 and
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.
13
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
3. Acquisitions, continued:
1999 Acquisitions, continued:
1 World Systems Limited (formerly Microchannel Limited), continued
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
----------------------------------------------------------------------
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 fulfill the
requirements of the Motorola Service contract awarded to the company.
14
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
3. Acquisitions, continued:
1999 Acquisitions, continued:
Motorola Service Contract, continued
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
----------------------------------------------------------------------
1998 Acquisitions:
Powercall Technologies Limited
On May 10, 1997, Brocker Technology Group (NZ) Limited acquired the
net assets of Powercall Limited and Powercall Services Limited
(collectively "Powercall") for an initial consideration of $3,727
(NZ$4,948) and 27,440 common shares for a consideration of $63,561.
Powercall is principally involved with the design and development of
telecommunication systems.
The total purchase price of Powercall is based on the lesser of a four
times multiple of the cumulative cash earned by Powercall for the
years ended March 31, 1998 to 2001 or a twelve times multiple of the
profit for the year ended March 31, 2001. The purchase price is
limited to a maximum of $15.1 million (NZ$20 million). An additional
one year is then allowed for this price to be earned out by Powercall.
That is the maximum price must be subsequently earned by Powercall,
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.
15
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
3. Acquisitions, continued:
1998 Acquisitions, continued:
Powercall Technologies Limited, continued
This acquisition was accounted for using the purchase method. Net
assets acquired and consideration paid were as follows:
-----------------------------------------------------------------------
1999
-----------------------------------------------------------------------
Capital assets $ 180,582
Net current liabilities (124,556)
Goodwill attributed 7,535
-----------------------------------------------------------------------
Consideration paid $ 63,561
-----------------------------------------------------------------------
On November 30, 1998, an additional 98,416 shares were issued in
relation to the acquisition of Powercall, with an attributable value of
$172,228. As noted in note 9, a further 103,422 shares are to be issued
in connection with this acquisition.
Easy PC Computer Rentals Limited
On July 10, 1997, Brocker Technology Group (NZ) Limited acquired Easy
PC Computer Rentals Limited ("Easy") for an initial consideration of
$68,820 (NZ$71,183) and 8,128 common shares. In addition, an advance
on the final price was paid to the previous shareholders of $112,995
(NZ$150,000). This amount is repayable to Easy based on the earn-out
details below, and is included within prepaid expenses and deposits.
Easy is involved in the rental of computer equipment.
The maximum purchase price payable is based on the profit earned by
Easy for the year ended March 31, 1998 at a four times multiple.
Additional consideration, however, is only payable based on the cash
earned, as defined, by Easy for the years ended March 31, 1999 to
2000, being the earn-out period. That is the maximum price must be
subsequently earned by Easy, 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.
16
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
3. Acquisitions, continued:
1998 Acquisitions, continued:
Easy PC Computer Rentals Limited, continued
This acquisition was accounted for using the purchase method. Net
assets acquired and consideration paid were as follows:
----------------------------------------------------------------------
1999
----------------------------------------------------------------------
Capital assets $ 248,576
Rental assets, externally financed (note 7) 1,452,174
Rental finance liability (note 7) (1,452,174)
Net current liabilities (253,602)
Goodwill attributed 73,846
----------------------------------------------------------------------
Consideration paid $ 68,820
----------------------------------------------------------------------
On December 31, 1998, an additional 94,782 shares were issued in
relation to the acquisition of Easy PC Computer Rentals Limited, with
an attributable value of $165,869.
Image Craft Limited (formerly New Zealand Online Limited)
On December 24, 1997, Brocker Technology Group (NZ) Limited acquired
Image Craft Limited and its subsidiary company, Parrilott Pty Limited,
for an initial cash consideration of $390,800 (NZ$500,000). Image
Craft Limited and Parrilott Pty Limited (collectively "Image") are
principally involved in the design and implementation of image
processing and storage equipment for the photographic industry.
The maximum purchase price payable was to be based on the profit
earned by Image for the year ended March 31, 1998 at a four times
multiple. However, during the year ended March 31, 1999, an additional
consideration of $125,034 (NZ$159,036) was accrued in relation to the
final settlement.
17
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
3. Acquisitions, continued:
1998 Acquisitions, continued:
Image Craft Limited (formerly New Zealand Online Limited), continued
This acquisition was accounted for using the purchase method. Net
assets acquired and consideration paid were as follows:
----------------------------------------------------------------------
1999
----------------------------------------------------------------------
Net current assets $ 65,648
Capital assets 278,372
Goodwill attributed 46,780
----------------------------------------------------------------------
Consideration paid $ 390,800
----------------------------------------------------------------------
1997 Acquisitions:
Industrial Communications Service Limited
On March 31, 1997, Brocker Investments (NZ) Limited acquired
Industrial Communications Service Limited for an initial cash
consideration of $360,644 (NZ$387,998) and 195,486 common shares.
Industrial Communications Service Limited ("Industrial") is involved
in the servicing of telecommunication related equipment and the design
and implementation of cellular based telecommunication solutions.
The maximum purchase price payable is $1,570,629 (NZ$2,084,998).
Additional consideration, however, is only payable based on the cash
earned, as defined, by Industrial for the years ended March 31, 1998
to 1999, being the earn-out period. That is any additional
consideration must be subsequently earned by the company, 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 end of the earn-out
period. The company has not achieved a level of profitability that
warrants the release of any shares currently held in escrow.
18
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
3. Acquisitions, continued:
1997 Acquisitions, continued:
Industrial Communications Service Limited, continued
This acquisition was accounted for using the purchase method. Net
assets acquired and consideration paid were as follows:
----------------------------------------------------------------------
1999
----------------------------------------------------------------------
Net current assets $ 399,083
Capital assets 322,164
Goodwill attributed --
----------------------------------------------------------------------
Consideration paid $ 721,247
----------------------------------------------------------------------
4. Capital assets:
===========================================================================
December 31, 1999
---------------------------------------------------------------------------
Accumulated Net book
Cost depreciation value
---------------------------------------------------------------------------
Land [note 8(a)] $ 587,574 $ -- $ 587,574
Buildings [note 8(a)] 2,652,612 94,338 2,558,274
Office equipment:
Leased 69,162 34,826 34,336
Non-leased 381,856 212,303 169,553
Vehicles:
Leased 57,904 38,189 19,715
Non-leased 78,753 37,425 41,328
Furniture and fixtures:
Leased
Non-leased 431,506 372,459 59,047
Computer hardware:
Non-leased 1,677,538 763,516 914,022
Held for rental 1,022,550 488,244 534,306
Computer software 790,772 161,645 629,127
Plant and equipment 297,158 24,380 272,778
Leasehold improvements 106,081 35,567 70,514
---------------------------------------------------------------------------
$ 8,153,466 $ 2,262,892 $ 5,890,574
===========================================================================
19
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
4. Capital assets, continued:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
March 31, 1999
----------------------------------------------------------------------------------------------
Accumulated Net book
Cost depreciation value
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land [note 8(a)] $ 622,128 $ -- $ 622,128
Buildings [note 8(a)] 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
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
March 31, 1998
------------------------------------------------------------------------------------------
Accumulated Net book
Cost depreciation value
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Office equipment:
Leased $ 29,598 $ 14,039 $ 15,559
Non-leased 218,228 82,476 135,752
Vehicles:
Leased 69,718 24,871 44,847
Non-leased 138,823 74,633 64,190
Furniture and fixtures:
Leased 35,598 4,041 31,557
Non-leased 349,516 118,955 230,561
Computer hardware:
Leased 15,659 2,349 13,310
Non-leased 1,243,415 562,767 680,648
Held for rental 360,951 75,233 285,718
Computer software 119,265 52,745 66,520
Plant and equipment 247,240 150,947 96,293
Leasehold improvements 126,156 26,851 99,305
------------------------------------------------------------------------------------------
2,954,167 1,189,907 1,764,260
Computer hardware, held for rental,
externally financed (note 7) 2,786,167 870,855 1,915,312
</TABLE>
20
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 5,740,334 $ 2,060,762 $ 3,679,572
----------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
4. Capital assets, continued:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
March 31, 1997
----------------------------------------------------------------------------------------------------------
Accumulated Net book
Cost depreciation value
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Office equipment:
Leased $ 21,822 $ 10,593 $ 11,229
Non-leased 204,195 59,289 144,906
Vehicles:
Leased 213,783 81,997 131,786
Non-leased 111,543 39,368 72,175
Furniture and fixtures:
Non-leased 347,710 96,214 251,496
Computer hardware:
Leased 3,628 689 2,939
Non-leased 682,022 299,220 382,802
Computer software 66,199 30,828 35,371
Plant and equipment 257,947 152,204 105,743
Leasehold improvements 53,054 16,626 36,428
----------------------------------------------------------------------------------------------------------
$ 1,961,903 $ 787,028 $ 1,174,875
----------------------------------------------------------------------------------------------------------
</TABLE>
5. Deferred development costs:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
March 31,
December 31, ------------------------------------------
1999 1999 1998 1997
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Development costs deferred,
beginning of period $ 1,404,723 $ 521,428 $ -- $ --
Development costs deferred
during the period 290,755 883,295 521,428 --
----------------------------------------------------------------------------------------------------------
1,695,478 1,404,723 521,428 --
Amortized during the period (244,705) (152,355) (30,915) --
----------------------------------------------------------------------------------------------------------
Development costs deferred, end of period $ 1,450,773 $ 1,252,368 $ 490,513 $ --
----------------------------------------------------------------------------------------------------------
</TABLE>
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.
22
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
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 $1.1 million (NZ$1.5
million). Interest is payable on these funds at 30% per annum. As at
December 31, 1999, amounts advanced to Highway Technologies Limited
amounted to $879,078 (NZ$1,166,969; March 31, 1999 - NZ$820,220). No
interest has been recorded on the loan for the current year (1998 -
NZ$60,735).
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
March 31,
December 31, ---------------------------------------
Carrying value of investment 1999 1999 1998
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Initial cost of investment $ 87,366 $ 87,366 $ 87,366
Amounts owing from associate 879,078 689,523 255,700
Equity accounted losses to date (155,138) (172,456) (79,953)
--------------------------------------------------------------------------------------------------------------
$ 811,306 $ 604,433 $ 263,113
--------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
December 31, March 31,
1999 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
The financial position of Highway Technologies Limited
as at March 31, 1999 is represented as follows:
Net current assets* $ 384 $ 3,718
Net current liabilities, including amounts owing to
Brocker Technology Group Limited including
accrued interest (1,085,175) (803,523)
-------------------------------------------------------------------------------------------------------------------
Total liabilities $ (1,084,791) $ (799,805)
-------------------------------------------------------------------------------------------------------------------
</TABLE>
* All research and development expenditure has been expensed.
23
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
6. Investments, continued:
Investment in associated company, continued:
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, 1999 and December 31, 1999. 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 in 1999 is limited to
$167,245.
Included within the financial statements for the year ended March 31, 1999
is revenue of $910,550 (1998 - $1,075,944) in relation to income earned on
these leases during the year up to the date of the renegotiation with a
corresponding depreciation expense of $736,995 (1998 - $870,855) and
interest charges of $173,555 (1998 - $205,089).
For 1998 and 1997, the finance company had recourse back to Easy PC
Computer Rentals Limited for any defaulting customers.
As at March 31, 1998, the total potential recourse was $1,915,312 spread
over some 421 individual contracts. The level of defaults during this
financial year was 7 contracts amounting to $7,000. Included within revenue
is $1,075,944 in relation to income earned on these leases in the period
since acquisition with a corresponding depreciation expense of $870,855 and
interest charges of $205,089.
24
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
8. Indebtedness:
(a) Long-term debt:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
March 31,
December 31, ---------------------------------------------
1999 1999 1998 1997
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage finance liability, payable in New
Zealand dollars, with a current interest
rate of 6.73%, collateralized by land
and buildings situated at 17 Kahika
Road, Beach Haven, Auckland, payable
over 10 years $ 2,099,617 $ 2,357,142 $ -- $ --
Less current portion (188,323) (183,352) -- --
--------------------------------------------------------------------------------------------------------------
1,911,294 2,173,790 -- --
Rental finance liability, payable in New
Zealand dollars, with an interest rate
of 16.1% per annum (note 7) -- -- 1,915,312 --
Less current portion -- -- (1,094,464) --
--------------------------------------------------------------------------------------------------------------
-- -- 820,848 --
Capital lease obligations, payable in New
Zealand dollars, with interest rates ranging
from 6.6% to 14.5% per annum,
collateralized by related assets, payable
over 1 to 3 years 65,991 91,632 49,813 145,888
Less current portion (11,640) (36,676) (44,303) (97,313)
--------------------------------------------------------------------------------------------------------------
Capital lease obligations payable
over 1 year 54,351 54,956 5,510 48,575
Unsecured term liability, repayable in New
Zealand dollars 52,731 55,832 54,712 66,430
--------------------------------------------------------------------------------------------------------------
$ 2,018,376 $ 2,284,578 $ 881,070 $ 115,005
--------------------------------------------------------------------------------------------------------------
</TABLE>
The total interest expense for the nine months and years ended in
relation to long-term debt was December 31, 1999 $110,954 and March
31, 1999 $258,957 (1998 - $207,048; 1997 - $4,989).
Capital lease obligations are repayable as follows:
----------------------------------------------------------------------
December 31, March 31,
1999 1999
----------------------------------------------------------------------
2000 $ 11,640 $ 36,676
2001 53,339 36,821
2002 1,012 18,135
----------------------------------------------------------------------
$ 65,991 $ 91,632
----------------------------------------------------------------------
25
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
26
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
8. Indebtedness, continued:
(b) Mortgage finance liability:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
March 31,
December 31, ----------------------------------------------------
1999 1999 1998 1997
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage finance liability $ 2,099,617 $ 2,357,142 $ -- $ --
---------------------------------------------------------------------------------------------------------
</TABLE>
On October 1, 1998, Brocker Technology Group (NZ) Limited purchased
new premises in Auckland, New Zealand. The purchase price of
NZ$3,400,000 was financed by mortgage finance of NZ$3,045,000. As at
December 31, 1999, the amount remaining outstanding was NZ$2,787,225
(March 31, 1999 - NZ$2,955,293), and is repayable as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
December 31, December 31, March 31,
1999 1999 1999
---------------------------------------------------------------------------------------------------------
(Cdn dollars) (NZ dollars) (NZ dollars)
<S> <C> <C> <C>
In less than 1 year $ 188,323 $ 249,997 $ 229,880
1 to 2 years 195,052 258,930 245,837
2 to 3 years 207,982 276,094 262,902
3 to 4 years 223,071 296,125 281,152
4 to 5 years 238,556 316,681 300,668
5 years and over 1,046,633 1,389,398 1,634,854
---------------------------------------------------------------------------------------------------------
$ 2,099,617 $ 2,787,225 $ 2,955,293
---------------------------------------------------------------------------------------------------------
</TABLE>
(c) Financing facility:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
March 31,
December 31, ----------------------------------------------------
1999 1999 1998 1997
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financing facility $ 11,076,510 $ 3,213,122 $ 5,827,883 $ 998,485
---------------------------------------------------------------------------------------------------------
</TABLE>
During the period ended December 31, 1999 the subsidiaries
successfully re-negotiated their financing arrangements. A new NZ $20
million financing facility, secured by a registered first debenture
over the assets and undertakings of these subsidiaries, replaces the
previous
27
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
facilities, of similar terms, which were terminated during the period.
The current interest rate on this facility is 6.7%.
28
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
9. Share capital:
(a) Authorized:
Unlimited number of common shares
Unlimited number of preferred shares
10,000,000 Series A preferred shares, 6.5% cumulative
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
March 31,
December 31, -------------------------------------------------
1999 1999 1998 1997
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Issued and outstanding:
Common shares $ 16,197,527 $ 3,353,490 $ 2,959,499 $ 2,262,460
Series A preferred -- 2,450,000 2,450,000 3,043,049
Less share issue costs (337,507) (41,769) (41,769) (41,769)
Shares to be issued 152,030 -- -- --
---------------------------------------------------------------------------------------------------------
$ 16,012,050 $ 5,761,721 $ 5,367,730 $ 5,263,740
---------------------------------------------------------------------------------------------------------
</TABLE>
As at December 31, 1999, the Company had in progress a private
placement offering of 1,800,000 shares for which proceeds of
$4,319,637 had been received. These proceeds have been included with
issued share capital. Also at December 31, 1999 there were 103,422
shares due to be issued in relation to the earnout of Powercall
Technologies Limited. These shares have been valued at $1.47 being the
market value of these shares as at June 30, 1999 being the date the
conditions for their issue were met.
As at December 31, 1999 and March 31, 1999, 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 1998, 760,500 shares
were held in escrow.
29
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
9. Share capital, continued:
(b) Share transactions:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
March 31, 1999 March 31, 1998 March 31, 1997
----------------------- ----------------------- -----------------------
Common shares Shares Amount Shares Amount Shares Amount
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares outstanding at March 31 11,704,554 $ 4,214,324 10,315,486 $ 2,262,460 8,741,000 $ 1,040,800
Issue of shares for acquisition of Industrial
Communications [note (i)] -- -- 760,500 1,254,825 195,486 322,537
Issue of shares for acquisition of Powercall
Technologies Limited [note (ii)] 284,733 498,283 27,440 54,880 -- --
Issue of shares for acquisition of Easy PC
Computer Rentals Limited [note (iii)] 111,567 195,258 8,128 16,259 -- --
Issue of shares in settlement of Personal
Computer Systems Ltd. acquisition [note (iv)] -- -- -- -- 220,000 204,423
Exercise of share warrants 25,000 29,500 450,000 495,000 -- --
Exercise of stock options -- -- 143,000 130,900 1,159,000 694,700
--------------------------------------------------------------------------------------------------------------------------
Shares issued at March 31 12,125,854 4,937,365 11,704,554 4,214,324 10,315,486 2,262,460
Acquisition shares held in
escrow [note (i) and (iii)] (963,602) (1,583,875) (760,500) (1,254,825) -- --
--------------------------------------------------------------------------------------------------------------------------
Shares outstanding at March 31 11,162,252 $ 3,353,490 10,944,054 $ 2,959,499 10,315,486 $ 2,262,460
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
----------------------------------------------------------------------
December 31, 1999
------------------------
Common shares Shares Amount
----------------------------------------------------------------------
Shares outstanding at March 31 12,125,854 $ 4,937,365
Conversion of preferred shares 1,884,613 2,450,000
Private placement 1,000,000 1,070,000
Exercise of stock options 112,000 144,400
Exercise of share warrants 1,800,000 4,860,000
----------------------------------------------------------------------
Shares outstanding at December 31 16,922,467 13,461,765
Acquisition shares held in escrow (963,602) (1,583,875)
----------------------------------------------------------------------
15,958,865 11,877,890
Proceeds on private placement -- 4,319,637
----------------------------------------------------------------------
15,958,865 $ 16,197,527
----------------------------------------------------------------------
(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.
(ii) During 1999, shares were issued, at $1.75, in relation to the
acquisition of Powercall Technologies Limited in respect of
earn-out targets that were achieved (note 3).
As at December 31, 1999 and March 31, 1999, 186,317 of these
shares were being held in escrow.
30
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
9. Share capital, continued:
(b) Share transactions, continued:
(iii)Also during the year, additional shares were issued, at $1.75, in
relation to the acquisition of Easy PC Computer Rentals Limited
in respect of earn-out targets that were achieved (note 3).
As at December 31, 1999 and March 31, 1999, 16,785 of these
shares were being held in escrow.
(iv) During 1997, the Company completed the settlement of the
acquisition of Personal Computer Systems Limited, with the
issuance of 220,000 common shares.
(c) Preferred shares:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
December 31, 1999 March 31, 1999 March 31, 1998 March 31, 1997
-------------------- -------------------- -------------------- --------------------
Preferred shares Shares Amount Shares Amount Shares Amount Shares Amount
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Series A shares
outstanding 2,450,000 $2,450,000 2,450,000 $2,450,000 3,043,049 $3,043,049 3,543,049 $3,543,049
Redeemed at $1.00 (2,450,000) (2,450,000) -- -- (593,049) (593,049) (500,000) (500,000)
----------------------------------------------------------------------------------------------------------------
Series A shares
outstanding -- -- 2,450,000 $2,450,000 2,450,000 $2,450,000 3,043,049 $3,043,049
----------------------------------------------------------------------------------------------------------------
</TABLE>
In 1995, the Company acquired Brocker Investments (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 1998, 593,049 shares were redeemed at $1.00 per share. For 1998
and 1997, the rate of any premium on redemption, and the redemption
itself, was at the discretion of the Company. It was agreed by the
preferred shareholders that a premium paid on redemption during 1997
of $50,000 should be clawed back. This was performed by reducing the
cash paid on redemption during 1998 by the same $50,000. This
adjustment has been credited directly against the retained earnings of
the Company.
During 1999, a dividend was paid at 6.5% of preferred shares
outstanding at September 30, 1998. During 1998, a dividend was paid at
7.5% of preferred shares outstanding at September 30, 1997.
31
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
9. Share capital, continued:
(c) Unexercised options:
At December 31, 1999 there are a total of 1,048,000 outstanding and
unexercised stock options (March 31, 1999 - 889,000; 1998 - 934,000;
1997 - 612,000).
Options held by the Directors of the Company December 31, 1999 -
450,000 (March 31, 1999 - 387,000; 1998 - 287,000; 1997 - 350,000) are
as follows:
----------------------------------------------------------------------
Number of options Exercise price Expiry date
----------------------------------------------------------------------
March 31,
December 31, -------------------------
1999 1999 1998 1997
----------------------------------------------------------------------
-- -- -- 18,000 $0.30 December 21, 1999
57,000 57,000 57,000 57,000 1.31 November 1, 2001
50,000 100,000 -- -- 1.50 November 30, 2003
145,000 150,000 150,000 275,000 1.18 November 1, 2001
30,000 30,000 30,000 -- 1.90 November 1, 2002
50,000 50,000 50,000 -- 1.99 January 26, 2003
118,000 -- -- -- 1.41 July 2, 2004
----------------------------------------------------------------------
Options are held by employees of the Group as follows December 31,
1999 - 598,000 (March 31, 1999 - 502,000; 1998 - 647,000; 1997 -
262,000):
----------------------------------------------------------------------
Number of options Exercise price Expiry date
----------------------------------------------------------------------
March 31,
December 31, --------------------------
1999 1999 1998 1997
----------------------------------------------------------------------
-- 12,000 12,000 12,000 $0.30 December 31, 1999
55,000 135,000 250,000 250,000 1.18 November 1, 2001
-- 20,000 -- -- 1.52 April 17, 2000
315,000 335,000 335,000 -- 1.90 November 1, 2002
-- -- 50,000 -- 1.99 January 26, 2003
228,000 -- -- -- 1.41 July 2, 2004
----------------------------------------------------------------------
32
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
9. Share capital, continued:
(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 December
31, 1999 $152,743 (March 31, 1999 - $163,322; 1998 - $195,000; 1997 -
$248,588).
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
March 31,
December 31, ---------------------------------------------
1999 1999 1998 1997
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average number of shares 12,385,591 11,012,887 10,516,318 9,425,583
Net income (loss) attributable to
shareholders after deduction
of preference dividends $ (243,794) $ 351,492 $ 601,816 $ 589,062
Basic earnings (loss) per share $ (0.02) $ 0.03 $ 0.06 $ 0.06
---------------------------------------------------------------------------------------------------------
</TABLE>
For the current period and previous financial years, 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.
10. Income tax:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
March 31,
December 31, ------------------------------------------
1999 1999 1998 1997
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Expected income tax expense calculated
on the Statutory Rate on earnings
before taxation $ (5,077) $ 346,635 $ 583,691 $ 580,081
Adjusted for the tax effect of:
Amortization of goodwill 82,591 114,487 95,497 88,239
Canadian parent company losses
not available for offset with
foreign income -- -- 14,784 --
Adjustment for foreign tax rates 4,036 (109,765) (203,896) (162,140)
Other 21,040 (78,366) 15,991 (34,392)
----------------------------------------------------------------------------------------------------------
Income tax expense $ 102,590 $ 272,991 $ 506,067 $ 471,788
----------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
10. Income tax, continued:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
March 31,
December 31, -------------------------------------------------
1999 1999 1998 1997
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total income tax expense is made up of:
Current taxation $ 102,590 $ 180,380 $ 648,116 $ 488,949
Deferred taxation -- 92,611 (142,049) (17,161)
--------------------------------------------------------------------------------------------------------------
$ 102,590 $ 272,991 $ 506,067 $ 471,788
--------------------------------------------------------------------------------------------------------------
</TABLE>
11. Related party transactions:
(a) During the year ended March 31, 1999, the Group provided an interest
free short-term advance to the Chief Executive Officer of the Company.
The balance outstanding at March 31, 1999 was $4,663 (1998 - $5,778;
1997 - $71,390). This balance is included in other receivables. At
December 31, 1999 the balance included in other receivables was
$4,403.
The Chief Executive Officer has outstanding borrowings of $26,371 from
the Group at March 31, 1999. Interest is currently charged on this
amount at 6.5% and the loan is unsecured and repayable on demand. The
maximum amount outstanding during the period ended December 31, 1999
and years ended March 31, 1999 and 1998 in respect of this loan was
$94,817, and interest charged amounted to $1,240 (1999 - $7,725; 1998
- $233). At December 31, 1999 there was no balance outstanding.
(b) The Chief Executive Officer of the Company, as at March 31, 1999, held
923,453 (1998 - 1,148,453; 1997 - 1,344,153) preferred shares on which
a dividend of $60,783 was paid during 1999 (1998 - $86,134). During
1998, 195,700 of these shares were redeemed and settled by cash of
$173,614. At December 31, 1999 all shares previously held were
converted into 710,348 common shares and $60,024 dividends were paid
during the period.
34
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
11. Related party transactions, continued:
(c) Directors of the Company have exercised stock options. The funds
required to exercise these options have been loaned to the Directors
by Brocker Technology Group (NZ) Limited.
As at December 31, 1999, the amount outstanding was $557,904 (March
31, 1999 - $749,375; 1998 - $715,801; 1997 - $691,698). The current
market value of the shares, held as security over these loans at
December 31, 1999 is in excess of $7.0 million (March 31, 1999 - $1.6
million; 1998 - $1.3 million). Interest of $12,768 (March 31, 1999 -
$16,692; 1998 - $22,263) 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 (1998 - $715,801).
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 December 31, 1999 totalling $166,340 (March 31, 1999 -
$193,124; 1998 - $105,412), including the NZ$150,000 advance referred
to in note 3. 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) 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
intersegment revenues.
Unless otherwise stated the maximum amount outstanding during the year was
the balance at December 31, 1999, March 31, 1999, March 31, 1998 or March
31, 1997.
35
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
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 December 31, 1999, the amounts outstanding in respect of these shares
amounted to $87,731 (March 31, 1999 - $84,297; 1998 - $130,855; 1997 -
$391,243) and is included within other receivables. Interest of $8,371
(March 31, 1999 - $13,729; 1998 - $17,794) was charged on these loans
during the periods respectively. The current market value of the shares
held as security is in excess of $1.8 million (March 31, 1999 - $600,000;
1998 - $470,000).
The maximum amount outstanding during the period ended December 31, 1999
was $130,855 (March 31, 1999 - $130,855; 1998 - $391,243).
13. Segmented operations:
(a) The Group operates in two geographical segments, New Zealand and
Australia. The Canadian operations shown relate to administrative items
only.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
December 31, 1999 Canada New Zealand Australia Total
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ -- $ 72,123,208 $ 37,693,608 $ 109,816,816
Net profit -- (645,645) 554,594 (91,051)
Depreciation -- 500,161 86,270 586,431
Amortization -- 286,373 16,998 303,371
Interest -- 700,653 144,467 845,120
Identifiable assets 3,445,782 44,359,380 10,367,201 58,172,363
Capital expenditure -- 434,571 117,606 552,177
-----------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
13. Segmented operations, continued:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
December 31, 1998 Canada New Zealand Australia Total
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ -- $ 83,857,050 $ 14,146,518 $ 98,003,568
Net profit -- 206,733 176,841 383,574
Depreciation -- 1,066,426 45,965 1,112,391
Amortization -- 150,000 14,182 164,182
Net interest expense -- 671,027 108,254 779,281
Identifiable assets 232,919 44,490,483 4,650,473 49,373,875
Capital asset expenditure -- 4,293,979 87,272 4,381,251
------------------------------------------------------------------------------------------------------------
<CAPTION>
------------------------------------------------------------------------------------------------------------
March 31, 1999 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 profit -- 204,103 310,711 514,814
Depreciation and amortization -- 1,894,449 116,254 2,010,703
Net interest expense -- 1,270,935 138,252 1,409,187
Identifiable assets -- 41,417,762 9,269,733 50,687,495
Capital asset expenditure -- 4,349,113 324,768 4,673,881
------------------------------------------------------------------------------------------------------------
<CAPTION>
------------------------------------------------------------------------------------------------------------
March 31, 1998 Canada New Zealand Australia Total
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ -- $ 57,281,846 $ 13,529,374 $ 70,811,220
Net profit (loss) (33,001) 1,208,407 (378,590) 796,816
Depreciation and amortization -- 1,629,985 62,600 1,692,585
Net interest expense -- 584,070 84,775 668,845
Identifiable assets -- 29,923,977 2,575,194 32,499,171
Capital asset expenditure -- 1,007,960 37,159 1,045,119
------------------------------------------------------------------------------------------------------------
<CAPTION>
------------------------------------------------------------------------------------------------------------
March 31, 1997 Canada New Zealand Australia Total
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ -- $ 38,237,323 $ 11,872,216 $ 50,109,539
Net profit (loss) (82,606) 1,118,195 (197,939) 837,650
Depreciation and amortization -- 381,447 48,428 429,875
Net interest expense -- 141,253 20,511 161,764
Identifiable assets 30,662 14,500,039 5,395,799 19,926,500
Capital asset expenditure -- 493,846 18,639 512,485
------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
13. Segmented operations, continued:
(b) The Group operates in four industry segments, being the divisions by
with the Group is managed. These divisions are application
development, sales and distribution, professional services and
technical services. The corporate services operation shown relates to
the Group's administrative functions in Canada and New Zealand.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
Sales and Technical Application Professional Corporate
December 31, 1999 Distribution Services Development Services Services Total
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 103,459,343 $ 95,614 $ 1,883,592 $ 4,378,267 $ -- $ 109,816,816
Intersegment revenue (421,976) 20,038 4,980 396,958 -- --
Net profit (loss) 1,761,288 2,109 (1,375,991) (385,330) (93,127) (91,051)
Depreciation 103,803 1,475 112,811 173,471 194,871 586,431
Amortization 16,998 -- 115,665 -- 170,708 303,371
Interest 689,004 -- 265,381 88,676 (197,941) 845,120
Identifiable assets 34,524,113 51,272 (243,221) 344,139 23,496,060 58,172,363
Capital asset expenditure 63,937 9,979 55,725 257,219 165,317 552,177
-------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
Sales and Technical Application Professional Corporate
December 31, 1998 Distribution Services Development Services Services Total
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 90,446,256 $ 1,944,065 $ 1,450,624 $ 4,150,073 $ 12,550 $ 98,003,568
Intersegment revenue (731,437) 3,695 15,310 712,432 -- --
Net profit (loss) 2,327,339 64,036 (278,214) (186,695) (1,542,892) 383,574
Depreciation 200,643 49,265 139,663 687,769 35,051 1,112,391
Amortization 14,182 -- -- -- 150,000 164,182
Interest 741,109 36,034 68,034 182,262 (248,158) 779,281
Identifiable assets 48,579,745 601,545 395,176 2,704,099 (2,906,690) 49,373,875
Capital asset expenditure 377,627 38,028 236,567 411,806 3,317,223 4,381,251
-------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
Sales and Technical Application Professional Corporate
March 31, 1999 Distribution Services Development Services Services Total
-------------------------------------------------------------------------------------------------------------------------------
<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 amortization 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 49,731,409 532,667 189,390 1,100,084 (866,055) 50,687,495
Capital asset expenditure 835,810 185,184 170,388 126,934 3,355,565 4,673,881
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
13. Segmented operations, continued:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
Sales and Technical Application Professional Corporate
March 31, 1998 Distribution Services Development Services Services Total
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 67,856,803 $ 2,331,371 $ 623,046 $ -- $ -- $ 70,811,220
Intersegment revenue 178,283 (12,632) (165,651) -- -- --
Net profit (loss) 2,555,089 (28,671) 96,344 -- (1,825,946) 796,816
Depreciation and amortization 1,470,999 90,513 87,274 -- 43,799 1,692,585
Net interest expense 540,396 70,030 2,541 -- 55,878 668,845
Identifiable assets 33,281,993 441,775 306,213 -- (1,530,810) 32,499,171
Capital asset expenditure 598,923 66,128 250,293 -- 129,775 1,045,119
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the year ended March 31, 1999, the Group conducted business with a
single customer that accounted for revenue of $23,792,150. This revenue was
generated in New Zealand by the Distribution Services segment. There were
no such customers during the 1998 or 1997 year.
The Group operated solely in the Sales and Distribution industry in the
year ended March 31, 1997.
14. 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
minimize 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 customers. The Group does not use foreign exchange
instruments for trading or any other purpose.
No forward exchange contracts were entered into during the 1999
financial year. During the 1998 financial year, the average value of
these contracts amounted to $1,232,000 and were entered as a hedge
against New Zealand purchases made in Australian dollars.
39
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
14. Financial instruments, continued:
Currency risk, continued:
(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.
The Group has no significant concentrations of credit risk other than
as disclosed. 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.
40
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
15. 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.
As at December 31, 1999, the following earn-outs were in existence:
----------------------------------------------------------------------
Subsidiary Acquisition price and earn-out provision
----------------------------------------------------------------------
Industrial Communications Maximum purchase price established and
Service Limited shares issued and held in escrow (see
note 9). Earn-out based on defined cash
flow earned in financial years ended
March 31, 1998 to 1999 (note 3).
Powercall Technologies Shares to be held in escrow based on the
Limited lesser of 4 times the cumulative cash
flow earned for the years ended March
31, 1998 to 2001 or 12 times profit for
the year ended March 31, 2001, limited
to NZ$20 million. Earn-out based on
defined cash flow earned in financial
years ended March 31, 1998 to 2002 (note
3).
Easy PC Computer Shares to be held in escrow based on
Rentals Limited 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 to 2000 (note
3).
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 to 2000
(note 3).
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, 2000 to 2001 (note
3).
----------------------------------------------------------------------
41
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
15. Commitments, continued:
(a) Continued:
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 is 2.4 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:
----------------------------------------------------------------------
December 31, 1999 March 31, 1999
----------------------------------------------------------------------
2000 $383,085 $467,652
2001 349,519 382,624
2002 158,808 309,829
2003 45,799 150,140
----------------------------------------------------------------------
16. Contingencies:
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.
17. Subsequent events:
(a) Effective July 1, 1999, the Company has successfully renegotiated its
financing arrangements with the National Bank of New Zealand. This
increased NZ$20 million facility provides the Group's New Zealand and
Australian operations greater access to funds at a lower net cost.
This facility will be secured over the Group's assets.
(b) Also subsequent to March 31, 1999, the Company completed a fully
subscribed private placement of 1,000,000 units to raise proceeds of
$1,070,000. Each unit is comprised of one common share and one
non-transferable share purchase warrant entitling the purchase of one
additional common share at a price of $1.25 until January 16, 2002.
42
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
17. Subsequent events, continued:
(c) Effective December 15, 1999, the Company completed a private placement
of 1,800,000 warrants at a price of $2.70. Each warrant may be
exchanged for one common share and a warrant to purchase one-half of a
common share at $1.575 per one-half share. Proceeds of $4.9 million
were received. Agent options to purchase 486,000 common shares at an
exercise price of $3.15 were granted.
(d) Subsequent to December 31, 1999, the Company completed a private
placement of 1,800,000 common shares. The net proceeds from this
placement were $10,258,780 of which $5,939,143 were received after
December 31, 1999. In connection with this transaction, an agent
warrant was granted for the purchase of 228,400 common shares at an
exercise price of $6.25 per share.
18. Reconciliation with United States generally accepted accounting principles:
The Company follows Canadian generally accepted accounting principles which
conform in all material respects with those in the United States and from
practices prescribed by the Securities and Exchange Commission, except as
follows:
(a) Research and development costs are generally expensed in the United
States. In Canada, development costs may be deferred to the extent
that costs can reasonably be expected to be recovered.
(b) Directors and employee loans for the purchase of shares are generally
deducted from shareholders' equity. In Canada, the loans may be
recorded in other accounts receivable in certain circumstances.
(c) The only items included in the determination of comprehensive income
were the foreign currency adjustments on the translation of the
financial statements of subsidiary companies. Accordingly, the changes
in other comprehensive income are as disclosed in the statement of
foreign currency translation reserve.
43
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
18. Reconciliation with United States generally accepted accounting principles,
continued:
The application of United States generally accepted accounting principles
would have the following effect on the reported net income:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
March 31,
December 31, ----------------------------------------------
1999 1999 1998 1997
--------------------------------------------------------------------------------------------------------------
(Stated in thousands of Canadian dollars)
<S> <C> <C> <C> <C>
Net income (loss) in accordance with
Canadian generally accepted
accounting principles, as reported $ (91) $ 515 $ 797 $ 837
Adjustments required:
Development costs (198) (761) (491) --
Income taxes 66 183 173 --
-------------------------------------------------------------------------------------------------------------------
Net income (loss) in accordance with
United States generally accepted
accounting principles (223) (63) 479 837
Adjustment to comprehensive income in
accordance with U.S. generally accepted
accounting principles (468) 82 (799) 22
-------------------------------------------------------------------------------------------------------------------
Total comprehensive income $ (691) $ 19 $ (320) $ 859
-------------------------------------------------------------------------------------------------------------------
Net income (loss) attributable to shareholders
after deduction of preferred dividends $ (376) $ (226) $ (284) $ 588
-------------------------------------------------------------------------------------------------------------------
Earnings per share in accordance with
United States generally accepted
accounting principles:
Basic $ (0.03) $ (0.02) $ 0.03 $ 0.06
Fully Diluted (0.03) (0.02) 0.03 0.06
-------------------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
18. Reconciliation with United States generally accepted accounting principles,
continued:
United States GAAP reconciliation for the balance sheet:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
December 31, March 31,
1999 1999 1998 1997
------------------- ---------------------------------------------------------------
Canadian U.S. Canadian U.S. Canadian U.S. Canadian U.S.
-------------------------------------------------------------------------------------------------------------------------------
(Stated in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other accounts receivable $ 1,869 $ 1,058 $ 1,435 $ 377 $ 1,637 $ 584 $ 1,115 $ --
Deferred tax asset 310 733 310 667 214 387 72 72
Deferred development costs 1,450 -- 1,252 -- 491 -- -- --
Share capital 16,012 15,201 5,762 4,704 5,368 4,315 5,264 4,149
Retained earnings 1,463 436 1,707 812 1,355 1,037 703 703
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(d) Stock based compensation:
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations, in
accounting for its stock options issued to employees, directors and
officers of the Company for purposes of reconciliation to U.S. GAAP.
As such, compensation expense would be recorded on the date of grant
only if the current market price of the underlying stock exceeded the
exercise price. SFAS No. 123, "Accounting for Stock Based
Compensation", established accounting and disclosure requirements
using a fair value-based method of accounting for stock based employee
compensation plans. As allowed by SFAS No. 123, the Company has
elected to continue to apply the intrinsic value-based method of
accounting described above and has adopted the disclosure requirements
of SFAS No. 123. Stock options issued to consultants and other third
parties are accounted for at their fair values in accordance with SFAS
No. 123.
The Company has calculated the fair value of stock options granted to
employees, directors and officers using the Black Scholes option
pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
March 31,
December 31, -------------------------------------
1999 1999 1998 1997
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Risk free interest rate 6% 6% 6% 6%
Volatility 60% 60% 60% 60%
Expected option life (in years) 5 5 5 5
Dividend yield 0% 0% 0% 0%
------------------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
Brocker Technology Group Limited
Notes to Consolidated Financial Statements, continued
(Canadian Dollars)
Years ended March 31, 1999, 1998 and 1997
(Information subsequent to March 31, 1999 is unaudited)
--------------------------------------------------------------------------------
18. Reconciliation with United States generally accepted accounting principles,
continued:
(d) Stock based compensation, continued:
Had the Company determined compensation costs based on the fair value
at the date of grant for its stock options under SFAS No. 123, net
earnings in accordance with U.S. GAAP would have been as reported in
the following table. The Company has not recognized in income any
amount under SFAS No. 123 for stock based employee compensation
expense. These pro forma earnings reflect compensation cost amortized
over the options' vesting period.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
March 31,
December 31, --------------------------------------
1999 1999 1998 1997
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) under U.S. GAAP:
As reported $ (223) $ (63) $ 479 $ 837
Pro forma (299) (287) 393 723
-----------------------------------------------------------------------------------------------------
Basic income (loss) per
common share:
As reported $ (0.03) $ (0.02) $ 0.03 $ 0.06
Pro forma (0.04) (0.04) 0.02 0.05
-----------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
ITEM 18. FINANCIAL STATEMENTS
Not applicable.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<CAPTION>
(a) Index to Financial Statements Page
--------------------------------- ----
<S> <C>
Title Page F-1
Independent Auditor's Report F-2
Table of Contents F-3
Consolidated Balance Sheets as at December 13, 1999 (unaudited) and March F-4
31 of 1999,1998 and 1997 (audited)
Consolidated Statements of Earnings for the Nine months ended December 31, F-5
1999 and 1998 (unaudited) and March 31, 1999, 1998 and 1997 (audited)
Consolidated Statements of Retained Earnings for the Nine months ended F-6
December 31, 1999 and 1998 (unaudited) and March 31, 1999, 1998 and 1997
(audited)
Consolidated Statements of Cash Flows for the Nine months ended December 31, F-7
1999 and 1998 (unaudited) and March 31,
</TABLE>
32
<PAGE>
<TABLE>
1999, 1998 and 1997 (audited)
<S> <C>
Notes to the Consolidated Financial Statements for the Nine F-8 through F-43
months ended December 31, 1999 (unaudited) and March 31,
1999, 1998 and 1997 (audited)
(b) Index to Exhibits
--------------------------
3(i) Restated Articles of Incorporation dated E-1 through E-9
November 16, 1998*
3(ii).1 Bylaws dated November 25, 1993* E-10 through E-60
3(ii).2 Amendment to Bylaws dated October 23, 1998* E-61
10.1 Brocker Investments (NZ) Ltd. acquisition of
Industrial Communications Service Ltd. ("ICS")
(March 31, 1997)* E-62 through E-116
10.2 Brocker Investments (NZ) Ltd. acquisition of
Powercall Technologies Ltd. (May 16, 1997),
and earn-out projections* E-117 through E-153
10.3 Brocker Investments (NZ) Ltd. acquisition of
Easy PC Computer Rentals Limited (July 10, 1997),
and earn-out projections* E-154 through E-201
10.4 Brocker Investments (NZ) Ltd. acquisition of
Image Craft Ltd. (formerly New Zealand On-Line Ltd.)
(December 24, 1997)* E-202 through E-315
10.5 Brocker Investments (NZ) Ltd. acquisition of
Pritech Corporation Limited (March 31, 1998)* E-316 through E-408
10.6 Brocker Investments (NZ) Ltd. acquisition of
Microchannel Limited, undated (Note: Heads of
Agreement dated February 13, 1998)* E-409 through E-474
10.7 Agreement for Sale and Purchase of Shares of Personal
Computer Systems (1993) Limited (January 25, 1995), including
Deed of Variation and Memorandum of Agreement, dated
November 24, 1995* E-475 through E-537
10.8 Share Purchase Agreement between Genetics
Limited, Mike J. Duff, Casey J. O'Byrne, Lionel A.
Singleton, Damen Ng, Roger N. Gimby and
Brocker Investments Limited, dated November 10, 1994* E-538 through E-544
10.9 Share Exchange Agreement between Talgarth Limited,
Edgewell Limited, Classic Portraits and Design Ltd. and
Brocker Investments, dated August 31, 1994 (including
board minutes)* E-545 through E-568
</TABLE>
33
<PAGE>
<TABLE>
<S> <C>
10.10 Share Sale Agreement between Edgewell Limited and
Talgarth Limited, Mike J. Duff, Casey J. O'Byrne, Lionel
A. Singleton, Damen Ng and Roger N. Gimby, dated
November 10, 1994 (including board minutes)* E-569 through E-579
10.11 Agreement for Purchase and Sale of Shares between
Brocker Investments Ltd. and 621202 Alberta Ltd.,
dated March 14, 1995* E-580 through E-603
10.12 Agreement between The Number One Software Company
Limited ("NOSCL") and Brocker Investments (NZ) Limited,
dated March 31, 1995* E-604 through E-618
10.13 Agreement for Sale and Purchase of Shares between John
Richard Campbell and Robyn Lorna Campbell and Brocker
Investments (NZ) Limited, dated March 31, 1995* E-619 through E-654
10.14 Agreement for Sale and Purchase of Shares between Michael
Brian Ridgway and Brocker Investments (NZ) Limited for the
Purchase of 32,999 Shares in Sealcorp Computer Products
Limited, dated December 20, 1994* E-655 through E-664
10.15 Salaried Employment Contract between Powercall Technologies
Limited and Evan James Read, dated April 1, 1997* E-665 through E-675
10.16 Salaried Employment Contract between Powercall Technologies
Limited and Gregory Hunt, dated May 10, 1997* E-676 through E-687
10.17 Salaried Employment Contract between Powercall Technologies
Limited and Michael Gerard Duncraft, dated April 1, 1997* E-688 through E-678
10.18 Salaried Employment Contract between Easy PC Computer
Rentals Limited and Jon Hugh Barker, dated July 1, 1997* E-679 through E-707
10.19 Employment Contract between Pritech Corporation Limited
and David William Corlett, dated April 1, 1998* E-708 through E-721
10.20 Employment Contract between Pritech Corporation Limited
and David John Cooke, dated April 1, 1998* E-722 through E-735
10.21 Employment Contract between Pritech Corporation Limited
and Gary Spencer Elmes, dated April 1, 1998* E-736 through E-749
10.22 Consulting Services Agreement between Brocker Investments
Ltd. and Des O'Kell, dated December 13, 1996* E-750 through E-752
10.23 Agency Agreement between the Company, Thomas Kernaghan &
Co. Limited and Montreal Trust Company of Canada, dated
January 21, 2000
10.24 Special Warrant Indenture between the Company and Montreal
Trust Company of Canada, dated January 21, 2000
</TABLE>
34
<PAGE>
21. Chart of Company's Subsidiaries*
----------
* Filed as exhibits to the Company's Registration Statement on Form 20-F
filed with the Commission on December 30, 1999.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it satisfies all of the requirements for
filing a Registration Statement on Form 20-F and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Auckland, New Zealand on _____________, 2000.
Brocker Technology Group Ltd.,
an Alberta corporation
By:
---------------------------------------
Michael B. Ridgway
Its: President
36
