UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
----------------------------------------------------------------------
Date of Report (Date of earliest event reported):
-------------------------------------------------
April 1, 2005 (January 19, 2005)
Commission file number: 0-22773
NETSOL TECHNOLOGIES, INC.
-------------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 95-4627685
------ ----------
(State or other Jurisdiction of (I.R.S. Employer NO.)
Incorporation or Organization)
23901 Calabasas Road, Suite 2072, Calabasas, CA 91302
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(818) 222-9195 / (818) 222-9197
-------------------------------
(Issuer's telephone/facsimile numbers, including area code)
Page 1
Item 1.01. Entry into a Material Definitive Agreement.
On January 19, 2005, NetSol Technologies, Inc., a Nevada corporation (the
"Company") entered into a Share Purchase Agreement whereby the Company agreed to
acquire 100% of the issued and outstanding shares of CQ Systems Ltd., a company
organized under the laws of England and Wales ("CQ") (the "Share Purchase
Agreement"). Prior to the execution of the Share Purchase Agreement, there was
no relationship between the Company and any of the parties to the Share Purchase
Agreement.
According to the terms of the Share Purchase Agreement, the Company shall
acquire 100% of the issued and outstanding shares of CQ from CQ's current
shareholders, whose identity is set forth in the Share Purchase Agreement (the
"CQ Shareholders") at the completion date in exchange for a purchase price
consisting of: a) 50.1% of CQ's total gross revenue for the twelve month period
ending 31st of March, 2005 after an adjustment for any extraordinary revenue,
i.e. non-trading revenue ("LTM Revenue") multiplied by 1.3 payable: (i) 50% in
shares of restricted common stock of the Company at a per share cost basis of
$2.313 and as adjusted by the exchange rate of U.S. Dollar to British Pound (at
the spot rate for the purchase of sterling with U.S. dollars certified by
NatWest Bank plc as prevailing at or about 11:00 a.m.) on January 19, 2005 and,
(ii) 50% in cash; and b) 49.9% of CQ's LTM Revenue for the period ending 31st
March 2006 multiplied by 1.3 payable, at the Company's discretion: (i) wholly in
cash; or (ii) on the same basis and on the same terms as the initial payment
provided, however that the cost basis of the Company's common stock shall be
based on the 20 day volume weighted average of the Company's shares of common
stock as traded on NASDAQ 20 days prior to March 31, 2006 and, provided that
under no circumstances shall the total number of shares of common stock issued
to the CQ Shareholders exceed 19% of the issued and outstanding shares of common
stock, less treasury shares, of the Company at January 19, 2005.
The acquisition closed on February 21, 2005 based on March 31, 2004 financial
statements of CQ Systems Ltd. with the payment of approximately $1.7 million in
cash and 675,292 shares of Company common stock based on a $2.46 per share cost
basis. Consideration will be adjusted when March 31, 2005 financials are
received. The final payment of consideration will be made after the completion
of CQ's March 31, 2006 fiscal year end.
Exhibits
Listed below are the financial statements, pro forma financial information filed
as a part of this report.
(a) Financial Statements of the Business Acquired.
(1) CQ Systems Ltd.'s Financial Statements for the year ended March 31, 2004
(2) CQ Systems Ltd. Financial Statements for the year ended March 31, 2003
(3) CQ Systems Ltd. Financial Statements for the 9 months ended December 31, 2004 (unaudited)
(b) Pro Forma Financial Information.
(1) NetSol Technologies Inc. and Subsidiaries Pro Forma Financial Statements
June 30, 2004 (Unaudited)
(2) NetSol Technologies Inc. and Subsidiaries Pro Forma Financial Statements
June 30, 2003 (Unaudited)
(3) NetSol Technologies, Inc. and Subsidiaries Pro Forma Financial Statements
for the quarter and six months ended December 31, 2004 (Unaudited)
(c) Exhibits
2.1 Share Purchase Agreement dated as of January 19, 2005 by and between the
Company and the shareholders of CQ Systems Ltd.*
*Previously filed
Page 2
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NETSOL TECHNOLOGIES, INC.
Date: April 1, 2005 /s/ Naeem Ghauri
----------------------------------------
NAEEM GHAURI
Chief Executive Officer
Date: April 1, 2005 /s/ Najeeb Ghauri
----------------------------------------
NAJEEB GHAURI
Chief Financial Officer and Chairman
Page 3
CQ SYSTEMS LIMITED
COMPANY NUMBER: 1998080
(REGISTERED IN ENGLAND)
REPORTS ON AUDITS OF FINANCIAL STATEMENTS
AND ADDITIONAL INFORMATION
YEAR ENDED 31 MARCH 2004
CQ SYSTEMS LIMITED
COMPANY INFORMATION
FOR THE YEAR ENDED 31 MARCH 2004
DIRECTORS: P J Grace
G E Tarrant
I M Tarrant
A Elliott
J Halliday
J Manktelow
C S Taylor
SECRETARY: P M Tarrant
REGISTERED OFFICE: Planet House
North Heath Lane
Horsham
West Sussex
United Kingdom
RH12 5QE
REGISTERED NUMBER: 1998080 (England)
AUDITORS: CMB Partnership
Chartered Accountants and Registered
Auditors
Chapel House
1 Chapel Street
Guildford
Surrey
United Kingdom
GU1 3UH CQ SYSTEMS LIMITED
CONTENTS
FINANCIAL STATEMENTS PAGE
Important Note 1
Original Directors Report of United Kingdom GAAP statements 2 - 3
Original Independent Auditors Report on United Kingdom GAAP 4
Statements
Independent Auditors Report on US GAAP statements 5
Consolidated Balance Sheets 6
Consolidated Statements of Income and Retained Earnings 7
Consolidated Statements of Comprehensive Income 7
Consolidated Statements of Cash Flows 8 - 9
Notes to the Financial Statements 10 - 11
IMPORTANT NOTE
The consolidated US GAAP financial information contained in this report
represents historical information, which previously was reported in
accordance with United Kingdom GAAP and has been restated in accordance
with US GAAP. The restatement to US GAAP has been performed at the request
of the directors of the company.
The consolidated US GAAP financial information includes certain primary
information (consolidated balance sheet, consolidated income statement,
changes in shareholders equity, consolidated cash flow statement and
certain explanatory notes.)
The original financial statements for the year ended 31 March 2004
prepared in accordance with United Kingdom GAAP were approved by the
directors on 23 November 2004. The Independent Auditors Report on those
financial statements was also dated 23 November 2004 and is attached on
page 4. As outlined above, the directors of the company have requested
that the original financial statements be restated in accordance with US
GAAP. The Independent Auditors have attached a report on those financial
statements on page 5.
Page 1
CQ SYSTEMS LIMITED
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 MARCH 2004
The directors present their report with the financial statements of the
group for the year ended 31 March 2004.
PRINCIPAL ACTIVITY
The principal activity of the group in the year under review was that of
the provision of computer software and services.
DIRECTORS
The directors during the year under review were:
P J Grace
G E Tarrant
I M Tarrant
A Elliott
J Halliday
J Manktelow
C S Taylor - appointed 5/2/04
The beneficial interests of the directors holding office on 31 March 2004
in the issued share capital of the company were as follows:
01.04.03
or date of
appointment
31.3.04 if later
ORDINARY (POUND)0.20 SHARES
P J Grace 75,000 75,000
G E Tarrant 150,000 150,000
I M Tarrant 150,000 150,000
A Elliott 55,983 55,983
J Halliday 38,034 38,034
J Manktelow 30,983 30,983
C S Taylor -- --
The directors' interests above include shares held by connected persons.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for
each financial year which give a true and fair view of the state of
affairs of the company and of the profit or loss of the company for that
period. In preparing those financial statements, the directors are
required to
- select suitable accounting policies and then apply them
consistently;
- make judgements and estimates that are reasonable and prudent;
- prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the company will continue in
business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of
the company and to enable them to ensure that the financial statements
comply with the Companies Act 1985. They are also responsible for
safeguarding the assets of the company and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
AUDITORS
The auditors, CMB Partnership, will be proposed for re-appointment in
accordance with Section 385 of the Companies Act 1985.
Page 2
REPORT OF THE DIRECTORS - CONTINUED
FOR THE YEAR ENDED 31 MARCH 2004
This report has been prepared in accordance with the special provisions of Part
VII of the Companies Act 1985 relating to small companies.
ON BEHALF OF THE BOARD:
P M Tarrant - Secretary
Date: 23 November 2004
1
REPORT OF THE INDEPENDENT AUDITORS TO THE SHAREHOLDERS OF CQ SYSTEMS LIMITED
(EXEMPT FROM REQUIREMENT TO PREPARE GROUP ACCOUNTS)
"We have audited the financial statements of CQ Systems Limited for the year
ended 31 March 2004 on pages five to eleven. These financial statements have
been prepared in accordance with the Financial Reporting Standard for Smaller
Entities (effective June 2002), under the historical cost convention and the
accounting policies set out therein.
This report is made solely to the company's members, as a body, in accordance
with Section 235 of the Companies Act 1985. Our audit work has been undertaken
so that we might state to the company's members those matters we are required to
state to them in an auditors' report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company's members as a body, for our audit work,
for this report, or for the opinions we have formed.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page two the company's directors are responsible for the
preparation of financial statements in accordance with applicable law and United
Kingdom Accounting Standards.
Our responsibility is to audit the financial statements in accordance with
relevant legal and regulatory requirements and United Kingdom Auditing
Standards.
We report to you our opinion as to whether the financial statements give a true
and fair view and are properly prepared in accordance with the Companies Act
1985. We also report to you if, in our opinion, the Report of the Directors is
not consistent with the financial statements, if the company has not kept proper
accounting records, if we have not received all the information and explanations
we require for our audit, or if information specified by law regarding
directors' remuneration and transactions with the company is not disclosed.
We read the Report of the Directors and consider the implications for our report
if we become aware of any apparent misstatements within it.
BASIS OF AUDIT OPINION
We conducted our audit in accordance with United Kingdom Auditing Standards
issued by the Auditing Practices Board. An audit includes examination, on a test
basis, of evidence relevant to the amounts and disclosures in the financial
statements. It also includes an assessment of the significant estimates and
judgements made by the directors in the preparation of the financial statements,
and of whether the accounting policies are appropriate to the company's
circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the state
of the company's affairs as at 31 March 2004 and of its profit for the year then
ended and have been properly prepared in accordance with the Companies Act 1985.
CMB Partnership
Chartered Accountants and Registered Auditors
Chapel House, 1 Chapel Street
Guildford
Surrey GU1 3UH Date: 23 November 2004
2BOARD OF DIRECTORS CQ SYSTEMS LIMITED INDEPENDENT AUDITORS' REPORT We have audited the accompanying balance sheets of CQ Systems, as of 31 March 2004 and 2003, and the related statements of income and retained earnings, comprehensive income, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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. We draw attention to the note on page 1 in that the original accounts were prepared in accordance with United Kingdom accounting and auditing standards. We have been requested to report on the financial statements prepared under US GAAP. The scope of our work for the purpose in US GAAP financial statements did not include examining or dealing with events after the date of the Audit Report on the United Kingdom GAAP accounts. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CQ Systems Limited, as of 31 March 2004 and 2003 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
CMB Partnership
Chartered Accountants and Registered Auditors
Chapel House, 1 Chapel Street
Guildford
Surrey GU1 3UH Date: 23 November 2004
3
CQ SYSTEMS LIMITED
CONSOLIDATED BALANCE SHEET
ASSETS
MARCH 31
2004 2003
NOTE (POUND) (POUND)
CURRENT ASSETS
Cash and cash equivalents 809,488 448,136
Accounts receivable 400,280 435,806
Prepaid expenses and other debtors 60,501 47,216
--------- ---------
TOTAL CURRENT ASSETS 1,270,269 931,158
--------- ---------
EQUIPMENT 2
Automobiles 64,725 39,732
Furniture and equipment 172,841 155,093
Computer equipment 580,772 546,646
--------- ---------
818,338 741,471
Less accumulated depreciation 676,768 616,420
--------- ---------
141,570 125,051
--------- ---------
1,411,839 1,056,209
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
MARCH 31
2004 2003
(POUND) (POUND)
CURRENT LIABILITIES
Accounts payable 16,682 21,365
Hire purchase liabilities 23,428 32,153
Payroll, Vat and corporation taxes payable 283,017 135,117
Dividends payable 53,062 30,000
Accrued liabilities 75,197 92,911
Deferred income 1.b 418,581 410,193
--------- ---------
TOTAL CURRENT LIABILITIES 869,967 721,739
LONG TERM LIABILITIES AND PROVISIONS
Hire purchase liabilities 38,270 5,275
Deferred tax 2,916 1,198
--------- ---------
TOTAL LIABILITIES 911,153 728,212
SHAREHOLDERS' EQUITY
Ordinary Shares
1,000,000 shares authorised (pound)0.20 par value
Issued 500,000 shares 100,000 100,000
Retained earnings 400,686 227,997
--------- ---------
1,411,839 1,056,209
========= =========
See notes to financial statements.
4 CQ SYSTEMS LIMITED
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
YEAR ENDED YEAR ENDED
MARCH 31 2004 MARCH 31 2003
(POUND) (POUND)
NOTE
SALES 2,739,303 2,471,477
1.b
COST OF SALES 1,082,577 1,069,974
--------- ---------
1,656,726 1,401,503
OPERATING EXPENSES 1.e 1,119,171 1,302,176
--------- ---------
INCOME FROM OPERATIONS 537,555 99,327
OTHER INCOME (EXPENSES)
Interest income 19,483 10,257
Interest payable (5,238) (3,530)
--------- ---------
INCOME BEFORE CORPORATION 551,800 106,054
AND DEFERRED TAXES
UK CORPORATION AND DEFERRED TAXES 3 (141,049) (29,076)
--------- ---------
NET INCOME 410,751 76,978
RETAINED EARNINGS
Beginning of year 227,997 181,019
Less: Dividends (238,062) (30,000)
--------- ---------
End of year 400,686 227,997
========= =========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
2004 2003
(POUND) (POUND)
NET INCOME 410,751 76,978
--------- ---------
COMPREHENSIVE INCOME 410,751 76,978
========= =========
See notes to financial statements.
5 CQ SYSTEMS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
MARCH 31
2004 2003
(POUND) (POUND)
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers 2,761,544 2,343,179
Cash paid to suppliers and employees (2,074,453) (2,235,165)
Interest received 19,483 10,257
Interest paid (5,238) (3,530)
Corporation tax paid (27,878) (8,782)
---------- ----------
Net cash provided by operating activities 673,458 105,959
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net sales (purchases) of equipment (97,106) (27,462)
---------- ----------
Net cash used by investing activities (97,106) (27,462)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (215,000) --
---------- ----------
Net cash used by financing activities (215,000) --
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 361,352 78,497
CASH AND CASH EQUIVALENTS
Beginning of year 448,136 369,639
---------- ----------
End of year 809,488 448,136
========== ==========
See notes to financial statements.
6 CQ SYSTEMS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
MARCH 31
2004 2003
(POUND) (POUND)
RECONCILIATION OF NET INCOME TO CASH
PROVIDED BY OPERATING ACTIVITIES
Net Income 410,751 76,978
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 80,587 111,390
Decrease/(increase) in accounts receivable and other debtors 22,241 (128,297)
Increase in accounts payable and other creditors 46,708 25,594
Increase in corporation taxes payable 111,453 19,096
Increase in deferred taxes 1,718 1,198
-------- --------
262,707 28,981
-------- --------
673,458 105,959
======== ========
See notes to financial statements.
7 CQ SYSTEMS LIMITED
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the
United States of America (US GAAP) and are stated in United Kingdom
sterling.
In preparing the consolidated financial statements, management is
required 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 consolidated balance sheet
and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
a. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial
statements of the group and its subsidiary. The group's subsidiary
is Custom Quest Limited, a dormant company that has not traded since
31 May 2001 in which the group has a 100% direct holding in the
voting rights. The net assets of the subsidiary company since
cessation of trade is (pound)nil.
b. TURNOVER
Licence revenue is recognised where orders have been signed and the
product is delivered. In contracts with multiple elements revenues
are allocated to each element based on the fair value on completion,
delivery and acceptance by the customer. For other services related
activity, revenue is recognised on a percentage of completion basis.
c. TANGIBLE FIXED ASSETS
Depreciation is provided at the following rates in order to write
off each asset over its useful life;
Computer software 50% straight line
Office furniture and fittings 15% straight line
Computer equipment 33.33% straight line
Automobiles 25% straight line
The group evaluates tangible fixed assets for impairment losses at
least annually and whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable or is
greater than its fair value.
d. DEFERRED TAX
Deferred tax is recognised in respect of all timing differences that
have originated but not reversed at the balance sheet date. These
reflect the expected future tax consequences of temporary
differences between the carrying amounts of assets and liabilities
at the balance sheet date and their respective tax bases.
8 CQ SYSTEMS LIMITED
NOTES TO FINANCIAL STATEMENTS - CONTINUED
E. RESEARCH AND DEVELOPMENT
Expenditure on research and development is written off in the year
in which it is incurred. Development costs on computer software that
is to be sold relates to bespoke work undertaken for particular
customers as and when requested. Under these circumstances, these
costs are written off as incurred rather than capitalised and
amortised, as they relate solely to the individual customers
specifications rather than being available for general release to
customers.
f. ADVERTISING
The company expenses advertising costs as they are incurred.
G. HIRE PURCHASE AND LEASING COMMITMENTS
Assets obtained under hire purchase contracts are capitalised in the
balance sheet and are depreciated over their useful estimated lives.
The interest element of these obligations are charged to the
statement of income and retained earnings over the lease term. The
capital element of the future payments is treated as liability.
Rentals paid under operating leases are charged to the statement of
income and retained earnings on a straight line basis.
H. PENSIONS
The company operates a defined contribution pension scheme.
Contributions payable for the year are charged in the statement of
income and retained earnings.
I. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash at bank and in hand.
2. SECURED CREDITORS
The amounts owed under hire purchase contracts totalling (pound)61,698
(2003 - (pound)37,428) are secURed on the assets acquired. The bank also
holds securities over any bank borrowings ((pound)nil at the balance SHeet
date.)
3. CORPORATION AND DEFERRED TAXES
Provision is made for United Kingdom corporation tax payable on the
group's taxable net income. This is provided for at the rate of tax
prevailing at that time. The current standard corporation tax rate in the
United Kingdom is 30%. Deferred tax is provided using the standard rate.
4. COMMITMENTS
The group is committed to making operating lease payments of (pound)82,500
in the forthcoming year.
9 CQ SYSTEMS LIMITED
COMPANY NUMBER: 1998080
(Registered in England)
REPORTS ON AUDITS OF FINANCIAL STATEMENTS
AND ADDITIONAL INFORMATION
YEAR ENDED 31 MARCH 2003
CQ SYSTEMS LIMITED
COMPANY INFORMATION
FOR THE YEAR ENDED 31 MARCH 2003
DIRECTORS: P J Grace
G E Tarrant
I M Tarrant
A Elliott
J Halliday
J Manktelow
SECRETARY: P M Tarrant
REGISTERED OFFICE: Planet House
North Heath Lane
Horsham
West Sussex
United Kingdom
RH12 5QE
REGISTERED NUMBER: 1998080 (England)
AUDITORS: CMB Partnership
Chartered Accountants and
Registered Auditors
Chapel House
1 Chapel Street
Guildford
Surrey
United Kingdom
GU1 3UH CONTENTS
FINANCIAL STATEMENTS PAGE
Important Note 1
Original Directors Report of United Kingdom GAAP statements 2 - 3
Original Independent Auditors Report on United Kingdom GAAP 4
Statements
Independent Auditors Report on US GAAP statements 5
Consolidated Balance Sheets 6
Consolidated Statements of Income and Retained Earnings 7
Consolidated Statements of Comprehensive Income 7
Consolidated Statements of Cash Flows 8 - 9
Notes to the Financial Statements 10 - 11
Important note
The consolidated US GAAP financial information contained in this report
represents historical information, which previously was reported in
accordance with United Kingdom GAAP and has been restated in accordance
with US GAAP. The restatement to US GAAP has been performed at the request
of the directors of the company.
The consolidated US GAAP financial information includes certain primary
information (consolidated balance sheet, consolidated income statement,
changes in shareholders equity, consolidated cash flow statement and
certain explanatory notes.)
The original financial statements for the year ended 31 March 2003 prepared
in accordance with United Kingdom GAAP were approved by the directors on 29
October 2003. The Independent Auditors Report on those financial statements
was also dated 29 October 2003 and is attached on page 4. As outlined
above, the directors of the company have requested that the original
financial statements be restated in accordance with US GAAP. The
Independent Auditors have attached a report on those financial statements
on page 5.
Page 2 CQ SYSTEMS LIMITED
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 MARCH 2003
The directors present their report with the financial statements of the
group for the year ended 31 March 2003.
PRINCIPAL ACTIVITY The principal activity of the group in the year under
review was that of the provision of computer software and services.
DIRECTORS
The directors during the year under review were:
P J Grace
G E Tarrant
I M Tarrant
A Elliott
J Halliday
J Manktelow
The beneficial interests of the directors holding office on 31 March 2003
in the issued share capital of the company were as follows:
01.04.02 or
date of appointment
Ordinary (pound)0.20 shares 31.3.03 if later
P J Grace 75,000 75,000
G E Tarrant 150,000 150,000
I M Tarrant 150,000 150,000
A Elliott 55,983 55,983
J Halliday 38,034 38,034
J Manktelow 30,983 30,983
The directors' interests above include shares held by connected persons.
STATEMENT OF DIRECTORS' RESPONSIBILITIES Company law requires the
directors to prepare financial statements for each financial year which
give a true and fair view of the state of affairs of the company and of
the profit or loss of the company for that period. In preparing those
financial statements, the directors are required to
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of
the company and to enable them to ensure that the financial statements
comply with the Companies Act 1985. They are also responsible for
safeguarding the assets of the company and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
AUDITORS
CMB Partnership were appointed as auditors during the year and will be
proposed for re-appointment in accordance with Section 385 of the
Companies Act 1985.
Page 2CQ SYSTEMS LIMITED
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 MARCH 2003
This report has been prepared in accordance with the special provisions of Part
VII of the Companies Act 1985 relating to small companies.
ON BEHALF OF THE BOARD:
P M Tarrant - Secretary
Date: 29 October 2003
1REPORT OF THE INDEPENDENT AUDITORS TO THE SHAREHOLDERS OF CQ SYSTEMS LIMITED
"We have audited the financial statements of CQ Systems Limited for the year
ended 31 March 2003 on pages four to eleven. These financial statements have
been prepared in accordance with the Financial Reporting Standard for Smaller
Entities (effective June 2002), under the historical cost convention and the
accounting policies set out therein.
This report is made solely to the company's members, as a body, in accordance
with Section 235 of the Companies Act 1985. Our audit work has been undertaken
so that we might state to the company's members those matters we are required to
state to them in an auditors' report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company's members as a body, for our audit work,
for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
As described on page two the company's directors are responsible for the
preparation of financial statements in accordance with applicable law and United
Kingdom Accounting Standards.
Our responsibility is to audit the financial statements in accordance with
relevant legal and regulatory requirements and United Kingdom Auditing
Standards.
We report to you our opinion as to whether the financial statements give a true
and fair view and are properly prepared in accordance with the Companies Act
1985. We also report to you if, in our opinion, the Report of the Directors is
not consistent with the financial statements, if the company has not kept proper
accounting records, if we have not received all the information and explanations
we require for our audit, or if information specified by law regarding
directors' remuneration and transactions with the company is not disclosed.
We read the Report of the Directors and consider the implications for our report
if we become aware of any apparent misstatements within it.
Basis of audit opinion
We conducted our audit in accordance with United Kingdom Auditing Standards
issued by the Auditing Practices Board. An audit includes examination, on a test
basis, of evidence relevant to the amounts and disclosures in the financial
statements. It also includes an assessment of the significant estimates and
judgements made by the directors in the preparation of the financial statements,
and of whether the accounting policies are appropriate to the company's
circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view of the state
of the company's affairs as at 31 March 2003 and of its profit for the year then
ended and have been properly prepared in accordance with the Companies Act
1985".
CMB Partnership
Chartered Accountants and Registered Auditors
Chapel House, 1 Chapel Street
Guildford
Surrey GU1 3UH Date: 29 October 2003
2BOARD OF DIRECTORS CQ SYSTEMS LIMITED Independent Auditors' Report We have audited the accompanying balance sheets of CQ Systems Limited, as of 31 March 2003 and 2002, and the related statements of income and retained earnings, comprehensive income, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance generally accepted auditing standards. 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. We draw attention to the note on page 1 in that the original accounts were prepared in accordance with United Kingdom accounting and auditing standards. We have been requested to report on the financial statements prepared under US GAAP. The scope of our work for the purpose in US GAAP financial statements did not include examining or dealing with events after the date of the Audit Report on the United Kingdom GAAP accounts. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CQ Systems Limited, as of 31 March 2003 and 2002 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
CMB Partnership
Chartered Accountants and Registered Auditors
Chapel House, 1 Chapel Street
Guildford
Surrey GU1 3UH Date: 29 October 2003
3 CONSOLIDATED BALANCE SHEET
ASSETS
March 31
2003 2002
Note (pound) (pound)
CURRENT ASSETS
Cash and cash equivalents 448,136 369,639
Accounts receivable 435,806 310,188
Prepaid expenses and other debtors 47,216 44,536
--------- ---------
TOTAL CURRENT ASSETS 931,158 724,363
--------- ---------
EQUIPMENT
2
Automobiles 39,732 49,402
Furniture and equipment 155,093 154,127
Computer equipment 546,646 518,922
--------- ---------
741,471 722,451
Less accumulated depreciation 616,420 513,472
--------- ---------
125,051 208,979
--------- ---------
1,056,209 933,342
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31
2003 2002
Note (pound) (pound)
CURRENT LIABILITIES
Accounts payable 21,365 20,600
Hire purchase liabilities 32,153 41,231
Payroll, Vat and corporation taxes
payable 135,117 87,935
Dividends payable 30,000 --
Accrued liabilities 92,911 114,289
Deferred income 410,193 350,863
1.b
--------- ---------
TOTAL CURRENT LIABILITIES 721,739 614,918
LONG TERM LIABILITIES AND PROVISIONS
Hire purchase liabilities 5,275 37,405
Deferred tax 1,198 --
--------- ---------
TOTAL LIABILITIES 728,212 652,323
SHAREHOLDERS' EQUITY
Ordinary Shares
1,000,000 shares authorised
(pound)0.20 par value
Issued 500,000 shares 100,000 100,000
Retained earnings 227,997 181,019
--------- ---------
1,056,209 933,342
========= =========
See notes to financial statements
4 CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
10 Month
Year ended Period ended
March 31 March 31
Note 2003 (pound) 2002 (pound)
SALES 2,471,477 2,209,098
1.b
COST OF SALES 1,069,974 1,042,194
---------- ----------
1,401,503 1,166,904
OPERATING EXPENSES 1,302,176 1,130,355
1.e ---------- ----------
INCOME FROM OPERATIONS 99,327 36,549
OTHER INCOME (EXPENSES)
Interest income 10,257 9,744
Interest payable (3,530) (5,515)
---------- ----------
INCOME BEFORE CORPORATION 106,054 40,778
AND DEFERRED TAXES
UK CORPORATION AND DEFERRED TAXES 3 (29,076) (8,782)
---------- ----------
NET INCOME 76,978 31,996
RETAINED EARNINGS
Beginning of year 181,019 356,023
Less: Dividends ) (30,000) (207,000)
---------- ----------
End of year 227,997 181,019
========== ==========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
2003 2002
(pound) (pound)
NET INCOME 76,978 31,996
------ ------
COMPREHENSIVE INCOME 76,978 31,996
====== ======
See notes to financial statements.
5 CONSOLIDATED STATEMENTS OF CASH FLOWS
March 31
2003 2002
(pound) (pound)
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers 2,343,179 2,260,695
Cash paid to suppliers and employees (2,235,165) (2,222,307)
Interest received 10,257 9,744
Interest paid (3,530) (5,515)
Corporation tax paid (8,782) (4,639)
---------- ----------
Net cash provided by operating activities 105,959 37,978
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net sales (purchases) of equipment (27,462) (73,646)
---------- ----------
Net cash used by investing activities (27,462) (73,646)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid -- (207,000)
---------- ----------
Net cash used by financing activities -- (207,000)
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 78,497 (242,668)
CASH AND CASH EQUIVALENTS
Beginning of year 369,639 612,307
---------- ----------
End of year 448,136 369,639
========== ==========
See notes to financial statements.
6 CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
March 31
2003 2002
(pound) (pound)
RECONCILIATION OF NET INCOME TO CASH
PROVIDED BY OPERATING ACTIVITIES
Net Income 76,978 31,996
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 111,390 122,581
Decrease/(increase) in accounts
receivable and other debtors (128,297) 51,597
Increase/(decrease) in accounts
payable and other creditors 25,594 (172,339)
Increase in corporation taxes payable 19,096 4,143
Increase in deferred taxes 1,198 --
-------- --------
28,981 5,982
-------- --------
105,959 37,978
======== ========
See notes to financial statements.
7 NOTES TO FINANCIAL STATEMENTS
1. Summary of significant accounting policies
The accompanying consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United
States of America (US GAAP) and are stated in United Kingdom sterling.
In preparing the consolidated financial statements, management is required
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 consolidated balance sheet and the reported amounts of
revenues and expenses during the reported period. Actual results could
differ from those estimates.
a. Principles of consolidation
The consolidated financial statements include the financial
statements of the group and its subsidiary. The group's subsidiary
is Custom Quest Limited, a dormant company that has not traded since
31 May 2001 in which the group has a 100% direct holding in the
voting rights. The net assets of the subsidiary company since
cessation of trade is (pound)nil.
b. Turnover
Licence revenue is recognised where orders have been signed and the
product is delivered. In contracts with multiple elements revenues
are allocated to each element based on the fair value on completion,
delivery and acceptance by the customer. For other services related
activity, revenue is recognised on a percentage of completion basis.
c. Tangible Fixed Assets
Depreciation is provided at the following rates in order to write
off each asset over its useful life;
Computer software 50% straight line
Office furniture and fittings 15% straight line
Computer equipment 33.33% straight line
Automobiles 25% straight line
The group evaluates tangible fixed assets for impairment losses at
least annually and whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable or is
greater than its fair value.
d. Deferred Tax
Deferred tax is recognised in respect of all timing differences that
have originated but not reversed at the balance sheet date. These
reflect the expected future tax consequences of temporary
differences between the carrying amounts of assets and liabilities
at the balance sheet date and their respective tax bases.
8 NOTES TO FINANCIAL STATEMENTS - Continued
e. Research and Development
Expenditure on research and development is written off in the year
in which it is incurred. Development costs on computer software that
is to be sold relates to bespoke work undertaken for particular
customers as and when requested. Under these circumstances, these
costs are written off as incurred rather than capitalised and
amortised, as they relate solely to the individual customers
specifications rather than being available for general release to
customers.
f. Advertising
The company expenses advertising costs as they are incurred.
g. Hire Purchase and Leasing Commitments
Assets obtained under hire purchase contracts are capitalised in the
balance sheet and are depreciated over their useful estimated lives.
The interest element of these obligations are charged to the
statement of income and retained earnings over the lease term. The
capital element of the future payments is treated as liability.
Rentals paid under operating leases are charged to the statement of
income and retained earnings on a straight line basis.
h. Pensions
The company operates a defined contribution pension scheme.
Contributions payable for the year are charged in the statement of
income and retained earnings.
i. Cash and cash equivalents
Cash and cash equivalents consist of cash at bank and in hand.
2. SECURED CREDITORS
The amounts owed under hire purchase contracts totalling (pound)37,428
(2002 - (pound)78,636) are secured on the assets acquired. The bank also
holds securities over any bank borrowings ((pound)nil at the balance sheet
date.)
3. CORPORATION AND DEFERRED TAXES
Provision is made for United Kingdom corporation tax payable on the
group's taxable net income. This is provided for at the rate of tax
prevailing at that time. The current standard corporation tax rate in the
United Kingdom is 30%. Deferred tax is provided using the standard rate.
4. COMMITMENTS
The group is committed to making operating lease payments of (pound)82,500
in the forthcoming year.
CQ SYSTEMS LIMITED
COMPANY NUMBER: 1998080
(Registered in England)
FINANCIAL STATEMENTS
AND ADDITIONAL INFORMATION
Unaudited 9 Months to December
2004
CQ SYSTEMS LIMITED
COMPANY INFORMATION
FOR THE YEAR ENDED 31 MARCH 2004
DIRECTORS: P J Grace
G E Tarrant
I M Tarrant
A Elliott
J Halliday
J Manktelow
C S Taylor
SECRETARY: P M Tarrant
REGISTERED OFFICE: Planet House
North Heath Lane
Horsham
West Sussex
United Kingdom
RH12 5QE
REGISTERED NUMBER: 1998080 (England)
UNAUDITED CONSOLIDATED BALANCE SHEET - ASSETS
9 months to March 31 2004
Note Dec 31 pound)
2004
(pound)
CURRENT ASSETS
Cash and cash equivalents 540,732 809,488
Accounts receivable (net of (pound)5,000 bad debt provision) 451,509 400,280
Prepaid expenses and other receivables 66,748 60,501
--------- ---------
TOTAL CURRENT ASSETS 1,058,989 1,270,269
--------- ---------
AUTOMOBILES &
EQUIPMENT 2
Automobiles 49,732 64,725
Fixtures & Fittings 185,790 172,841
Computer Software & Equipment 661,377 580,772
--------- ---------
896,897 818,338
Less accumulated depreciation 714,975 676,768
--------- ---------
181,922 141,570
--------- ---------
1,240,911 1,411,839
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
9 months to March 31
Dec 31 2004
2004 (pound)
(pound)
CURRENT LIABILITIES
Accounts payable 16,828 16,682
Hire purchase liabilities 44,962 23,428
Payroll, Vat and corporation taxes payable 166,100 283,017
Dividends payable 53,062
Accrued liabilities 41,329 75,197
Deferred income 486,915 418,581
--------- ---------
TOTAL CURRENT LIABILITIES 756,134 869,967
LONG TERM LIABILITIES AND PROVISIONS
Hire purchase liabilities 66,871 38,270
Deferred tax 2,916 2,916
--------- ---------
TOTAL LIABILITIES 825,921 911,153
SHAREHOLDERS'
EQUITY 7
Ordinary Shares
1,000,000 shares authorised (pound)0.20 par value
Issued and outstanding 500,000 shares 100,000 100,000
Retained earnings 314,990 400,686
--------- ---------
1,240,911 1,411,839
========= =========
.......................... ..........................
Approved and signed on behalf of the board of directors on
See notes to financial statements.
Page 3 of 10
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
9 months to March 31 2004
Dec 31 (pound)
2004
Note (pound)
NET REVENUE 1.b 1,813,546 2,739,303
COST OF REVENUE 99,572 1,082,577
---------- ----------
GROSS PROFIT 1,713,974 1,656,726
OPERATING EXPENSES 1.e 1,675,748 1,119,171
---------- ----------
INCOME FROM OPERATIONS 537,555
OTHER INCOME (EXPENSES)
Interest income 19,325 19,483
Interest payable (4,498) (5,238)
---------- ----------
INCOME BEFORE CORPORATION 53,053 551,800
AND DEFERRED TAXES
UK CORPORATION AND DEFERRED TAXES 3 (141,049)
---------- ----------
NET INCOME 53,053 410,751
RETAINED EARNINGS
Beginning of year 400,686 227,997
Less: Dividends (138,749) (238,062)
---------- ----------
End of year 314,990 400,686
========== ==========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
9 months to March 31 2003
Dec 31 (pound)
2004
Note (pound)
NET INCOME 53,053 410,751
---------- ----------
COMPREHENSIVE INCOME 53,053 410,751
========== ==========
See notes to financial statements.
Page 4 of 10
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
9 months to Year ended
Dec 31 March 31 2004
2004 (pound)
(pound)
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers 1,756,070 2,761,544
Cash paid to suppliers and employees (1,616,573) (2,074,453)
Interest received 19,325 19,483
Interest paid (4,498) (5,238)
Corporation tax paid (139,331) (27,878)
---------- ----------
Net cash provided by operating activities 14,993 673,458
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net sales (purchases) of equipment (144,999) (97,106)
---------- ----------
Net cash used by investing activities (144,999) (97,106)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (138,750) (215,000)
---------- ----------
Net cash used by financing activities (138,750) (215,000)
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (268,756) 361,352
CASH AND CASH EQUIVALENTS
Beginning of year 809,488 448,136
---------- ----------
End of year 540,732 809,488
========== ==========
See notes to financial statements.
Page 5 of 10
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
9 months to Year ended
Dec 31 March 31 2004
2004 (pound)
(pound)
RECONCILIATION OF NET INCOME TO CASH
PROVIDED BY OPERATING ACTIVITIES
Net Income 53,053 410,751
Adjustments to reconcile net income to net cash provided by operating
activities:
Profit on sale of asset (5207)
Depreciation 49,868 80,587
Decrease/(increase) in accounts receivable and other debtors (57,476) 22,241
Increase in accounts payable and other creditors 108,879 46,708
Increase in corporation taxes payable (139,331) 111,453
Increase in deferred taxes 1,718
-------- --------
(38060) 262,707
-------- --------
14993 673,458
======== ========
See notes to financial statements.
Page 6 of 10
NOTES TO FINANCIAL STATEMENTS
1. Summary of significant accounting policies
The accompanying consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United
States of America (US GAAP) and are stated in United Kingdom sterling.
In preparing the consolidated financial statements, management is required
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 consolidated balance sheet and the reported amounts of
revenues and expenses during the reported period. Actual results could
differ from those estimates.
a. Principles of consolidation
The consolidated financial statements include the financial
statements of the company and its subsidiary. The group's subsidiary
is Custom Quest Limited, a dormant company that has not traded since
31 May 2001 in which the group has a 100% direct holding in the
voting rights. The net assets of the subsidiary company since
cessation of trade is (pound)nil.
b. Revenue
The group recognises its revenue in accordance with the Securities
and Exchange Commissions ("SEC") Staff Accounting Bulletin No 104
"Revenue recognition in Financial Statements".
Licence revenue is recognised where orders have been signed and the
product is delivered. In contracts with multiple elements revenues
are allocated to each element based on the fair value on completion,
delivery and acceptance by the customer. For other services related
activity, revenue is recognised on a percentage of completion basis.
c. Automobiles and equipment
Depreciation is provided at the following rates in order to write
off each asset over its useful life;
Computer software 50% straight line
Office furniture and fittings 15% straight line
Computer equipment 33.33% straight line
Automobiles 25% straight line
The group evaluates tangible fixed assets for impairment losses at
least annually and whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable or is
greater than its fair value.
Long-lived assets
Effective January 1 2002, the group adopted Statement of Financial
Accounting Standards No 144 "Accounting for the impairment or
disposal of long-lived assets" ("SFAS 144") which addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. The group has evaluated the carrying value of
long-lived assets held in accordance with SFAS 144. SFAS 144
requires impairment losses to be recorded on long-lived assets when
indicators of impairment are present where the carrying amount
exceeds the fair value of the asset. Based on its review, the group
believes that as of March 31 2004 and 2003, there were no
significant impairments of its long-lived assets.
Page 7 of 10
NOTES TO FINANCIAL STATEMENTS - Continued
d. Deferred Tax
Deferred tax is recognised in respect of all timing differences that
have originated but not reversed at the balance sheet date. These
reflect the expected future tax consequences of temporary
differences between the carrying amounts of assets and liabilities
at the balance sheet date and their respective tax bases.
e. Research and Development
Expenditure on research and development is written off in the year
in which it is incurred. Development costs on computer software that
is to be sold relates to bespoke work undertaken for particular
customers as and when requested. Under these circumstances, these
costs are written off as incurred rather than capitalised and
amortised, as they relate solely to the individual customers
specifications rather than being available for general release to
customers.
f. Advertising
The company expenses advertising costs as they are incurred.
g. Hire Purchase and Leasing Commitments
Assets obtained under hire purchase contracts are capitalised in the
balance sheet and are depreciated over their useful estimated lives.
The interest element of these obligations are charged to the
statement of income and retained earnings over the lease term. The
capital element of the future payments is treated as liability.
Rentals paid under operating leases are charged to the statement of
income and retained earnings on a straight line basis.
h. Pensions
The company operates a defined contribution pension scheme.
Contributions payable for the year are charged in the statement of
income and retained earnings.
i. Cash and cash equivalents
Cash and cash equivalents consist of cash at bank and in hand.
j. Foreign currency transactions
Accounting principles generally require that recognised revenue,
expenses, gains and losses be included in net income. Certain
statements however require entities to report specific changes in
assets and liabilities, such as a gain or loss on a foreign currency
translation, as a separate component of the equity section of the
balance sheet. Such items, along with net income, are components of
comprehensive income. Cumulative translation adjustments were
insignificant in both the year and preceding year.
2. SECURED CREDITORS
The amounts owed under hire purchase contracts totalling (pound)111,833
(2003 - (pound)61,698) are secured on the assets acquired.
Page 8 of 10
NOTES TO FINANCIAL STATEMENTS - Continued
3. CORPORATION AND DEFERRED TAXES
Provision is made for United Kingdom corporation tax payable on the
group's taxable net income. This is provided for at the rate of tax
prevailing at that time. The current standard corporation tax rate in the
United Kingdom is 30%. Deferred tax is provided using the standard rate.
The UK corporation and deferred tax charge is stated below:-
Year Ended Year Ended
Dec 31 March 31
2004 2004
(pound) (pound)
Corporation tax (1) 139,331
Deferred tax 1,718
---------------- ---------------
(1) 141,049
---------------- ---------------
The corporation tax assessed for the year is set out below:-
Year Ended Year Ended
March 31 March 31
2004 2003
(pound) (pound)
Net Income 551,800
=========== ===========
Net income multiplied by 165,540
standard rate of corporation
tax of 30% (2003: small
companies corporation tax rate
of 19%)
Effects of:-
Excess of capital allowances
over depreciation (1,099)
Expenses not allowable for tax 977
Marginal relief (26,087)
----------- -----------
139,331
----------- -----------
4. COMMITMENTS
The group is committed to making operating lease payments of (pound)82,500
in the forthcoming year.
Page 9 of 10
NOTES TO FINANCIAL STATEMENTS - Continued
5. SHAREHOLDERS EQUITY
Dec 31 March 31
2004 2004
(pound) (pound)
Net income for year 53,053 410,751
Dividends (138,749) (238,062)
-------- --------
Net loss to shareholders equity (85,696) 172,689
Opening Shareholders equity
500,686 327,997
-------- --------
Closing Shareholders equity 414,990 500,686
-------- --------
Page 10 of 10
|
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES | ||||||||||||||||
|
CONSOLIDATED
PRO-FORMA STATEMENT OF FINANCIAL CONDITIONS | ||||||||||||||||
|
FOR
THE PERIOD ENDED JUNE 30, 2004 | ||||||||||||||||
|
(UNAUDITED) |
|
NetSol
|
CQ
Systems |
|||||||||||||||
|
as
of 6/30/04 |
as
of 3/31/04 |
Pro
Forma |
Pro
Forma |
|||||||||||||
|
(Historical)
|
(Historical)
|
Adjustment
|
Combined
|
|||||||||||||
|
ASSETS | ||||||||||||||||
|
Current
Assets |
$ |
3,563,501 |
$ |
2,337,549 |
$ |
- |
$ |
5,901,050 |
||||||||
|
Property
& equipment, net |
4,203,580
|
260,517
|
-
|
4,464,097
|
||||||||||||
|
Intangible
assets, net |
4,218,040
|
-
|
5,755,690
|
(1 |
) |
9,973,730
|
||||||||||
|
Total
assets |
$ |
11,985,121 |
$ |
2,598,066 |
$ |
5,755,690 |
$ |
20,338,877 |
||||||||
|
|
||||||||||||||||
|
LIABILITIES
& STOCKHOLDERS' EQUITY | ||||||||||||||||
|
Current
liabilities |
$ |
3,573,948 |
$ |
1,600,914 |
$ |
- |
$ |
5,174,862 |
||||||||
|
Obligations
under capitalized leases, less current maturities |
|
|
27,604
|
70,424
|
-
|
98,028
|
||||||||||
|
Deferred
tax |
-
|
5,366
|
-
|
5,366
|
||||||||||||
|
Notes
payable |
89,656
|
-
|
3,338,526
|
(1 |
) |
3,428,181
|
||||||||||
|
Convertible
debenture |
937,500
|
-
|
-
|
937,500
|
||||||||||||
|
Total
liabilities |
4,628,708
|
1,676,704
|
3,338,526
|
9,643,937
|
||||||||||||
|
Stockholders'
equity; |
||||||||||||||||
|
Common
stock |
9,483
|
159,210
|
(158,528 |
) |
(1 |
) |
10,165
|
|||||||||
|
Additional
paid in capital |
38,933,621
|
-
|
3,337,844
|
(1 |
) |
42,271,465
|
||||||||||
|
Stock
subscription receivable |
(497,559 |
) |
-
|
-
|
(497,559 |
) | ||||||||||
|
Treasury
stock |
(21,457 |
) |
-
|
-
|
(21,457 |
) | ||||||||||
|
Other
comprehensive income (loss) |
(150,210 |
) |
138,784
|
(138,784 |
) |
(1 |
) |
(150,210 |
) | |||||||
|
Accumulated
earnings (deficit) |
(30,917,465 |
) |
623,368
|
(623,368 |
) |
(1 |
) |
(30,917,465 |
) | |||||||
|
Total
stockholders' equity |
7,356,413
|
921,362
|
2,417,164
|
10,694,939
|
||||||||||||
|
Total
liabilities and stockholders' equity |
$ |
11,985,121 |
$ |
2,598,066 |
$ |
5,755,690 |
$ |
20,338,876 |
||||||||
|
NOTES:
|
|||||||||
|
(1)
Elimination of Common stock and accumulated earnings of CQ Systems before
the acquisition and to record the purchase of CQ Systems by
NetSol. | |||||||||
|
The
estimated purchase price is $6,677,052, of which one-half is due at
closing in cash and stock and the remaining half to be paid within one
year, and after the price has been adjusted up or down when the audited
3/31/05 numbers are available. No interest is accrued on the balance
remaining after closing. | |||||||||
|
Purchase
Price allocation: |
$
|
||||||||
|
Common
Stock, 681,965 shares |
682
|
||||||||
|
Additional
paid in capital |
3,337,844
|
|
|||||||
Notes
payable |
3,338,526
|
||||||||
|
Total
purchase price |
6,677,052
|
||||||||
|
CQ
equity |
921,362
|
||||||||
Intangible
assets |
5,755,690
|
||||||||
|
6,677,052
|
|||||||||
|
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES | ||||||||
|
CONSOLIDATED
PRO-FORMA STATEMENT OF OPERATIONS | ||||||||
|
FOR
THE YEAR ENDED JUNE 30, 2004 | ||||||||
|
(UNAUDITED)
|
|
NetSol |
CQ
Systems |
|||||||||||||||
|
as
of 6/30/04 |
as
of 3/31/04 |
Pro
Forma |
Pro
Forma |
|||||||||||||
|
(Historical)
|
|
(Historical)
|
Adjustment
|
|
Combined
|
|||||||||||
|
Net
Revenue |
$ |
5,749,062 |
$ |
4,640,653 |
$ |
- |
$ |
10,389,715 |
||||||||
|
Cost
of revenue |
2,656,377
|
1,833,994
|
-
|
4,490,371
|
||||||||||||
|
Gross
profit |
3,092,685
|
2,806,659
|
-
|
5,899,344
|
||||||||||||
|
Operating
expenses |
5,800,703
|
1,895,988
|
686,795
|
(3 |
) |
8,383,483
|
||||||||||
|
Income
(loss) from operations |
(2,708,018 |
) |
910,671
|
(686,795 |
) |
(2,484,139 |
) | |||||||||
|
Other
income and (expenses) |
(77,351 |
) |
(214,819 |
) |
-
|
(292,170 |
) | |||||||||
|
Income
(loss) from continuing operations |
(2,785,369 |
) |
695,852
|
(686,795 |
) |
(2,776,309 |
) | |||||||||
|
Minority
interest in subsidiary |
273,159
|
-
|
-
|
273,159
|
||||||||||||
|
Net
income (loss) |
(2,512,210 |
) |
695,852
|
(686,795 |
) |
(2,503,150 |
) | |||||||||
|
Other
comprehensive income (loss): |
||||||||||||||||
|
Translation
adjustment |
(299,507 |
) |
110,837
|
-
|
(188,670 |
) | ||||||||||
|
Comprehensive
income (loss) |
$ |
(2,811,717 |
) |
$ |
806,689 |
$ |
(686,795 |
) |
$ |
(2,691,820 |
) | |||||
|
EARNINGS
PER SHARE |
||||||||||||||||
|
|
||||||||||||||||
|
Weighted
-average number of shares outstanding |
8,563,518
|
100,000
|
8,663,518
|
|||||||||||||
|
Income
(loss) per share |
$ |
(0.29 |
) |
$ |
6.96 |
$ |
(0.29 |
) | ||||||||
|
NOTES: |
||||||||
|
(1)
Loss per share data shown above are applicable for both primary and fully
diluted. | ||||||||
|
(2) Weighted-average number
of shares outstanding for the combined entity includes all shares issued
for the
acquisition of 681,964 shares as if outstanding as of July 1,
2003. | ||||||||
|
(3)
Amortization of intangible assets acquired in acquisition
| ||||||||
|
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES | ||||||||||||||||
|
CONSOLIDATED
PRO-FORMA STATEMENT OF FINANCIAL CONDITIONS | ||||||||||||||||
|
FOR
THE PERIOD ENDED JUNE 30, 2003 | ||||||||||||||||
|
(UNAUDITED) |
|
NetSol
|
CQ
Systems |
||||||||||||||||||
|
as
of 6/30/03 |
as
of 3/31/03 |
Pro
Forma |
Pro
Forma |
||||||||||||||||
|
(Historical)
|
(Historical)
|
Adjustment
|
Combined
|
||||||||||||||||
|
ASSETS
| |||||||||||||||||||
|
Current
Assets |
$ |
1,774,553 |
$ |
1,470,485 |
$ |
- |
$ |
3,245,038 |
|||||||||||
|
Property
& equipment, net |
2,037,507
|
197,481
|
-
|
2,234,988
|
|||||||||||||||
|
Intangible
assets, net |
4,930,191
|
-
|
6,159,079
|
(1 |
) |
11,089,269
|
|||||||||||||
|
Total
assets |
$ |
8,742,251 |
$ |
1,667,966 |
$ |
6,159,079 |
$ |
16,569,295 |
|||||||||||
|
|
|||||||||||||||||||
|
LIABILITIES
& STOCKHOLDERS' EQUITY | |||||||||||||||||||
|
Current
liabilities |
$ |
3,533,614 |
$ |
1,139,770 |
$ |
- |
$ |
4,673,384 |
|||||||||||
|
Obligations
under capitalized leases, less current maturities |
7,111
|
8,330
|
15,441
|
||||||||||||||||
|
Deferred
tax |
-
|
1,892
|
1,892
|
||||||||||||||||
|
Notes
payable |
126,674
|
-
|
3,338,526
|
(1 |
) |
3,465,199
|
|||||||||||||
|
Total
liabilities |
3,667,399
|
1,149,992
|
3,338,526
|
8,155,916
|
|||||||||||||||
|
Stockholders'
equity; |
|||||||||||||||||||
|
Common
stock |
5,757
|
159,210
|
(158,528 |
) |
(1 |
) |
6,439
|
||||||||||||
|
Additional
paid in capital |
33,409,953
|
-
|
3,337,844
|
(1 |
) |
36,747,797
|
|||||||||||||
|
Stock
subscription receivable |
(84,900 |
) |
(84,900 |
) | |||||||||||||||
|
Other
comprehensive income (loss) |
149,297
|
27,947
|
(27,947 |
) |
(1 |
) |
149,297
|
||||||||||||
|
Accumulated
earnings (deficit) |
(28,405,255 |
) |
330,816
|
(330,816 |
) |
(1 |
) |
(28,405,255 |
) | ||||||||||
|
Total
stockholders' equity |
5,074,852
|
517,973
|
(2 |
) |
2,820,553
|
8,413,378
|
|||||||||||||
|
Total
liabilities and stockholders' equity |
$ |
8,742,251 |
$ |
1,667,965 |
$ |
6,159,079 |
$ |
16,569,294 |
|||||||||||
|
NOTES:
|
|||||||||
|
(1)
Elimination of Common stock and accumulated earnings of CQ Systems before
the acquisition and to record the purchase of CQ Systems by
NetSol. | |||||||||
|
The
estimated purchase price is $6,677,052, of which one-half is due at
closing in cash and stock and the remaining half to be paid within one
year, and after the price has been adjusted up or down when the audited
3/31/05 numbers are available. No interest is accrued on the balance
remaining after closing. | |||||||||
|
Purchase
Price allocation: |
$
|
||||||||
|
Common
Stock, 681,965 shares |
682
|
||||||||
|
Additional
paid in capital |
3,337,844
|
||||||||
Notes
payable |
3,338,526
|
||||||||
|
Total
purchase price |
6,677,052
|
||||||||
|
CQ
equity |
517,973
|
||||||||
Intangible
assets |
6,159,079
|
||||||||
|
6,677,052
|
|||||||||
|
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES | |||||||||
|
CONSOLIDATED
PRO-FORMA STATEMENT OF OPERATIONS | |||||||||
|
FOR
THE YEAR ENDED JUNE 30, 2003 | |||||||||
|
(UNAUDITED)
|
|
NetSol
|
CQ
Systems |
|
|
|
||||||||||||
|
|
as
of 6/30/03 |
as
of 3/31/03 |
Pro
Forma |
|
Pro
Forma |
|||||||||||
|
|
|
(Historical)
|
|
(Historical)
|
|
Adjustment
|
|
|
|
Combined
|
||||||
|
Net
Revenue |
$ |
3,745,386 |
$ |
3,821,892 |
$ |
- |
$ |
7,567,278 |
||||||||
|
Cost
of revenue |
1,778,993
|
1,654,608
|
-
|
3,433,601
|
||||||||||||
|
Gross
profit |
1,966,393
|
2,167,284
|
-
|
4,133,677
|
||||||||||||
|
Operating
expenses |
4,434,643
|
2,013,685
|
589,385
|
(3 |
) |
7,037,710
|
||||||||||
|
Income
(loss) from operations |
(2,468,250 |
) |
153,599
|
(589,385 |
) |
(2,904,033 |
) | |||||||||
|
Other
income and (expenses) |
(147,331 |
) |
(34,560 |
) |
-
|
(181,891 |
) | |||||||||
|
Income
(loss) from continuing operations |
(2,615,581 |
) |
119,039
|
(589,385 |
) |
(3,085,924 |
) | |||||||||
|
Gain
from discontinuation of a subsidiary |
478,075
|
-
|
-
|
478,075
|
||||||||||||
|
Net
income (loss) |
(2,137,506 |
) |
119,039
|
(589,385 |
) |
(2,607,849 |
) | |||||||||
|
Other
comprehensive income (loss): |
||||||||||||||||
|
Translation
adjustment |
(380,978 |
) |
70,997
|
-
|
(309,981 |
) | ||||||||||
|
Comprehensive
income (loss) |
$ |
(2,518,484 |
) |
$ |
190,036 |
$ |
(589,385 |
) |
$ |
(2,917,830 |
) | |||||
|
EARNINGS
PER SHARE |
||||||||||||||||
|
Weighted
-average number of shares outstanding |
5,194,167
|
100,000
|
5,294,167
|
|||||||||||||
|
Income
(loss) per share |
$ |
(0.41 |
) |
$ |
1.19 |
$ |
(0.49 |
) | ||||||||
| (1) | Loss per share data shown above are applicable for both primary and fully diluted. |
| (2) | Weighted-average number of shares outstanding for the combined entity includes all shares issued for the acquisition of 681,964 as if outstanding as of July 1, 2002. |
| (3) | Amortization of intangible assets acquired in acquisition |
|
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES | ||||||||
|
CONSOLIDATED
PRO-FORMA STATEMENT OF FINANCIAL CONDITIONS | ||||||||
|
FOR
THE PERIOD ENDED DECEMBER 31, 2004 | ||||||||
|
(UNAUDITED)
|
|
NetSol
|
CQ
Systems |
|||||||||||||||
|
as
of 12/31/04 |
as
of 12/31/04 |
Pro
Forma |
Pro
Forma |
|||||||||||||
|
(Historical)
|
(Historical)
|
Adjustment
|
Combined
|
|||||||||||||
|
ASSETS
| ||||||||||||||||
|
Current
Assets |
$ |
5,554,445 |
$ |
1,976,412 |
$ |
- |
$ |
7,530,857 |
||||||||
|
Property
& equipment, net |
4,276,307
|
339,525
|
-
|
4,615,832
|
||||||||||||
|
Intangible
assets, net |
4,003,151
|
-
|
5,902,547
|
(1 |
) |
9,905,698
|
||||||||||
|
Total
assets |
$ |
13,833,903 |
$ |
2,315,937 |
$ |
5,902,547 |
$ |
22,052,387 |
||||||||
|
|
||||||||||||||||
|
LIABILITIES
& STOCKHOLDERS' EQUITY | ||||||||||||||||
|
Current
liabilities |
$ |
2,527,727 |
$ |
1,411,187 |
$ |
- |
$ |
3,938,915 |
||||||||
|
Obligations
under capitalized leases, less current maturities |
|
|
56,910
|
124,803
|
-
|
181,713
|
||||||||||
|
Deferred
tax |
-
|
5,442
|
-
|
5,442
|
||||||||||||
|
Notes
payable |
-
|
-
|
3,338,526
|
(1 |
) |
3,338,525
|
||||||||||
|
Convertible
debenture |
112,500
|
-
|
-
|
112,500
|
||||||||||||
|
Total
liabilities |
2,697,137
|
1,541,432
|
3,338,526
|
7,577,095
|
||||||||||||
|
Minority
Interest |
99,752
|
-
|
-
|
99,752
|
||||||||||||
|
Stockholders'
equity; |
||||||||||||||||
|
Common
stock |
12,254
|
159,210
|
(158,528 |
) |
(1 |
) |
12,936
|
|||||||||
|
Additional
paid in capital |
43,119,861
|
-
|
3,337,844
|
(1 |
) |
46,457,705
|
||||||||||
|
Common
stock to be issued |
254,800
|
-
|
-
|
254,800
|
||||||||||||
|
Stock
subscription receivable |
(1,375,642 |
) |
-
|
-
|
(1,375,642 |
) | ||||||||||
|
Treasury
stock |
(27,197 |
) |
-
|
-
|
(27,197 |
) | ||||||||||
|
Other
comprehensive income (loss) |
(323,619 |
) |
157,028
|
(157,028 |
) |
(1 |
) |
(323,619 |
) | |||||||
|
Accumulated
earnings (deficit) |
(30,623,443 |
) |
458,267
|
(458,267 |
) |
(1 |
) |
(30,623,443 |
) | |||||||
|
Total
stockholders' equity |
11,037,014
|
774,505
|
2,564,021
|
14,375,540
|
||||||||||||
|
Total
liabilities and stockholders' equity |
$ |
13,833,903 |
$ |
2,315,937 |
$ |
5,902,547 |
$ |
22,052,387 |
||||||||
|
NOTES:
|
||||||||
|
(1)
Elimination of Common stock and accumulated earnings of CQ Systems before
the acquisition and to record the purchase of CQ Systems by
NetSol. | ||||||||
|
The
estimated purchase price is $6,677,052, of which one-half is due at
closing in cash and stock and the remaining half to be paid within one
year, and after the price has been adjusted up or down when the audited
3/31/05 numbers are available. No interest is accrued on the balance
remaining after closing. | ||||||||
|
Purchase
Price allocation: |
$
|
|||||||
|
Common
Stock, 681,965 shares |
682
|
|||||||
|
Additional
paid in capital |
3,337,844
|
|||||||
|
Notes
payable |
3,338,526
|
|||||||
|
Total
purchase price |
6,677,052
|
|||||||
| CQ equity |
774,505
|
|||||||
| Intangible assets |
5,902,547 |
|
||||||
|
6,677,052
|
||||||||
|
NETSOL
TECHNOLOGIES INC AND SUBSIDIARIES | ||||||||||||||||
|
CONSOLIDATED
PRO-FORMA STATEMENT OF OPERATIONS | ||||||||||||||||
|
FOR
THE PERIOD ENDED DECEMBER 31, 2004 | ||||||||||||||||
|
(UNAUDITED) |
|
NetSol
|
CQ
Systems |
|
|
|
||||||||||||
|
|
as
of 12/31/04 |
as
of 12/31/04 |
Pro
Forma |
|
Pro
Forma |
|||||||||||
|
|
|
(Historical)
|
|
(Historical)
|
|
Adjustment
|
|
|
|
Combined
|
||||||
|
Net
Revenue |
$ |
4,781,532 |
$ |
3,493,978 |
$ |
- |
$ |
8,275,510 |
||||||||
|
Cost
of revenue |
1,580,620
|
191,835
|
-
|
1,772,455
|
||||||||||||
|
Gross
profit |
3,200,912
|
3,302,143
|
-
|
6,503,055
|
||||||||||||
|
Operating
expenses |
2,541,833
|
3,228,496
|
348,272
|
(3 |
) |
6,118,598
|
||||||||||
|
Income
(loss) from operations |
659,079
|
73,647
|
(348,272 |
) |
384,457
|
|||||||||||
|
Other
income and (expenses) |
(379,314 |
) |
28,566
|
-
|
(350,748 |
) | ||||||||||
|
Income
(loss) from continuing operations |
279,765
|
102,213
|
(348,272 |
) |
33,709
|
|||||||||||
|
Minority
interest in subsidiary |
14,259
|
-
|
-
|
14,259
|
||||||||||||
|
Net
income (loss) |
294,024
|
102,213
|
(348,272 |
) |
47,968
|
|||||||||||
|
Other
comprehensive income (loss): Translation adjustment |
|
|
(173,409 |
) |
18,244
|
-
|
(155,165 |
) | ||||||||
|
Comprehensive
income (loss) |
$ |
120,615 |
$ |
120,457 |
$ |
(348,272 |
) |
$ |
(107,197 |
) | ||||||
|
EARNINGS
PER SHARE |
||||||||||||||||
|
Weighted
-average number of |
||||||||||||||||
|
shares
outstanding |
10,755,918
|
100,000
|
10,855,918
|
|||||||||||||
|
Income
(loss) per share |
$ |
0.03 |
$ |
1.02 |
$ |
0.00 |
||||||||||
|
NOTES: |
|||||||||
| (1) | Loss per share data shown above are applicable for primary |
| (2) | Weighted-average number of shares outstanding for the combined entity includes all shares issued for the acquisition of 681,964 shares as if outstanding as of July 1, 2003. |
| (3) | Amortization of intangible assets acquired in acquisition |