<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------
FORM 8-K/A
Amendment No. 2
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
---------------------------------
Date of Report (Date of earliest event reported): October 10, 1997
AREMISSOFT CORPORATION
[formerly Juno Acquisitions, Inc.]
(Exact name of registrant as specified in its charter)
State of
Nevada 33-81666 13-3690905
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation or organization) Identification No.)
60 Bishopsgate, London EC2N 4AJ England
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 011-44-171-3091500
<PAGE> 2
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
a. FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
1. Financial statements of LK Global Information Systems, BV,
are attached hereto and amend and restate those financials
filed with the Company's Form 8-K/A filed on February 27,
1998.
c. EXHIBITS.
2.1 Copy of the Plan and Agreement of Reorganization and
Addendum thereto (1)
- -------------------
(1) Incorporated by reference to the Company's Form 8-K filed October 27, 1997.
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DATE: June 30, 1998 AREMISSOFT CORPORATION
[FORMERLY JUNO ACQUISITIONS, INC.]
/s/ L.K. KYPRIANOU
------------------------------------
Dr. Lycourgos K. Kyprianou
Chief Executive Officer
<PAGE> 4
LK GLOBAL INFORMATION SYSTEMS BV
AND SUBSIDIARIES
Consolidated Financial Statements
for years ended
December 31, 1996 and December 31, 1995
<PAGE> 5
Index to Consolidated Financial Statements
<TABLE>
<S> <C>
Independent Auditors' Report 1
Consolidated Balance Sheet 2
Consolidated Statement of Operations 3
Consolidated Statement of Changes in Stockholders' Equity (Deficit) 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6
</TABLE>
<PAGE> 6
Independent Auditors' Report
To the Board of Directors and Stockholders
LK Global Information Systems BV
We have audited the accompanying consolidated balance sheets of LK Global
Information Systems BV and Subsidiaries as of December 31, 1996 and 1995, and
the consolidated statement of operations, changes in stockholders' equity
(deficit) and cash flows for the years ended December 31, 1996 and December 31,
1995 which have been prepared in accordance with accounting principles generally
accepted in the United States and are expressed in U.S. Dollars. These financial
statements are the responsibility of the Group's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with UK auditing standards, which do not
differ materially from auditing standards generally accepted in the United
States. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of LK Global
Information Systems BV and Subsidiaries at December 31, 1996 and 1995 and the
results of its operations and its cash flows for the years ended December 31,
1996 and December 31, 1995, in conformity with accounting principles generally
accepted in the United States.
As described in note 1a to the consolidated financial statements, the Group has
restated its previously issued 1996 and 1995 consolidated financial statements.
London PANNELL KERR FORSTER
June 30, 1998 Chartered Accountants
<PAGE> 7
2
LK GLOBAL INFORMATION SYSTEMS BV
AND SUBSIDIARIES
Consolidated Balance Sheet
Assets
<TABLE>
<CAPTION>
December 31
1996 1995
---- ----
<S> <C> <C>
Current assets
Cash and cash equivalents $ 866,635 $ 254,991
Accounts receivable - net 11,016,940 10,458,351
Other receivables 253,764 911,901
Inventory (note 1) 1,283,309 694,293
Prepaid expenses 1,147,019 1,929,445
Property held for sale 136,904 147,250
------------ ------------
Total current assets 14,704,571 14,396,231
Property and equipment - net (notes 1 and 2) 2,385,602 2,273,988
Purchased and developed software - net of accumulated amortization of
$5,912,093 and $3,043,275 at December 31, 1996 and 1995,
respectively (notes 1 and 3) 334,473 2,112,314
Intangible assets - net of accumulated amortization of $13,240,853 and
$6,380,270 at December 31, 1996 and 1995, respectively (notes 1 and 3) 1,023,590 3,946,900
------------ ------------
Total assets $ 18,448,236 $ 22,729,433
============ ============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities
Accounts payable $ 3,593,148 $ 2,740,174
Accrued taxes payable 3,827,949 1,806,719
Other accrued expenses 4,633,051 7,785,489
Bank loans and overdrafts (notes 4 and 5) 6,490,068 4,320,876
Deferred maintenance revenue (note 1) 11,595,983 5,987,099
------------ ------------
Total current liabilities 30,140,199 22,640,357
Long-term debt (note 5) 13,408,097 12,453,645
------------ ------------
Total liabilities 43,548,296 35,094,002
------------ ------------
Stockholders' equity
Ordinary shares, NLG100 par value, authorized 200,000 shares,
issued and outstanding 85,400 6,068,307 6,068,307
Additional paid-in capital 5,305,030 --
Accumulated (deficit) (33,754,571) (18,451,584)
Foreign currency translation adjustment (note 1b) (2,718,826) 18,708
------------ ------------
Total stockholders' equity (deficit) (25,100,060) (12,364,569)
------------ ------------
$ 18,448,236 $ 22,729,433
============ ============
</TABLE>
See notes to consolidated financial statements
<PAGE> 8
3
LK GLOBAL INFORMATION SYSTEMS BV
AND SUBSIDIARIES
Consolidated Statement of Operations
<TABLE>
<CAPTION>
For Year Ended
December 31
1996 1995
------------ ------------
<S> <C> <C>
Revenue (note 1) $ 34,432,401 $ 21,421,773
Cost of revenue (note 1f) 15,034,636 10,812,993
------------ ------------
Gross profit 19,397,765 10,608,780
------------ ------------
Expenses
General and administrative 26,710,899 20,448,844
Distribution costs 485,339 232,610
Amortization of intangible assets (note 1h) 5,648,766 3,175,121
------------ ------------
Total expenses 32,845,004 23,856,575
------------ ------------
Loss from operations (13,447,239) (13,247,795)
Interest income (expense)
Interest expense (notes 4 and 5) (1,916,873) (1,289,501)
Interest income 11,079 5,425
------------ ------------
Loss before income tax (15,353,033) (14,531,871)
Income tax (benefit) expense (notes 1 and 7) (50,046) 36,782
------------ ------------
Net loss $(15,302,987) $(14,568,653)
------------ ------------
</TABLE>
See notes to consolidated financial statements.
<PAGE> 9
4
LK GLOBAL INFORMATION SYSTEMS BV
AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity (Deficit)
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Ordinary Shares
Foreign
Additional Currency Total
Paid-in Accumulated Translation Stockholders'
Shares Amount Capital (Deficit) Adjustment Equity (Deficit)
------ ------ ---------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 85,400 $6,068,307 -- $(3,882,931) $ -- $ 2,185,376
(note 1)
Net (loss) for the year ended -- -- -- (14,568,653) -- (14,568,653)
December 31, 1995
Foreign currency translation
adjustment -- -- -- -- 18,708 18,708
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 85,400 6,068,307 -- (18,451,584) 18,708 (12,364,569)
Shareholder contribution -- -- 5,305,030 -- -- 5,305,030
Net (loss) for the year ended -- -- -- (15,302,987) -- (15,302,987)
December 31, 1996
Foreign currency translation
adjustment -- -- -- -- (2,737,534) (2,737,534)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 85,400 $ 6,068,307 $ 5,305,030 $(33,754,571) $ (2,718,826) (25,100,060)
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements
<PAGE> 10
5
LK GLOBAL INFORMATION SYSTEMS BV
AND SUBSIDIARIES
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
For Year Ended
December 31
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities
Net (loss) $(15,302,987) $(14,568,653)
Adjustments to reconcile net (loss) to net cash
provided (used) by operating activities
Depreciation and amortization 958,448 344,624
Amortization and write-off of capitalized software
and intangible assets 7,975,249 5,548,614
Changes in assets and liabilities, net of acquisitions
Accounts receivable 1,106,140 (5,090,779)
Other receivables 831,748 (30,278)
Inventory (477,482) 74,409
Prepaid expenses 653,324 (365,081)
Accounts payable and accrued expenses 421,537 1,034,270
Deferred maintenance revenue (1,289,613) 4,098,890
Accrued taxes payable 1,679,021 753,886
Other accrued expenses 2,190,871 2,062,203
------------- ------------
Net cash (used) by operating activities (1,253,744) (6,137,895)
------------ ------------
Cash flows from investing activities
Purchases of property and equipment (1,130,066) (494,828)
Capitalized software and development costs (222,897) (513,825)
Payments for acquisitions, net of cash acquired (3,256,163) (7,526,733)
Disposals of equipment and motor vehicles 549,339 166,774
------------ ------------
Net cash (used) in investing activities (4,059,787) (8,368,612)
------------ ------------
Cash flows from financing activities
Proceeds from issuance of common stock/shareholder contribution 5,305,030 --
Long-term borrowings 1,936,336 13,474,538
Payments on long-term borrowings (1,732,243) (268,021)
Principal payments on capital lease obligations (353,214) (245,647)
Bank overdraft 1,301,430 1,817,900
------------ ------------
Net cash provided by
financing activities 6,457,339 14,778,770
------------ ------------
Net increase in cash and cash
equivalents 1,143,808 272,263
Exchange adjustment (532,164) (17,272)
Cash and cash equivalents, at start of year 254,991 --
------------ ------------
Cash and cash equivalents, at end of year $ 866,635 $ 254,991
------------ ------------
Supplemental disclosure
Cash paid during the year for interest $ 1,886,422 $ 974,676
------------ ------------
</TABLE>
See notes to consolidated financial statements
<PAGE> 11
6
LK GLOBAL INFORMATION SYSTEMS BV
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and December 31, 1995
Note 1 - Description of company and summary of significant accounting policies
a. Background and restatement
The principal activity of LK Global Information Systems BV (the Company) and its
Subsidiaries (collectively "The Group") is the development of computer software
and the supply of software and services, which when combined with third party
hardware, provide complete computer solutions to the Group's customer base
across a number of discrete market sectors principally within the United
Kingdom.
In connection with the formation of LK Global Information Systems BV in March
1995, the shareholder of LK Global Information Systems (UK) Plc exchanged all of
the ordinary shares of the latter for 85,000 NLG100 par value ordinary shares of
LK Global Information Systems BV. This exchange between LK Global Information
Systems BV and LK Global Information Systems (UK) Plc was accounted for at book
value since the exchange of shares was between enterprises under common control
and the financial statements have been stated in a manner similar to a pooling
of interests.
On October 10, 1997 LK Global Information Systems BV was acquired by Juno
Acquisitions Inc. which has subsequently changed its name to AremisSoft
Corporation. In connection with the preparation of the consolidated financial
statements of AremisSoft Corporation ("AremisSoft") for the first reporting
period subsequent to its acquisition of the Company, management discovered
certain accounts included in the previously issued financial statements were not
in accordance with the Group's prescribed accounting policies. Accordingly
management has restated its 1996 and 1995 financial statements as follows:
<TABLE>
<CAPTION>
As Previously
Reported As Restated
-------- -----------
<S> <C> <C>
Revenues
1996 $ 35,015,853 $ 34,432,401
1995 22,955,830 21,421,773
Cost of Revenue
1996 13,076,760 15,034,636
1995 10,924,456 10,812,993
General and Administrative expenses
1996 23,889,939 26,710,899
1995 19,444,575 20,448,844
Amortization of intangible assets
1996 4,808,982 5,648,766
Net loss
1996 (9,100,915) (15,302,987)
1995 (12,141,790) (14,568,653)
Purchased and developed software costs
1996 9,383,515 6,246,566
1995 6,159,862 5,155,589
Stockholders' (deficit)
1996 (15,613,852) (25,100,060)
1995 (9,937,706) (12,364,569)
</TABLE>
<PAGE> 12
7
LK GLOBAL INFORMATION SYSTEMS BV
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and December 31, 1995
b. Basis of presentation
The consolidated financial statements include the accounts of LK Global
Information Systems BV and its wholly-owned subsidiaries. Where subsidiaries are
acquired or disposed of during the year, results are included from the date of
acquisition or to the date of sale. All intercompany accounts and transactions
were eliminated in consolidation.
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States and have been
prepared in U.S. dollars. These consolidated financial statements have been
translated from the functional currency (British pound) to U.S. dollars in
accordance with Statement of Financial Accounting Standards No. 52 - "Foreign
Currency Translation". Under this statement assets and liabilities are
translated at year end rates and income and expenses are translated at average
rates.
c. Revenue recognition
The Group recognizes revenue from the sale of software and hardware systems at
the time of the installation of the system, provided no significant obligations
remain and collection of the resulting receivable is deemed probable. Revenue
from add-on hardware sales is recognized when the hardware is shipped to the
customer. Revenue related to service contracts is recognized ratably over the
lives of the contracts. Consulting and specialized software development revenue
is recognized in accordance with the terms of the contract.
d. Cash and cash equivalents
Cash and cash equivalents consist of highly liquid investments with
insignificant interest rate risk and original maturities of three months or
less. They are carried at cost which approximates market value.
e. Inventory
Inventory comprises principally goods held for resale and engineering spares.
Goods for resale are stated at the lower of cost and net realizable value. Cost
is determined on a first-in first-out basis, and includes all direct costs
incurred and attributable production overheads. Net realizable value is based on
estimated selling price allowing for all further costs of completion and
disposal. Engineering spares are valued at cost and are depreciated over a three
year period.
The balance in inventory at December 31, 1996 and 1995 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Finished goods held for resale $ 498,389 $ 404,576
Engineering spares 784,920 289,717
------------ -------------
$ 1,283,309 $ 694,293
------------ -------------
</TABLE>
f. Capitalized software development costs
The Group capitalizes the qualifying costs of developing its software products.
Capitalization of costs requires that technological feasibility has been
established. Development costs incurred prior to the establishment of
technological feasibility are expensed as incurred. When the software is fully
documented and available for unrestricted sale, capitalization of development
costs ceases, and amortization commences and is computed on a product-by-product
basis, based on either a straight-line basis over the economic life of the
product or the ratio of current gross revenues to the total current and
anticipated future gross revenues, whichever is greater. The establishment of
technological feasibility and the ongoing assessment of recoverability of
capitalized software development costs require considerable judgment by
management with respect to certain external factors, including, but not limited
to, technological feasibility, anticipated future gross revenues, estimated
economic life and changes in software and hardware technologies.
Realization of capitalized software costs is subject to the Group's ability to
market its software products in the future and generate cash flows sufficient to
support future operations. Capitalized software costs totalled $362,367 and
$126,323 at December 31, 1996 and 1995, respectively. Amortization of
capitalized software costs totalled $25,428 and $0 during the years ended
December 31, 1996 and 1995, respectively, and is included in cost of revenue in
the accompanying consolidated statement of operations.
<PAGE> 13
8
LK GLOBAL INFORMATION SYSTEMS BV
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and December 31, 1995
g. Purchased software
The Group capitalizes as Purchased Software the costs associated with software
products either purchased from other companies for resale or developed by other
companies under contract with the Group. The cost of the software is amortized
on the same basis as capitalized software development costs. The amortization
period is re-evaluated quarterly with respect to certain external factors,
including, but not limited to, technological feasibility, anticipated future
gross revenues, estimated economic life and changes in software and hardware
technologies. Purchased software costs totalled $5,884,199 and $5,029,266 at
December 31, 1996 and 1995, respectively. Amortization of purchased software
costs totalled $2,301,055 and $2,373,493 during the years ended December 31,
1996 and 1995, respectively, and is included in cost of revenue in the
accompanying consolidated statement of operations.
h. Intangible assets
Intangible assets have been derived from the excess of cost over the fair value
of net assets acquired and is being amortized over the period from which it is
considered a benefit will be obtained from the business acquired. Such excess
amounts have been attributed to customer lists which is amortized over 1 to 3
years depending on the circumstances of the company acquired and to the
management team acquired whereby amortization is estimated by the directors to
be over 4 to 5 years.
i. Property and equipment
Depreciation is provided so as to write down the cost of property and equipment
to their estimated residual value over their expected useful lives. The
principal annual depreciation rates and methods of calculation are as follows:
Leasehold improvements - over the lease term
Fixtures and equipment - 20% - 33% per annum on cost
Motor vehicles - 25% per annum on cost
j. Impairment of long lived assets
In the event that facts and circumstances indicate that the cost of an asset may
be impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows associated
with the asset would be compared to the asset's carrying amount to determine if
a write-down to market or discounted cash flow value is required. The Group made
certain acquisitions in 1995 on the assumption that further funding would be
made available by the bankers. This was not forthcoming and consequently the
Group was unable to develop the Financial arm of the business as originally
anticipated. All purchased and developed software relating to this business has
therefore been written off. Accordingly, during 1995 the company wrote off
$387,500 of purchased and developed software. Additionally in 1996 the Group
were forced to replace the management team in the Healthcare business and hence
the related intangible asset was written off. The Group therefore wrote off an
additional $505,194 of intangible assets in 1996 over and above the normal
amortization that would have been charged had this event not occurred. Such
amounts are included in cost of revenue and amortization of intangible assets.
k. Income taxes
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Under the asset and
liability method of Statement No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to carryforward losses
and differences between the financial statement carrying amounts of existing
assets and liabilities, and their respective tax bases. 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. Deferred tax assets are recorded at their likely
realizable amount.
l. Foreign currency translation
Although the Group's functional currency is the British pound, some transactions
are made in different currencies. Foreign currency transactions are converted
into local currency at the rate of exchange prevailing at the date of the
transactions.
m. Use of estimates
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
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.
<PAGE> 14
LK GLOBAL INFORMATION SYSTEMS BV
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and December 31, 1995
9
Note 2 - Property and equipment
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
December 31
-----------
1996 1995
---------- ----------
<S> <C> <C>
Fixtures and equipment $4,778,995 $2,178,926
Motor vehicles 604,960 1,233,808
Leasehold improvements 293,765 265,069
---------- ----------
5,677,720 3,677,803
Less accumulated depreciation and amortization 3,292,118 1,403,815
---------- ----------
$2,385,602 $2,273,988
========== ==========
</TABLE>
Depreciation and amortization expense amounted to $958,448 and $344,624 for the
years ended December 31, 1996 and December 31, 1995, respectively.
The Group leases equipment under long-term lease agreements which are classified
as capital leases. Equipment and motor vehicles includes the following leased
property:
<TABLE>
<CAPTION>
December 31
1996 1995
---------- ----------
<S> <C> <C>
Equipment and motor vehicles $ 110,819 $1,047,800
Less accumulated amortization 59,557 417,799
---------- ----------
$ 51,262 $ 630,001
---------- ----------
</TABLE>
Note 3 - Business combinations
The principal acquisitions and their effective dates were as follows:
- - during the year ended December 31, 1995
LK Global Information Systems (UK) Plc March 31, 1995 (note 1a)
LK Global Manufacturing Systems (UK) Limited March 31, 1995
Timemaster Systems Limited September 12, 1995
Briter Computer Systems Limited October 3, 1995
Advanced Medical Computer Systems Limited October 16, 1995
LK Global Information Systems (India) Pte Limited December 31, 1995
- - during the year ended December 31, 1996
LK Global Information Systems (Cyprus) Limited
and its subsidiaries September 30, 1996
Online Applications Inc October 23, 1996
In all cases the Group acquired all of the outstanding stock of the company. All
of the companies are involved with the development of computer software and the
supply of software and services.
<PAGE> 15
10
LK GLOBAL INFORMATION SYSTEMS BV
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and December 31, 1995
Note 3 - Business combinations (cont.)
The estimated fair values of assets and liabilities of these acquisitions and
the consideration paid are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Current assets (including cash of $88,539 in 1996
and $503,786 in 1995) $ 423,796 $ 3,078,114
Property and equipment 345,652 1,417,002
Software development costs and intellectual property 331,564 3,971,985
Accounts payable and accruals (581,366) (3,777,133)
Intangible assets 2,862,581 4,322,507
----------- -----------
$ 3,382,227 $ 9,012,475
=========== ===========
</TABLE>
The consideration paid consists of the following:
<TABLE>
<S> <C> <C>
Cash consideration $3,302,660 $ 7,997,969
Deferred consideration 37,525 981,956
Related acquisition costs 42,042 32,550
----------- -----------
$3,382,227 $ 9,012,475
=========== ===========
</TABLE>
The operating results of these acquisitions are included in the Group's
consolidated statement of operations from the dates of acquisition. No pro forma
data reflecting the Group's results of operations as if these acquisitions
occurred at the beginning of each period has been provided as the directors
consider that this would be meaningless in light of the write down of purchased
software and intangible assets.
Note 4 - Bank loans and overdrafts
The Group's bank loans and overdrafts are due on demand with interest payable at
a rate varying with LIBOR.
Note 5 - Long-term debt
The Group's bank loans mature on March 31,
2002 and bear interest at a rate
varying with LIBOR. Future minimum
principal payments due are as follows:
<TABLE>
<CAPTION>
December
1996 1995
----------- -----------
<S> <C> <C>
1996 $ -- $ 1,526,139
1997 2,103,067 1,546,193
1998 3,777,721 2,903,728
1999 3,279,090 2,599,831
2000 2,820,561 2,170,000
2001 1,799,110 1,550,000
Thereafter 1,711,300 1,550,000
----------- -----------
$15,490,849 $13,845,891
Various capital lease obligations with interest rates
varying from 9.4% to 21.3% at December 31, 1996
maturities through June 1998, repayable in monthly
instalments and secured by the related equipment: 88,765 400,320
----------- -----------
$15,579,614 $14,246,211
Current portion of long term debt 2,171,517 1,792,566
----------- -----------
$13,408,097 $12,453,645
----------- -----------
</TABLE>
<PAGE> 16
11
LK GLOBAL INFORMATION SYSTEMS BV
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and December 31, 1995
Note 6 - Commitments
Operating leases
The Group leases equipment and motor vehicles under non-cancellable operating
leases which expire on various dates through 2002. Required future minimum rents
to be paid are as follows:
<TABLE>
<S> <C>
1997 $ 237,681
1998 764,142
1999 333,519
2000 151,707
2001 and thereafter 200,515
----------
$ 1,687,564
============
</TABLE>
Rent expense for the years ended December 31, 1996 and December 31, 1995
amounted to $1,629,113 and $802,630, respectively.
Guarantees
The Company and its UK subsidiaries are subject to two cross guarantees, one
guaranteeing the liabilities of the UK trading subsidiaries and the other, the
liabilities of the Company. Both guarantees place fixed and floating charges
over substantially the whole of the Company's and subsidiaries' assets and
undertakings, the priority of the security granted being regulated by an
Intercreditor Deed.
Employee benefit plans
The Group has various defined contribution retirement plans for qualified
employees. Contributions made under the plans totalled $298,273 and $191,716 in
1996 and 1995, respectively.
Note 7 - Income tax
The income tax (benefit of) expense is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current $ (50,046) $ 36,782
</TABLE>
The Group's subsidiaries are not resident in the United States for tax purposes.
The Group made acquisitions during both 1996 and 1995 and the income tax
(benefit of) expense has principally arisen in relation to adjustments for prior
periods.
<TABLE>
<CAPTION>
1996 1995
---- -----
<S> <C> <C>
Statutory tax (at 31%) $(4,759,000) $(4,505,000)
Non deductible expenses 2,600,000 2,831,000
Valuation allowance on operating loss 2,159,000 1,674,000
Other prior period adjustments (50,046) 36,782
----------- -----------
Income tax (benefit) expense $ (50,046) $ 36,782
----------- -----------
</TABLE>
At December 31, 1996 the Group had approximately $11,700,000 of net operating
loss carryforwards. These losses will not expire at any particular time provided
the Group does not change its principal activity or cease trading. The Group has
fully reserved the tax benefits of these operating losses because the likelihood
of realization cannot be determined.
