Exhibit 99.1
CONSOLIDATED ANNUAL REPORT FOR 1998 AND 1999
KWATROBOX B.V. AND SUBSIDIARIES
<PAGE>
CONTENTS
1. FINANCIAL STATEMENTS................................................1
1.1 Consolidated balance sheets (in NLG)................................2
1.2 Consolidated statements of operations (in NLG)......................3
1.3 Consolidated statements of stockholders' equity (in NLG)............4
1.4 Consolidated statements of cash flows (in NLG)......................5
1.5 Notes to the consolidated financial statements......................6
<PAGE>
<TABLE>
<CAPTION>
1.1 CONSOLIDATED BALANCE SHEETS (IN NLG)
NOTES DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents 3,923 29,247
Accounts receivable 1.5.4 2,258,666 1,348,482
Inventories 1.5.5 972,764 649,747
Prepaid expenses and other current assets 205,307 85,881
------- ------
Total current assets 3,440,660 2,113,357
PROPERTY AND EQUIPMENT 1.5.6 1,261,567 1,181,167
INTANGIBLES 1.5.3 - 889,417
DEFERRED TAX ASSETS 1.5.9 - -
--------- ---------
Total assets 4,702,227 4,183,941
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft 1.5.7 1,233,327 204,749
Accounts payable and accrued expenses 1.5.8 1,593,593 1,198,767
Social securities and other taxes 296,817 240,604
Short term debt 1.5.10 248,000 256,000
Deferred revenues 363,818 355,653
---------------
Total current liabilities 3,735,555 2,255,773
LONG-TERM OBLIGATIONS 1.5.10 1,252,250 1,500,250
Minority interest 7,740 5,600
COMMITMENTS AND CONTINGENCIES 1.5.15 - -
--------- ---------
Total liabilities 4,995,545 3,761,623
STOCKHOLDER'S EQUITY
Common stock, 1.5.11 40,000 40,000
(NLG100 par value, authorised and issued 2000
and 400 shares)
Retained earnings 1.3 (333,318) 382,318
Total stockholder's equity (293,318) 422,318
--------- ---------
Total liabilities and stockholders' equity 4,702,227 4,183,941
--------- ---------
</TABLE>
The accompanying accounting policies and notes are an integral part of the
consolidated financial statements.
KWATROBOX B.V. AND SUBSIDIARIES, AMSTERDAM
2
<PAGE>
1.2 CONSOLIDATED STATEMENTS OF OPERATIONS (IN NLG)
<TABLE>
<CAPTION>
NOTES DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C> <C>
Revenue 1.5.12 11,686,964 10,247,111
Cost of sales 1.5.13 (7,267,106) (7,095,106)
---------- ----------
GROSS PROFIT 4,419,858 3,152,005
OPERATING EXPENSES
Personnel expenses 2,389,362 1,448,969
General and administrative expenses 1,493,104 1,586,004
Amortization of intangibles 1.5.3 - 136,833
Impairment of intangibles 1.5.3 889,417 -
Depreciation 248,634 236,134
---------- ----------
Total operating expenses 5,020,517 3,407,940
--------- ---------
LOSS FROM OPERATIONS (600,659) (255,935)
Net interest expense (112,837) (174,564)
--------- ---------
Loss before income taxes (713,496) (430,499)
Provision for income taxes 1.5.9 - (34,952)
--------- ---------
RESULT AFTER INCOME TAX (713,496) (465,451)
Outside shareholders' interest (2,140) 2,398
--------- ---------
NET LOSS ATTRIBUTABLE TO STOCKHOLDERS * 1.3 (715,636) (463,053)
--------- ---------
</TABLE>
* Net loss attributable to stockholders is equal to comprehensive income
The accompanying accounting policies and notes are an integral part of the
consolidated financial statements.
KWATROBOX B.V. AND SUBSIDIARIES, AMSTERDAM
3
<PAGE>
1.3 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN NLG)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
SHARES AMOUNT EARNINGS TOTAL
<S> <C> <C> <C> <C> <C>
Balance as at January 1, 1998 400 40,000 845,371 885,371
Net loss for 1998 - - (463,053) (463,053)
--------- ---------- ------------ ------------
Balance as at December 31, 1998 400 40,000 382,318 422,318
Net loss for 1999 - - (715,636) (715,636)
--------- ---------- ------------ ------------
Balance as at December 31, 1999 400 40,000 (333,318) (293,318)
</TABLE>
The accompanying accounting policies and notes are an integral part of the
consolidated financial statements.
KWATROBOX B.V. AND SUBSIDIARIES, AMSTERDAM
4
<PAGE>
1.4 CONSOLIDATED STATEMENTS OF CASH FLOWS (IN NLG)
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES :
<S> <C> <C>
Net loss attributable to stockholders (715,636) (463,053)
Adjustments to reconcile net loss to net cash provided by
operating activities:
- Allowances and provisions (115,240) 230,419
- Amortization of intangibles - 136,833
- Impairment of intangibles 889,417 -
- Depreciation of tangible fixed assets 248,634 236,134
------- -------
Cash provided by operating activities 1,022,811 603,386
Change in operating assets and liabilities, net of
acquisitions :
- (Increase)/decrease in accounts receivable (890,628) 1,241,733
- (Increase)/decrease in inventories (177,664) 711,397
- Increase/(decrease) in accounts payable and accrued 350,779 (1,381,915)
expenses
- Increase/(decrease) in deferred revenue 8,165 (670,510)
- Other (61,072) (1,820)
------- ------
Cash invested in operating assets and liabilities (770,420) (101,115)
-------- --------
Net cash (used in)/provided by operating activities (463,245) 39,218
CASH FLOWS FROM INVESTING ACTIVITIES :
Capital expenditure (334,657) (234,371)
Acquisition of subsidiaries, net of cash acquired - (238,038)
-------- --------
Net cash used in investing activities (334,657) (472,409)
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans repaid (256,000) (248,000)
Loans received - 873,250
-------- ---------
Net cash (used in)/provided by financing activities (256,000) 625,250
---------- --------
Net (decrease)/increase in cash (1,053,902) 192,059
---------- --------
Cash at beginning of period (175,502) (367,561)
---------- --------
Cash at end of period (1,229,404) (175,502)
---------- --------
</TABLE>
The accompanying accounting policies and notes are an integral part of the
consolidated financial statements.
KWATROBOX B.V. AND SUBSIDIARIES, AMSTERDAM
5
<PAGE>
1.5 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.5.1 Basis of presentation
The accompanying financial statements have been prepared on a going-concern
basis and in compliance with US GAAP. All amounts are stated in Dutch Guilder,
unless stated otherwise. The going-concern basis basis contemplates the
realization of assets and the satisfaction of liabilities in the ordinary course
of business.
The Group reported a net loss of NLG 715,636 for the year ended December 31,
1999 and a deficit in stockholders' equity of NLG 293,318. Negative cash flows
from operations amounted to NLG 463,245 during 1999. Unutilised credit
facilities amounted to NLG 416,673 at December 31, 1999 whilst current
liabilities exceeded current assets by NLG 294,895.
Subsequent to December 31, 1999, the Group obtained a letter of support from
it's prospective new parent company (see note 1.5.17) to fund the Group's
expected working capital requirements to September 30, 2001. The support will
take on the form of a loan not extending to more than NLG 2,5 million. At
September 2000 funding in this regard amounted to NLG 1,7 million. Ultimately,
the Group's ability to continue in operation will be dependent upon obtaining
additional working capital and achieving profitable operations.
1.5.2 Business and summary of significant accounting policies
Kwatrobox B.V., ("the company") is jointly owned by QQC B.V., Peces B.V., Rendex
B.V. and Wodan B.V. . The principal activity of the company is the holding and
management of group companies. These group companies ("the group") specialise in
the manufacture and servicing of "auction clock" systems which are used in the
auction of perishable goods. In addition, the group also develops software
specific to auctions and industries associated to auctions such as importers and
exporters, the wholesale trade, line drivers and growers. The sale of hardware
and software related to these operation forms part of this service. The group
operates from 3 offices in the Netherlands. Revenue is mainly generated from
customers within the Netherlands.
The principal accounting policies have been set out below :
(a) 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 reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(b) Principles of Consolidation
The consolidated financial statements reflect the operations of the company and
its subsidiaries, where control exists. All significant inter-company accounts
and transactions have been eliminated upon consolidation.
KWATROBOX B.V. AND SUBSIDIARIES, AMSTERDAM
6
<PAGE>
Details of subsidiaries are as follows:
SHAREHOLDING %
1999 1998
Automatiseringsbureau Palm BV 100 100
Palm Veilingsystemen BV 100 100
Nieaf Systems BV 100 100
Scoop BV 80 80
(c) Revenue Recognition
Net sales represent sales invoiced to customers, exclusive of value added tax
and net of discounts allowed.
Revenues for projects (time and materials-based arrangements and fixed-fee
arrangements) are recognized on the percentage-of-completion method of
accounting based on the ratio of costs incurred to total estimated costs. The
cumulative impact of any revision in estimates of the cost to complete and
losses on projects in process are reflected in the period in which they become
known. Revenues exclude reimbursable expenses charged to customers.
Revenues for maintenance contracts are deferred and recognized ratably over the
contractual periods during which services are performed.
Revenues for the sales of hardware and customized software applications are
recognized upon delivery.
Unbilled revenues represent labor costs incurred and estimated earnings, and
production in excess of contractual billings to-date. Deferred revenues
represent billings of production and other client reimbursable out-of-pocket
costs in excess of revenues recognized to-date.
(d) Significant Customers and Concentration of Credit Risk
For the year ended December 1998 one client, Bloemenveiling Holland (Naaldwijk),
accounted for more than 10% of revenue. (1999 : no client exceeded 10% of
revenue)
Financial instruments that subject the Group to credit risks consist primarily
of trade accounts receivable. The Group performs ongoing credit evaluations,
generally does not require collateral, and establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of customers, historical
trends, and other information. To date, such losses have been within
management's expectations. For the years ended December 1998 and 1999, no client
accounted for more than 10% of the Group's accounts receivable.
(e) Cash and cash equivalents
KWATROBOX B.V. AND SUBSIDIARIES, AMSTERDAM
7
<PAGE>
Cash equivalents include commercial paper and other securities with original
maturities of 90 days or less. Book value approximates fair value due to the
short maturity of those instruments.
(f) Inventories
Inventories are stated at the lower of cost or net realisable value. Cost is
determined by the first-in, first-out (FIFO) method. Net realisable value is the
estimate of the selling price in the ordinary course of business, less the costs
of completion and selling expenses.
(g) Warranty provision
A warranty provision is raised in respect to the exposure of the company to
future warranty claims. This provision is calculated based upon actual past
warranty claims and sales of products under warranty.
(h) Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and
amortization. Upon retirement or disposal, the cost of the disposed asset and
the related accumulated depreciation are removed from the accounts and any gain
or loss is reflected in income. The Group provides for depreciation of other
fixed assets over their estimated useful lives, using the straight-line method,
as follows:
YEARS
Buildings 40 years
Computer equipment 3 years
Office equipment 5 years
Motor vehicles 5 years
Additions which amount to less than NLG 2,000 are expensed in the year of
acquisition.
(i) Intangible Assets
Goodwill, which represents the excess of the purchase price over the fair value
of the net assets acquired, is included in intangible assets and is amortized
over a period of 5 years on a straight-line basis.
The amortization period is re-assessed in periods subsequent to the first year
of an acquisition when a permanent diminution in value has occurred.
(j) Accounting for Long-Lived Assets
The Group accounts for long-lived assets in accordance with the provisionsof
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." This statement establishes financial
accounting and reporting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those
KWATROBOX B.V. AND SUBSIDIARIES, AMSTERDAM
8
<PAGE>
assets to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of.
(k) Operating leases
Expenses relating to operating leases are charged to the profit and loss account
in the year in which they occur.
(l) Income Taxes
The Group accounts for income taxes using the asset and liability method. Under
this method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their tax bases for
operating profit and tax liability carry forward. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets or liabilities of a
change in tax rates is recognized in the period that the tax change occurs.
(m) Comprehensive Income
Effective with year-end 1998 reporting, the Company has adopted SFAS 130,
"Comprehensive Income". SFAS 130 requires net income to be adjusted for changes
in equity due to non-income sources. As there are no such items within equity
for the year-end 1998 or 1999 reporting, no comprehensive income has been shown.
(n) Segment reporting
Effective with year-end 1998 reporting, the Company has adopted SFAS 131,
"Disclosures About Segments of an Enterprise and Related Information". SFAS 131
establishes standards for the reporting of operating segment information in both
annual reports and interim financial reports issued to shareholders. The Company
believes that it is operating in one segment, being the delivery of information
technology solutions to perishable goods auctions and industries associated to
these auctions.
(o) New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivatives and Hedging Activities, which establishes
accounting and reporting standards of derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
This statement is effective for all quarters of fiscal years beginning after
June 15, 1999. In July 1999, the FASB issues SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date of
FASB No. 133," which amends SFAS No. 133 to be effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000. The Company does not expect
the adoption of this standard to have a material effect on the Company's results
of consolidated operations, financial position, or cash flows.
KWATROBOX B.V. AND SUBSIDIARIES, AMSTERDAM
9
<PAGE>
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") 101, Revenue Recognition in Financial Statements
which provides guidance related to revenue recognition based on interpretations
and practices followed by the SEC. SAB 101 was effective the first fiscal
quarter of fiscal years beginning after December 15, 1999 and requires companies
to report any changes in revenue recognition as a cumulative change in
accounting principle at the time of implementation in accordance with Accounting
Principles Board Opinion 20, "Accounting Changes". In March 2000, the SEC issued
SAB 101A, "Amendment: Revenue Recognition in Financial Statements," which delays
implementation of SAB 101 until June 30, 2000. Subsequently the SEC issued SAB
101B, which further delays the implementation of SAB 101 to no later than the
4th quarter of the fiscal year beginning after December 31, 1999. The Group will
adopt SAB 101 and is currently in the process of evaluating the impact, if any,
SAB 101 will have on its financial position or results of operations.
1.5.3 Intangible fixed assets: Acquisitions
At 30 April 1998 a wholley owned subsidiary of Kwatrobox B.V., Palm
Veilingsystemen B.V., purchased 100% of the issued share capital of Nieaf
Systems B.V. (the "acquired company"). The acquired company specialises in the
manufacture and servicing of "auction clock" systems which are used in the
auction of perishable goods.
Details of the assets and liabilities acquired and goodwill are as follows :
NLG
-----------
Cash and cash equivalents 353,212
Accounts receivable 1,325,294
Inventories 1,069,266
Property and equipment 68,881
Accounts Payable (560,441)
Other liabilities (1,665,049)
Deferred revenue (1,026,163)
Goodwill 1,026,250
-----------
Total purchase consideration discharged by cash 591,250
Less : Cash and cash equivalents in subsidiary acquired (353,212)
-----------
Cash outflow on acquisition 238,038
-----------
The acquisition has been accounted for under the purchase method of accounting
and, accordingly, the purchase price has been allocated to the tangible and
intangible assets acquired and liabilities assumed on the basis of their
respective fair values at the acquisition date. As a result of these
acquisitions, the Company has recorded goodwill of NLG 1.026.250, which is the
excess cost of net assets acquired and is being amortized over a useful life of
5 years.
The amortization period was re-assessed at December 1999, being the first period
subsequent to the first year of acquisition. Nieaf Systems B.V. had incurred
losses during 1999 and further losses were projected for 2000. These losses
resulted from the fact that no contracts to install
KWATROBOX B.V. AND SUBSIDIARIES, AMSTERDAM
10
<PAGE>
new auctioning systems had been established since the date of acquisition. As a
result key programmers have left the employ of the company.
It was determined that a permanent diminution in value had occurred. Accordingly
the unamortizised balance of goodwill amounting to NLG 889,417 was amortized in
one year.
Intangible fixed assets consist of the following :
1999 1998
--------- ---------
Goodwill 889,417 1,026,250
Less : Accumulated amortization - (136,833)
Less : Impairment (889,417) -
--------- ---------
0 889,417
--------- ---------
1.5.4 Accounts receivable
Accounts receivable is shown net of allowance for doubtful accounts of NLG
56,134. (1998 : NLG 75,690). Accounts receivable has been pledged as security
for the credit facilities set out in note 1.5.7.
1.5.5 Inventories
Inventories consist of the following :
1999 1998
--------- ---------
Finished goods 1,238,210 1,171,496
Work in progress 243,332 132,382
--------- ---------
1,481,542 1,303,878
Allowance for obsolete inventory (508,778) (654,131)
972,764 649,747
--------- ---------
Inventories have been pledged as security for the credit facilities set out in
note 1.5.7.
1.5.6 Property and Equipment
Property and equipment consist of the following :
1999 1998
--------- ---------
Cost
Buildings 948,904 948,904
Computer equipment 821,567 996,328
Office equipment 659,939 429,511
2,430,410 2,374,743
KWATROBOX B.V. AND SUBSIDIARIES, AMSTERDAM
11
<PAGE>
Accumulated depreciation 1,168,843) (1,193,576)
--------- ----------
Net property and equipment 1,261,567 1,181,167
--------- ---------
The building and equipment have been pledged as security for the credit
facilities set out in note 1.5.7.
1.5.7 Bank overdraft
The group's bankers have extended credit facilities of NLG 2,116,250 (1998 : NLG
1,493,250) to the group in the form of a bank overdraft and mortgage loan. These
facilities have been secured by a first and second mortgage on the building as
well as by the accounts receivable, inventories and equipment of Nieaf Systems
B.V. and Automatiseringsbureau Palm B.V. . Interest on the bank overdraft is
determined at 6,25%, payable quarterly in arrears. Un-utilised facilities
amounted to NLG 416,673 (1998: NLG 795,251).
1.5.8 Accounts payable and accrued expenses
Accounts payable and accrued expenses consists of the following:
1999 1998
--------- ---------
Accounts payable 1,066,143 633,089
Provision for warranty 148,811 104,764
Accruals 378,639 460,914
--------- ---------
1,593,593 1,198,767
--------- ---------
1.5.9 Income taxes
Taxation from ordinary activities is calculated at the current taxation rate in
the Netherlands of 35%. The taxation expense consists of the following:
1999 1998
Current taxation - 34,952
Deferred taxation (108,498) (166,423)
-------- --------
(108,498) (131,471)
Valuation allowance 108,498 166,423
-------- --------
- 34,952
-------- --------
From August 14, 1998 Kwatrobox B.V. formed a fiscal unity with group company
PalmVeilingsystemen B.V.. From January 1, 1999 Kwatrobox B.V. also formed a
fiscal unity with all other group companies with the exception of Scoop B.V. .
Estimated losses which may be utilised for tax amounted to NLG 71,576 (1998 :
Nil). These losses do not expire. Provisional payments in respect of taxes
amounted to NLG 157,159 (1998 : NLG 64,401).
KWATROBOX B.V. AND SUBSIDIARIES, AMSTERDAM
12
<PAGE>
The tax effects of temporary differences that give rise to a significant portion
of the net deferred income tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Differences between fiscal and US GAAP reporting :
Provisions 80,885 135,078
Fixed assets depreciation 48,195 31,345
Intangible amortization (tax ruling obtained for portion) 110,833 -
Effect of estimated losses to be utilised for tax 25,052 -
Other 9,955 -
-------- --------
Net current deferred tax assets 274,920 166,423
Valuation allowance (274,920) (166,423)
-------- --------
- -
-------- --------
</TABLE>
Deferred taxation has arisen mainly due to differences between the results
reported for statutory and fiscal purposes and the results reported for US GAAP
purposes. Deferred tax assets reflect the net tax effects of the tax credits,
net operating loss carry forwards and temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and amounts
used for income tax purposes. The ultimate realization of the deferred tax
assets is dependent upon the generation of sufficient future taxable income. A
valuation allowance has been raised for the realisation of deferred tax assets
due to the uncertainty that sufficient future taxable income will be generated
to realize these assets. This uncertainty stems from the fact that losses were
incurred in both 1998 and 1999. Management expects that losses will continue for
the foreseeable future.
A reconciliation of the difference between the statutory Dutch income tax rate
and the Group's effective tax rate follows:
1999 1998
-------- --------
Statutory income tax rate -35% -35%
Capital investment deduction -2% -1%
Schooling deduction -2% -1%
Intangible amortization 23% 6%
Other 1% 1%
-------- --------
Effective tax rate before provision for impairment of
deferred tax assets -15% -30%
Valuation allowance 15% 38%
Effective tax rate 0% 8%
-------- --------
KWATROBOX B.V. AND SUBSIDIARIES, AMSTERDAM
13
<PAGE>
1.5.10 Long-term liabilities
Long term liabilities comprise:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Loan Tele Flower Auction i 750,000 875,000
Loan to companies under the control of the directors ii 284,000 388,000
Mortgage iii 466,250 493,250
--------- ---------
1,500,250 1,756,250
Less : Short term portion (248,000) (256,000)
--------- ---------
1,252,250 1,500,250
--------- ---------
</TABLE>
i On 22 May 1998, Tele Flower Auction B.V. provided the Group with a loan
of NLG 1 million repayable in equal instalments of NLG 125,000 over 8
years and bearing interest at a rate of 5%, payable annually.
In addition to the interest, Tele Flower Auction BV is also entitled to
10% of the annual after-tax profit of one of the Group companies (Nieaf
Systems B.V.) during the term of the loan. Payments in this regard
amounted to NLG nil in 1999 (1998 : NLG 8,838)
ii Loans from companies under the control of the directors can be
summarised as follows :
1999 1998
------- -------
Van Veen Boy's B.V. 71,000 97,000
Peces B.V. 71,000 97,000
Rendex B.V. 71,000 97,000
Wodan B.V. 71,000 97,000
------- -------
284,000 388,000
------- -------
These loans were received in terms of a loan agreement dated May 30,
1995; bear interest at a rate of 6% and are repayable in equal monthly
instalments of NLG 2,000 per loan.
iii The mortgage concerns a loan from the group's bankers and is included
in the credit facilities of the group as set out in note 1.5.7. The
loan bears interest at 4,5% and is repayable in monthly instalments of
NLG 2,250 (exclusive of interest).
Maturities of long-term debt are as follows :
NLG
2000 27,000
KWATROBOX B.V. AND SUBSIDIARIES, AMSTERDAM
14
<PAGE>
2001 27,000
2002 27,000
2003 27,000
2004 27,000
Thereafter 331,250
-------
466,250
-------
1.5.11 Stockholder's equity
The authorised share capital amounts to NLG 200,000 divided into 2,000 shares of
NLG 100 each. Of the authorised share capital 400 shares have been issued and
paid in (1998 : 400).
1.5.12 Revenue
Revenue is generated as follows :
1999 2000
% of total % of total
---------- ----------
Netherlands 93 88
Rest of Europe 7 1
Other 0 11
---------- ----------
100 100
---------- ----------
Revenue can be categorised as follows:
1999 1998
---------- ----------
Hardware 5,544,694 4,356,131
Software 2,581,508 2,207,546
Project 3,560,762 3,683,434
---------- ----------
11,686,964 10,247,111
---------- ----------
1.5.13 Cost of sales
Cost of sales can be categorised as follows:
1999 1998
---------- ----------
Hardware 5,169,247 4,207,303
Software 913,896 703,592
Project 1,183,963 2,184,211
---------- ----------
7,267,106 7,095,106
---------- ----------
KWATROBOX B.V. AND SUBSIDIARIES, AMSTERDAM
15
<PAGE>
1.5.14 Pension plans
One of the group companies, Nieaf Systems B.V., contributes to a multi-employer
defined contribution pension plan. The plan is administered by the Foundation
for the Metal and Electro-technical Industry and covers all of the 20 (1998 :
19) employees of the group company. Premiums paid to the fund have been
recognised as costs and amounted to NLG 123,363 (1998 : NLG 94,131).
1.5.15 Commitments and contingencies
Operating leases
Commitments under operating leases which cannot be cancelled in respect of
premises amounted to NLG 868,098 at December 1999. These commitments expire as
follows :
NLG
--------------
2000 208,488
2001 196,804
2002 196,804
2003 190,402
2004 75,600
--------------
868,098
--------------
Total payments under operating lease in respect of motor vehicles (cancellable
leases) and property amounted to NLG 559,017 (1998 : NLG 456,547).
1.5.16 Related party transactions
Kwatrobox B.V. has received loans from companies under the control of the
directors as set out in note 1.5.10 amounting to NLG 284,000 (1998: NLG
388,000). Management fees paid to these companies for the years ended December
1998 and 1999 amounted to NLG 638,660 (1998: NLG 617,848).
1.5.17 Subsequent events
In January 2000, e-Auction Global Trading Inc. through a wholly owned
subsidiary, VWholesaler.com B.V., entered into negotiations to purchase all the
shares of Kwatrobox B.V.. Management expect that this transaction will be
finalised by November 2000. By September 2000 e-Auction Global Trading Inc. had
lent funds totalling NLG 1,7 million to the Kwatrobox Group. In addition, it
provided a letter of support in terms of which it commits itself to fund the
Group's expected working capital requirements to September 30, 2001.
KWATROBOX B.V. AND SUBSIDIARIES, AMSTERDAM
16
<PAGE>
TO THE BOARD OF DIRECTORS OF KWATROBOX B.V., AALSMEER
REPORT OF THE INDEPENDENT ACCOUNTANTS
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and of cash flows
present fairly, in all material respects, the consolidated financial position of
Kwatrobox B.V. and its subsidiaries at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. 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 of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Subsequent to December 31, 1999, the Company obtained a letter of support from
it's prospective new parent company (see note 1.5.1). The Company's plans
anticipate obtaining additional funding to fund it's working capital
requirements and future growth until such time as it is able to generate revenue
sufficient to support its expenditures.
Amsterdam, 25 September, 2000
/s/ PricewaterhouseCoopers N.V.
PricewaterhouseCoopers N.V.
17
<PAGE>
Unaudited Pro Forma Financial Statements
<PAGE>
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
PRO FORMA BALANCE SHEET - DECEMBER 31, 1999
(IN U.S. FUNDS)
ASSETS
<TABLE>
<CAPTION>
E-AUCTION SCS PRO FORMA KWATROBOX PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
Current assets
<S> <C> <C> <C> <C> <C> <C>
Cash 4,179,394 284,686 (3,000,000) 1,787 (321,902) 1,143,966
Cash guarantees - 29,060 - - - 29,060
Investment in Schelfhout 1,000,000 (1,000,000) - - -
Inventories - 468,372 - 443,213 - 911,585
Accounts receivable - 709,958 - 1,029,099 - 1,739,057
Prepaid expenses - - - 93,542 - 93,542
Other - 12,849 - - - 12,849
-----------------------------------------------------------------------------------
5,179,394 1,504,925 (4,000,000) 1,567,642 (321,902) 3,930,059
Capital assets 34,247 668,181 - 574,798 - 1,277,226
Goodwill, net of accumulated
amortization - - 5,505,417 - 3,197,163 8,702,580
-----------------------------------------------------------------------------------
5,213,641 2,173,106 1,505,417 2,142,440 2,875,261 13,909,865
-----------------------------------------------------------------------------------
LIABILITIES AND SHARE CAPITAL (DEFICIT)
Bank overdraft - - - 561,931 - 561,931
Accounts payable and accrued
expenses 1,809,843 1,126,963 - 726,077 - 3,662,883
Loans payable 2,000,000 - - - - 2,000,000
Shareholder loan 2,200,000 - - - 1,394,910 3,594,910
Other current liabilities - 117,896 - 413,994 - 531,890
Share subscriptions received 1,858,229 - - - - 1,858,229
-----------------------------------------------------------------------------------
7,868,072 1,244,859 - 1,702,002 1,394,910 12,209,843
Long-term obligations - 173,655 - 570,553 - 744,208
Non-controlling interest - - 3,527 - 3,527
Redeemable common stock - - 3,636,364 - - 3,636,364
- - -
Capital 1 831,842 (831,843) 18,225 2,127,775 2,146,000
Cumulative translation adjustment - - - (10,144) (10,144)
Deficit (2,654,432) (77,250) (1,299,104) (151,867) (637,280) (4,819,933)
-----------------------------------------------------------------------------------
(2,654,431) 754,593 (2,130,947) (133,642) 1,480,351(2,684,076)
-----------------------------------------------------------------------------------
5,213,641 2,173,106 1,505,417 2,142,440 2,875,261 13,909,865
-----------------------------------------------------------------------------------
</TABLE>
<PAGE>
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
PRO FORMA CONSOLIDATED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1999
(IN U.S. FUNDS)
<TABLE>
<CAPTION>
E-AUCTION SCS PRO FORMA KWATROBOX PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
<S> <C> <C> <C>
Revenue - 3,469,498 - 5,646,811 - 9,116,309
Cost of sales - (1,229,958) - (3,511,260) - (4,741,218)
---------------------------------------------------------------------------------------
Gross profit - 2,239,540 - 2,135,550 - 4,375,090
Operating expenses
Personnel expenses 458,924 1,188,048 - 1,154,472 - 2,801,444
General and administrative
expenses 1,195,508 195,738 - 721,426 - 2,112,672
Loan fee 1,000,000 - - - - 1,000,000
Impairment of intangibles - - - 429,741 - 429,741
Services and other goods - 747,199 - - - 747,199
Depreciation and amortization - - 1,376,354 120,133 799,291 2,295,778
---------------------------------------------------------------------------------------
Total operating expenses 2,654,432 2,130,985 1,376,354 2,425,772 799,291 9,386,834
Loss from operations (2,654,432) 108,555 (1,376,354) (290,221) (799,291) (5,011,743)
Net interest expense - (54,520) - (54,520)
---------------------------------------------------------------------------------------
Loss before income taxes (2,654,432) 108,555 (1,376,354) (344,741) (799,291) (5,066,263)
Provision for income taxes 49,061 - - 49,061
---------------------------------------------------------------------------------------
Net loss before (2,654,432) 59,494 (1,376,354) (344,741) (799,291) (5,115,324)
non-controlling interest
Non-controlling interest - - - (1,034) - (1,034)
---------------------------------------------------------------------------------------
Net loss (2,654,432) 59,494 (1,376,354) (345,775) (799,291) (5,116,358)
---------------------------------------------------------------------------------------
Loss per share, historical, basic and diluted (0.07)
Pro Forma (0.13)
</TABLE>
2
<PAGE>
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTE TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
(IN U.S. FUNDS)
--------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
--------------------------------------------------------------------------------
These pro forma financial statements have been prepared in connection with
the purchase of Schelfhout Computer Systems N.V. ("Schelfhout") by the
Company in a purchase agreement dated January 7, 2000 and with the
purchase of Kwatrobox B.V. and its subsidiaries ("Kwatrobox") by the
Company in a purchase agreement dated June 5, 2000 and amended November 1,
2000.
The pro forma balance sheet reflects the acquisition as if it took place
on December 31, 1999. The condensed pro forma income statement reflects
the combined operations for the year ended December 31, 1999 as if the
acquisition had taken place at January 1, 1999.
SCHELFHOUT ACQUISTION
The goodwill on the acquisition is calculated as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
$
---------
Purchase price 7,636,364
$
---------
Net tangible assets of SCS acquired
Total Assets 2,173,106
Less: Liabilities 1,418,513 754,593
---------- ---------
Excess of purchase price over net tangible assets, being goodwill 6,881,771
---------
Goodwill is to be amortized on a straight-line basis over 5 years.
The purchase price is $7,636,364 and is to be paid as follows:
Refundable deposit $1,000,000 paid
Cash on closing 3,000,000 paid subsequent to year end
Common shares at fair value issued on 3,636,364 issued subsequent to year end
closing (3,636,364)
$7,636,364
</TABLE>
3
<PAGE>
The 3,636,364 common shares are not free trading and are subject to a
timed release formula which allows for release of 454,545 shares worth
$750,000 on each of the 6, 12, 18 and 24 month anniversary of the closing
and 606,061 shares with a deemed value of $1,000,000 on each of the 36, 48
and 60 month anniversary of the closing. If the Company's shares are not
freely trading on any given release date the equivalent cash is to be paid
by the Company and the shares returned to the treasury.
The financial information for the respective companies is based on audited
financial statements. The SCS financial information was prepared in
accordance with Belgian generally accepted accounting principles and was
reported on by other auditors without reservation. There are no material
differences between Belgian and U.S. generally accepted accounting
principles with respect to these financial statements. The exchange rate
used to convert SCS's historical income statement was 1.06626, this is the
average exchange rate for 1999 between Euro's and U.S. dollars. The
exchange rate used to convert SCS's historical balance sheet was 1.00410,
this is the exchange rate at December 31, 1999 between Euro's and U.S.
dollars.
KWATROBOX ACQUISITION
On June 5, 2000 the Company entered into a pledge agreement to purchase
100% of the issued and outstanding shares of Kwatrobox B.V. ("Kwatrobox")
under the terms and conditions of the draft share purchase agreement. For
the purpose of the payment schedule, the parties agreed the closing date
of the share purchase agreement is deemed to be June 5, 2000, however the
purchase was not completed until November 1, 2000.
The goodwill on the acquisition is calculated as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
$
---------
Purchase price 3,862,812
$
---------
Net tangible assets of SCS acquired
Total Assets 2,142,439
Less: Liabilities 2,276,082 (133,642)
--------- --------
Excess of purchase price over net tangible assets, being goodwill 3,996,454
---------
</TABLE>
Goodwill is to be amortized on a straight-line basis over 5 years.
In connection with the purchase agreement, the Company agreed to pay the
vendors 11,250,000 Dutch Guilders or $4,828,500 based on an agreed
exchange rate of 0.4292 at the June 5, 2000. For accounting purposes, the
fair value of the shares is deemed to be $1.48 per share. The purchase
price is payable in cash and common shares of the Company as follows:
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Shares Guilders US $
Cash, paid on June 5, 2000 750,000 321,902
Cash, payable on June 5, 2001 2,250,000 965,707
Cash, payable on June 5, 2001 1,000,000 429,203
Shares, issued on June 5, 2000 500,000 740,000
Shares, escrowed until June 5, 2001 600,000 888,000
Shares, escrowed until June 5, 2002 150,000 222,000
Shares (potential based on performance) 200,000 296,000
--------------------------------------------------------
Purchase price 1,450,000 4,000,000 3,862,812
--------------------------------------------------------
</TABLE>
The 1,450,000 common shares are not free trading and are subject to a
timed release formula which allows for release of 600,000 shares on June
5, 2001 and 150,000 shares on June 5, 2002. Additionally, the Company is
also committed to issuing up to 200,000 common shares to the vendors
subject to Kwatrobox meeting performance requirements for a three-year
period commencing June 5, 2000.
The financial information for the respective companies is based on audited
financial statements. The Kwatrobox financial information was prepared in
accordance with US generally accepted accounting principles and was
reported on by other auditors without reservation. The exchange rate used
to convert Kwatrobox's historical income statement was 0.4832, this is the
average exchange rate for 1999 between Guilders and U.S. dollars. The
exchange rate used to convert Kwatrobox's historical balance sheet was
0.4556, this is the exchange rate at December 31, 1999 between Guilders
and U.S. dollars.
5
<PAGE>
Unaudited Pro Forma Financial Information
<PAGE>
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
PRO FORMA BALANCE SHEET - SEPTEMBER 30, 2000
(IN U.S. FUNDS)
ASSETS
<TABLE>
<CAPTION>
E-AUCTION KWATROBOX PRO FORMA PRO FORMA
ADJUSTMENTS
Current assets
<S> <C> <C> <C>
Cash 7,838,378 12,650 - 7,851,028
Demand loan receivable 749,668 - (749,668) -
Inventories 279,560 323,604 - 603,164
Accounts receivable 1,109,737 834,556 - 1,944,293
Work in progress 74,725 - - 74,725
Prepaid expenses 73,681 7,490 - 81,171
----------------------------------------------------------------------------
10,125,749 1,178,300 (749,668) 10,554,381
Deposits on acquisition of Kwatrobox 1,062,125 - (1,062,125) -
Capital assets 775,547 524,972 - 1,300,519
Goodwill 6,178,159 211,515 2,597,695 8,987,370
----------------------------------------------------------------------------
18,141,580 1,914,787 785,902 20,842,269
----------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES
<S> <C> <C>
Bank overdraft - 326,160 - 326,160
Accounts payable and accrued expenses 1,516,372 811,037 - 2,327,409
Current portion of long term debt 67,692 - - 67,692
Shareholder loan - - 1,394,910 1,394,910
Other current liabilities 457,084 754,697 (749,668) 462,113
----------------------------------------------------------------------------
2,041,148 1,891,894 645,242 4,578,284
Long-term obligations 225,934 530,861 - 756,795
Non-controlling interest 667,262 4,013 - 671,275
Redeemable common stock 3,636,364 - - 3,636,364
Capital 61,510 15,957 1,387,552 1,465,019
Additional paid in capital 17,225,894 - - 17,225,894
Cumulative translation adjustment 65,485 - 37,035 102,520
Deficit (5,782,017) (527,938) (1,283,927) (7,593,882)
----------------------------------------------------------------------------
11,570,872 (511,981) 140,661 11,199,551
----------------------------------------------------------------------------
18,141,580 1,914,787 785,902 20,842,269
----------------------------------------------------------------------------
</TABLE>
2
<PAGE>
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
PRO FORMA CONSOLIDATED INCOME STATEMENT
NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN U.S. FUNDS)
<TABLE>
<CAPTION>
E-AUCTION KWATROBOX PRO FORMA PRO FORMA
ADJUSTMENTS
<S> <C> <C> <C>
Revenue 2,931,321 3,274,315 - 6,205,636
Cost of sales (1,803,393) (1,397,522) - (3,200,915)
------------------------------------------------------------------------
GROSS PROFIT 1,127,928 1,876,793 - 3,004,721
OPERATING EXPENSES
Salaries and benefits 1,218,392 2,049,236 - 3,267,628
Consulting 1,232,999 - - 1,232,999
Sales, general and administrative 896,527 530,183 - 1,426,710
Depreciation and amortization 1,194,889 151,275 1,398,759 2,744,923
------------------------------------------------------------------------
Total operating expenses 4,542,807 2,730,695 1,398,759 8,672,261
LOSS FROM OPERATIONS (3,414,879) (853,902) (1,398,759) (5,667,540)
Non-controlling interest 182,616 - - 182,616
Net interest expense (173,441) 50,471 - (122,970)
------------------------------------------------------------------------
Loss before income taxes (3,058,822) (904,373) (1,398,759) (5,361,954)
Provision for income taxes 68,763 - - 68,763
------------------------------------------------------------------------
NET LOSS (3,127,585) (904,373) (1,398,759) (5,430,717)
Outside shareholders' interest - (990) - (990)
Unrealized foreign exchange gain 65,485 - - 65,485
------------------------------------------------------------------------
COMPREHENSIVE LOSS (3,127,585) (905,363) (1,398,759) (5,431,707)
------------------------------------------------------------------------
Loss per share, historical, basic and diluted (0.05)
Pro Forma (0.09)
</TABLE>
3
<PAGE>
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTE TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN U.S. FUNDS)
--------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
--------------------------------------------------------------------------------
These pro forma financial statements have been prepared in connection with
the purchase of Kwatrobox B.V. and its subsidiaries ("Kwatrobox") by the
Company in a purchase agreement dated June 5, 2000 and amended November 1,
2000.
The pro forma balance sheet reflects the acquisition as if it took place
on December 31, 1999. The condensed pro forma income statement reflects
the combined operations for the nine months ended September 30, 2000 as if
the acquisition had taken place at January 1, 2000.
KWATROBOX ACQUISITION
On June 5, 2000 the Company entered into a pledge agreement to purchase
100% of the issued and outstanding shares of Kwatrobox B.V. ("Kwatrobox")
under the terms and conditions of the draft share purchase agreement. For
the purpose of the payment schedule, the parties agreed the closing date
of the share purchase agreement is deemed to be June 5, 2000, however the
purchase was not completed until November 1, 2000.
The goodwill on the acquisition is calculated as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
$
---------
Purchase price 3,862,812
$
---------
Net tangible assets of SCS acquired
Total Assets 2,142,439
Less: Liabilities 2,276,082 (133,642)
--------- --------
Excess of purchase price over net tangible assets, being goodwill 3,996,454
---------
</TABLE>
Goodwill is to be amortized on a straight-line basis over 5 years.
4
<PAGE>
In connection with the purchase agreement, the Company agreed to pay the
vendors 11,250,000 Dutch Guilders or $4,828,500 based on an agreed
exchange rate of 0.4292 at the June 5, 2000. For accounting purposes, the
fair value of the shares is deemed to be $1.48 per share. The purchase
price is payable in cash and common shares of the Company as follows:
<TABLE>
<CAPTION>
Shares Guilders US $
<S> <C> <C> <C>
Cash, paid on June 5, 2000 750,000 321,902
Cash, payable on June 5, 2001 2,250,000 965,707
Cash, payable on June 5, 2001 1,000,000 429,203
Shares, issued on June 5, 2000 500,000 740,000
Shares, escrowed until June 5, 2001 600,000 888,000
Shares, escrowed until June 5, 2002 150,000 222,000
Shares (potential) 200,000 296,000
------------------------------------------------------
PURCHASE PRICE 1,450,000 4,000,000 3,862,812
------------------------------------------------------
</TABLE>
The 1,450,000 common shares are not free trading and are subject to a
timed release formula which allows for release of 600,000 shares on June
5, 2001 and 150,000 shares on June 5, 2002. Additionally, the Company is
also committed to issuing up to 200,000 common shares to the vendors
subject to Kwatrobox meeting performance requirements for a three-year
period commencing June 5, 2000.
The financial information for the respective companies is based on
unaudited financial statements for the period ended September 30, 2000.
The Kwatrobox financial information was prepared in accordance with US
generally accepted accounting principles and was reported on by other
auditors for the year ended December 31, 1999 without reservation. The
exchange rate used to convert Kwatrobox's historical income statement was
0.4269, this is the average exchange rate for the nine months ended
September 30, 2000 between Guilders and U.S. dollars. The exchange rate
used to convert Kwatrobox's historical balance sheet was 0.3989, this is
the exchange rate at September 30, 2000 between Guilders and U.S. dollars.
5
