ANNUAL REPORT 1998
Controlling the production and flow of
business knowledge is similar to the
management of water: high quality,
immediate availability and crystal clarity in
a cost effective manner must be ensured.
CONTENTS POLYDOC PLC ANNUAL REPORT 1998
3
4
6
10
11
12
13
14
16
16
22
24
25
26
27
28
29
30
42
Company Profile
Chairman’s Statement
Market and Business Update
Product Development
Summary
PolyDoc’s Business Values
Financial Report
Directors and Advisers
Financial Highlights
Directors’ Report
Report on Directors’ Remuneration
Statement of Directors’ Responsibilities
Group Profit and Loss Account
Group Statement of Total Recognised Gains and Losses
Group Balance Sheet
Company Balance Sheet
Group Statement of Cash Flows
Notes to the Accounts
Auditors’ Report to the Shareholders of PolyDoc Plc
2
COMPANY PROFILE
PolyDoc is an internationally orientated company specialising in the development and
provision of business solutions in the rapidly emerging field of Knowledge Management with
specific focus on the health care, manufacturing and defence sectors. PolyDoc’s business
solutions significantly enhance productivity and quality in text-based knowledge production
areas as well as enabling the re-use of knowledge throughout the customer organisation. The
major element of each solution is one or more of PolyDoc’s computer software products,
enhanced and customised for each individual customer, integrating into their existing or
planned Intranet, Internet and general Web-based environment. The company’s software
assets include a number of leading edge core components and toolkits that are used to create
customised software application products. PolyDoc’s development centres are based in The
Netherlands (Amsterdam and Maastricht). It has direct sales operations in the United
Kingdom,
The Netherlands and the United States, and is also establishing indirect sales and marketing
activities through business partners in each of these territories. Other European countries and
the Pacific Rim will follow thereafter. PolyDoc Plc is registered in London, United Kingdom
and has its central office in Amsterdam, The Netherlands. The ordinary shares of PolyDoc
Plc are publicly traded on the Alternative Investment Market (‘AIM’) of The London Stock
Exchange, and on the New Market of the Amsterdam Exchanges (‘NMAX’).
3
CHAIRMAN’S STATEMENT
Our objective is to be a company with a unique group of software products based on
linguistic approaches and methodologies and language management technologies so that we
may be at the leading edge of the Knowledge Management market. I believe that 1998 has
been a very successful year in our development in that we have established a more
substantial customer base with an installed range of products, which will provide a platform
for us to build upon in the next important stage of the company’s growth.
The Knowledge Management market is a relatively new market where I think PolyDoc is a
pioneer in what is undoubtedly one of the most rapidly growing markets in the world of
modern technology. The massive growth in Internet and Intranet usage is fuelling the critical
need to manage knowledge and information in a structured and comprehensive manner.
I have indicated previously that generally the difficulties in forecasting in such a new area
were more a matter of timing than quality or pricing and 1998 has continued to show this to
be the case.
FINANCIAL RESULTS
Revenue from business based on QualiFlow, our health care industry product, has started to
build, contributing to an increase in total turnover of more than 300% compared to the
previous year. With operating costs running at a similar level also compared to the previous
year this has resulted in an important reduction in pre-tax losses to £981,000. These
improvements are mainly due to the development of the revenue stream contracted early in
the year in the health care industry and the continuing pilot work in the defence industry
coupled with well-controlled operating costs. We would have hoped to see an even greater
reduction in these losses. However as I have previously stated, the early adopters of our
products have taken longer to establish than anticipated.
OUTLOOK FOR 1999 AND 2000
The recognition and emphasis on the implementation of Knowledge Management approaches
and solutions as a major contributor to the bottom line of most organisations continues to
increase and appears to have entered an essential phase. Many businesses have now allocated
significant specific budgets for helping to deal with the problems of information overload and
the additional competitive pressures on their business where valuable knowledge (intellectual
capital) can truly be leveraged. We expect to see an important shift in the market now as
many companies move from a planning to an implementation mode, from ‘talking’ to
‘buying’ as far as PolyDoc’s solutions are concerned.
Pro-GRAM BV a joint venture company, has been formed by three academic/ teaching
hospitals in The Netherlands to market, together with PolyDoc, the QualiFlow software and
the knowledge created using the software to a broad range of organisations in the Dutch
health care industry. PolyDoc has accepted an invitation to become a shareholder in this
company. With our health care solution implementations now rapidly leading us to having
4
referenceable customers, joint marketing activities commenced at the beginning of 1999.
These developments have already received some enthusiastic press coverage in The
Netherlands during March 1999. This joint venture company is ideally placed to accelerate
our QualiFlow and Lessenger sales in the Benelux. With more than one hundred potential
prospects for these solutions coupled with the backing and credibility of the top leading
hospitals, we are confident of achieving good sales success in 1999 and beyond.
In the UK, The Netherlands and the USA the further partnerships now being established,
together with the several others under discussion, also give us great confidence of achieving
important customer and revenue developments in these territories. This combined with the
increased marketing of our NormFlow manufacturing solution and the firm position we
expect to establish in the UK defence industry should make 1999 another year of significant
revenue growth. It is also expected to firmly place us in each of our target geographies with
distinct and strong industry lines of business: Health care, Defence and Manufacturing. With
a comprehensive and solid group of partners being further developed and grown throughout
1999, the year 2000 should see PolyDoc firmly on the rapid growth curve for the coming
years.
CAPITAL RAISING DEVELOPMENTS
I was pleased to announce that we completed the raising of an additional £1.57 million of
interim funding in the form of a convertible loan in July 1998 and a further £0.5 million from
the issue of ordinary shares in March this year, and the subsequent extension in April of this
year, of the repayment or conversion of the convertible loan from its original date of 31 July
1999 to 31 July 2000. These funds are for interim working capital and to enable us to commit
to the joint venture mentioned in the health care section of this statement. We also issued
68,500 ordinary shares to cover the cash consideration in the acquisition of Lessenger
Associates BV in December 1998. For the longer term we plan to complete a further, more
substantial fund raising later in this current year. This will ensure that we have the cash in
place to meet our ongoing financial requirements, and to build upon our business successes in
the Health care industry, by expanding into the UK and USA markets, replicating the
successful formula we have developed in The Netherlands. Additionally, we will then be in a
position to more fully exploit our potential in the lucrative Defence and Manufacturing
industries, where we are currently working with our initial customers as also mentioned
earlier in this statement. With the above mentioned developments I feel we have now arrived
at the next major stage in the development of PolyDoc. It continues to be our objective to
become a major player in the burgeoning Knowledge Management industry and with that
clearly in our minds we have been putting together our business plans through to the end of
the year 2000. With our sights set on giving our shareholders the returns that are clearly
available in our market we also announced the appointment of Durlacher Ltd as the
company’s Nominated Broker alongside Bell Lawrie Wise Speke the company’s Nominated
Adviser. Durlacher has a very strong technology research division which has researched and
published extensively on the Knowledge Management industry.
5
SUMMARY
1998 has shown to be a turning point for PolyDoc both in terms of significant increase in
revenues and the establishment of a solid commercial base of customers and references.
Simultaneously, our vision of a substantial market for knowledge and content management
predicted at PolyDoc’s inception five years ago has finally become reality, and we have a
clearly defined position* within it. With our unique approach and products we are poised for
major growth in the coming years. This year should see continued growth, in particular in our
established health care division where we have our core base of major clients and our newly
acquired base of over fifty new customers to build upon. We will also continue to invest in
our Defence and Manufacturing industry product offerings as we work with our initial
customers in those markets to replicate the ‘proof of business concept’ we have achieved in
the Health care sector. By raising further capital we will be able to significantly expand our
sales, marketing and partner efforts especially into the very sizeable UK and USA markets. It
will enable us to invest in developing our relationships with both our current and future
customers and business partners resulting in our bringing ever improving products to our
existing markets and beyond. I would very much like to thank everyone within PolyDoc who
has worked so hard during the year. I am extremely proud of our achievements in dealing
with so many challenges and in laying the foundations for us to have the opportunity of being
at the leading edge of the Knowledge Management market.
Barry Mence,
Executive Chairman.
* Visit our Website: http://www.polydoc.com
6
These quotations from some of the most recent Business Strategy and
to PolyDoc
Knowledge Management surveys are of vital
importance
stakeholders be
future) customers, shareholders or
employees.
they (current and
“Corporate spend on KM (Knowledge Management) is expected to rise to 5,5% of revenues
in three years.”
Cranfield School of Management
“95% of chief executives see knowledge management as an essential ingredient for the
success of their company.”
Recent Price Waterhouse Coopers survey
“The best knowledge management technology is provided by small specialist companies.”
Recent Financial Times (KM) supplement
“To exploit the technology, users need an integrated architecture.”
Knowledge Management by research specialist Ovum
7
MARKET AND BUSINESS UPDATE
There is in each of these quotations, and many other popular Knowledge Management
industry views, an essential factor contributing to the near term realisation of PolyDoc’s
potential.
“Corporate spend heading towards 5,5% of revenues”:
After a frustrating period of much interest and formulation of plansby our prospective
customers, organisations are finally starting to allocate and spend significant budgets to
resolve critical business issues.
“Most CEO’s see KM as essential”:
The business issues that PolyDoc addressses have the attention and commitment
to resolution of top management, the best guarantee for action.
“Best KM technology comes from specialist companies”:
As a pioneer in the field of KM software, utilising the latest generic development technology
from leading firms like Microsoft® and Oracle® PolyDoc is a specialist KM technology
developer with recently proven technology.
“Users need an integrated architecture”:
Since its foundation five years ago, initially primarily as a research and development group,
PolyDoc has been developing its software following its proprietary methodology and
architecture “Integrated Document Production Architecture (IDP/A).
So PolyDoc is unquestionably positioned in an exciting sector of the software marketplace
where customer buying activity is now starting to accelerate. Our own marketplace
experience from customers and prospects, combined with much research, has shown that in
addition to integrated solutions, organisations are demanding comprehensive industry-
specific business solutions. For this reason PolyDoc has started to specialise on a focused set
of industries where KM solutions are at the top of the business agenda: Health care, Defence
and Manufacturing. These markets are being addressed by both PolyDoc and our planned
business partners, two of which have recently entered marketing agreements with PolyDoc,
one in the UK and the other in the USA. Additional partnerships are being developed both for
the current target markets as well as other potentially lucrative sectors. This realisation of
partnerships, in line with PolyDoc’s consistently stated business strategy, together with the
recent formation of our consulting division is expected to help speed up the sales cycles of
PolyDoc’s products.
Health care
At the end of the first quarter 1998 we signed our first multimillion guilder contract involving
three (from a total of eight) academic/teaching hospitals in The Netherlands. Fulfilment of
this contract, and the further development of our QualiFlow health care solution, is
proceeding according to plan and the other academic hospitals as well as several general
hospitals are showing keen interest. We currently expect to sign further substantial business
in this area during the current year, as we seek to establish our approach as a form of standard
for the Dutch health care industry.
8
As mentioned earlier in this document, a joint venture company called Pro-GRAM BV has
been formed by the initial academic hospitals to market, together with PolyDoc, the
QualiFlow software and the knowledge created using the software to a broad range of
organisations in the Dutch health care industry. PolyDoc has accepted an invitation to
become a shareholder in this company, which has commenced active marketing at the
beginning of 1999 and has already received some enthusiastic press coverage in The
Netherlands during March 1999.
Another health care business development is the completion of the purchase of Lessenger
Associates B.V., a small Dutch-based software developer and supplier to the health care
industry. Their products are mature and well established in 7 academic hospitals and more
than 50 regional and general hospitals in The Netherlands, as well as a number of large
companies outside the hospital sector. In addition to our commitment to support the existing
products, we have now started the process that will both add important new functionality to
the Lessenger products as well as ensuring integration of the Lessenger family with our
QualiFlow health care solution. This should put both PolyDoc and Pro-GRAM in an even
stronger position to further accelerate product sales into the substantial health care market - in
fact new Lessenger product sales have already been contracted in the first quarter of 1999.
Defence
The StudyFlow pilot executed at DERA, the Defence Evaluation and Research Agency
related to the UK Ministry of Defence, was successfully evaluated to be able to start work
with the agency on the final stages of justification for the implementation and roll out of a
full production PolyDoc system. This contracted work is expected to be concluded in the first
half of 1999. Our strategy for penetrating the Defence Industry has also evolved further and a
major defence industry manufacturer has expanded the process for evaluating the
implementation and benefits of PolyDoc’s solutions.
Manufacturing
DSM, the multinational chemical manufacturer, has gone into full production with the latest
version (3.0) of NormFlow, our solution for the production and maintenance of standards for
the manufacturing and process industries. We have been requested to further extend the scope
and use of the product at DSM resulting in additional revenue on top of the ongoing
maintenance fees. Further development and volume selling of this new enhanced NormFlow
is presently underway, and we would expect to see the commercial results of this during the
current year.
9
Business Partnerships
Our strategy for expanding PolyDoc’s business into volume sales has always been to enter
into business partnerships with mature organisations with strong customer bases, once we
have established the early customers in our chosen industries. The initial target geographies
remain the Benelux countries, the UK and the USA. In The Netherlands we have entered an
agreement with KPMG to work together with them at one of their major clients on an
important Knowledge Management project. When this work is successfully completed we
would expect this to lead to a broader arrangement involving more clients and PolyDoc’s
software products. In addition to the new partnership covering the Benelux with the hospitals’
joint venture company, Pro-GRAM, we have recently put a non-exclusive agreement in place
with our first full business partner in the United Kingdom. Marlow Consulting, specialising
in management consultancy and systems integration, will be focusing with PolyDoc’s
products on a number of named accounts in the health care and pharmaceutical industries.
Another recent partnership signing will be instrumental in helping PolyDoc enter the North
American marketplace. Teltech Corporation is a leader in the Knowledge Management
industry providing its products, mainly content management services and information
research, to half of the Fortune 500. Under the terms of the agreement Teltech will market
PolyDoc software as part of its own solution selling throughout the United States.
Consultancy Services
As often happens when marketing software products, during the past couple of years we have
been increasingly requested by our customers and prospects to provide them with services in
specific areas of Knowledge and Content Management. In order to capitalise more fully on
these opportunities we have recently formed a Consultancy Services group which is focussed
on generating additional revenues, as well as bringing potential Software products customers
into PolyDoc as paying Services customers. As our business in these areas grows we will
then be recruiting additional staff this year specifically for this services group.
1998 has seen good revenue growth and a major increase in the customer base with the
Lessenger acquisition bringing the number of customers to over seventy companies and
organisations. This has now given rise to significant revenue opportunities with these and
many other organisations in 1999 and beyond, such as the multimillion guilder order placed
by three leading hospitals in The Netherlands and announced by PolyDoc in March 1998.
These new customers will all be taking advantage of the important progress PolyDoc’s
software development group has made during the course of the year. Our latest generation
core software (called XFlow), which is the basis of all of PolyDoc’s solutions, has put the
company into the leading group of software product developers in the rapidly accelerating
Knowledge Management market.
In the geographies where we are focusing the majority of our efforts – Benelux, United
Kingdom, USA – we expect to report significant progress during 1999 in business
partnerships as well as achieving solid commercial success with our own direct sales efforts.
10
PRODUCT DEVELOPMENT
During the course of 1998 PolyDoc’s product development, support and implementation
groups achieved a number of important milestones:
§ Development and delivery of software destined for production usage in large
organisational environments.
§
Implementation of a focused Health care division concentrating on delivery,
implementation and marketing of PolyDoc’s health care applications.
§ Establishment of a customer-satisfaction oriented Helpdesk to support both the increasing
number of new PolyDoc users as well as the recently acquired customer base of more
than 70 users of Lessenger software.
§ Commencement of the process to fully integrate products from generic technology
software market leaders such as Microsoft®, Oracle® and Lotus® into PolyDoc’s
development approach and customer application solutions.
These and other achievements have clearly started to demonstrate PolyDoc’s position as a
professional supplier of proven technologies for important production environments in large
organisations. The main core component of PolyDoc’s advanced software solutions, called
XFlow, has obtained significant advancements in demonstrating its robustness and flexibility,
and continues to place PolyDoc in the leading pack of specialist Knowledge Management
technology providers. With the realisation of version 3 of our XFlow software, together with
our unique TermFlow component, we and our partners can provide customisable, practical
and implementable solutions in line with PolyDoc’s consistently stated business strategy.
As one of the first software developers to encompass Web-based publishing, PolyDoc has
always kept abreast of Internet and Intranet technologies which are, by definition as
collaborative tools, key elements in the adoption of Knowledge Management software as
solutions for critical business issues. With this in mind, development of our next version of
the core software, XFlow version 4, is well underway and we anticipate availability of
software based on this next advancement to begin early in the year 2000.
Key to any software production environment are people, processes and technology. On the
latter issue, as mentioned above, PolyDoc is currently active to further integrate industry
standard technology into its advanced application solutions. With regard to process, we are
making good progress with the implementation of a comprehensive Quality Management
approach to organising and managing all parts of our business, with extra emphasis on the
core of our activities in software development, production and delivery And with respect to
people we are pleased to report that we are in the fortunate position both to have retained all
of our key initial innovative research and development staff and to have started to attract key
individuals from recognised software industry achievers to join the PolyDoc team.
11
As reported last year, we were very pleased to receive the prestigious Eureka status for a
successive three year period. Now into its second year of this period’s funding through the
Eureka channels, one of PolyDoc’s research projects (ITMC – Integrated Terminology
Management Cycle) continued to make good progress both in terms of general innovation
and in the demonstration of its capabilities when applied in marketplace environments. We
look forward also to continued progress in this area during the current year and to
maintaining the international recognition for our innovative concepts and development
approach.
Summary
During 1998 PolyDoc has made good progress both in terms of a significant increase in
revenues and the establishment of a solid commercial base of customers and references.
Simultaneously, our vision of a substantial market for knowledge and content management
predicted at PolyDoc’s inception five years ago has finally become reality, and we have a
clearly defined position* within it. With our unique approach and products we are poised for
major growth in the coming years. This year should see continued growth, in particular in our
established health care division where we have our core base of major clients and our newly
acquired base of over fifty new customers to build upon. We will also continue to invest in
our Defence and Manufacturing industry product offerings as we work with our initial
customers in those markets to replicate the ‘proof of business concept’ we have achieved in
the Health care sector. This should make 1999 a year of continued revenue growth and ensure
the further establishment of a solid commercial track record.
* visit our Website: http://www.polydoc.com
12
POLYDOC’S BUSINESS VALUES
The set of values by which PolyDoc operates its business activities and our employees
constantly strive to express are encapsulated in the following four statements.
Customers:
To measurably enhance our customers’ business performance, by implementing pragmatic,
quality-driven solutions of our knowledge management innovations as part of a long-term
relationship and commitment to service.
Shareholders:
To increase shareholder value by globally growing our customer and revenue base in a
manner which constantly improves our profitability, both through our own commercial
efforts and those of business partners.
Employees:
To encourage personal contribution, creative interaction, open communication and skills
improvement and to provide a challenging and stimulating team oriented environment
enabling the recruitment and long-term retention of flexible, self-motivating, high-calibre
professionals.
Marketplace:
To maintain a leading international position in the Knowledge Management market by
reinforcing existing solutions and to continue innovating in the field of language management
applied to business performance improvement.
13
FINANCIAL REPORT
14
DIRECTORS AND ADVISERS
Directors
Barry K. Mence, Executive Chairman
Richard V. Maddocks, BSc, Managing Director
Huub J.M. Rutten, Drs., Director
E.R.E. Iljitsj Wiebenga, C.A. (S.A.), Finance Director
Hans Coltof, Dr., Non Executive Director
Stuart A. Silcock, FCA, Non Executive Director
David C. Geest, Non Executive Director,
(resigned 31 December 1998)
Secretary
E.R.E. Iljitsj Wiebenga, C.A. (S.A.)
Registered office
18 Southampton Place
London WC1A 2AJ
Registered number
Registered in England and Wales: 3217859
Auditors
Ernst & Young
Apex Plaza
Reading RG1 1YE
Principal banker
Rabobank Amsterdam b.a.
Wilhelminaplantsoen 124
1111 CP Diemen The Netherlands
Solicitors
Lloyds Bank Plc
77 High Street
Southend-on Sea
Essex SS1 1HT
Edge Ellison
18 Southampton Place
London WC1A 2AJ
Nauta Dutilh
Prinses Irenestraat 59
1077 WV Amsterdam
The Netherlands
Nominated adviser
Bell Lawrie Wise Speke.
(a division of Brewin Dolphin Securities Limited)
48 St. Vincent Street
Glasgow G2 5TS
Nominated broker
Durlacher Limited
4 Chiswell Street
London EC1Y 4UP
15
Sponsor
Registrars
(‘NMAX’)
Rabo Securities NV
Amstelplein 1
1090 GP Amsterdam
The Netherlands
(‘AIM’)
Independent Registrars Group Limited
Balfour House 390/398 High Road
Ilford
Essex IG1 1NQ
16
FINANCIAL HIGHLIGHTS
Group profit and loss account for the years ended 31 December
1998
£’000
891
(892)
(1)
(502)
(468)
29
(942)
13
(52)
(981)
(5.2p)
1997
£’000
241
(993)
(752)
(484)
(467)
136
(1.567)
46
(6)
(1.527)
(8.2p)
Description
Turnover
Cost of sales
Gross loss
Sales & marketing expenses
Administrative expenses
Other operating income - foreign exchange gains
Operating loss
Bank interest receivable
Interest payable and similar charges
Loss on ordinary activities before and after taxation
Loss per share -basic and diluted (pence)
17
DIRECTORS’ REPORT
Financial Results
The result for the year ended 31 December 1998 both before and after taxation is a loss of
£981.000 (1997: £1.527.000) on a turnover of £ 891.000(1997:£241.000).The directors do
not propose to declare a dividend.
Review of the Business
Revenue from business based on QualiFlow, our health care industry product, has started to
build, contributing to an increase in total turnover of more than 300% compared to the
previous year. With operating costs running at a similar level also compared to the previous
year this has resulted in an important reduction in pre-tax losses to £981.000. These
improvements are mainly due to the development of the revenue stream contracted early in
the year in the health care industry and the continuing pilot work in the defence industry
coupled with well-controlled operating costs. We would have hoped to see an even greater
reduction in these losses. However as we have previously stated the early adopters of our
products have taken longer to establish than anticipated.
PolyDoc continues to be a technology driven company operating in the Knowledge
Management market and has a growing asset base consisting of many software components
and methodologies. The Board considers PolyDoc to have a unique product formula based on
linguistic approaches and methodologies and language management technologies. It provides
a bridge between the providers (and “inputers”) of knowledge and the technology already
used by the knowledge users/seekers to access and retrieve knowledge. Simply stated,
PolyDoc provides the ability to capture, structure, codify publish and reuse text-based
knowledge.
Within the knowledge management market, PolyDoc research indicates that it is currently the
only company offering centralised harmonisation of language and knowledge capture
mechanisms to enable the structuring and codification of text-based knowledge production.
Market research shows that this is an area where customers are now increasingly seeking
solutions.
PolyDoc’s business solutions significantly enhance productivity and quality in text-based
knowledge production areas as well as enabling the re-use of knowledge throughout the
customer organisation. With these issues now being high on the list to be solved of most large
companies, the future for PolyDoc’s business appears better than ever.
18
Future Developments
PolyDoc sees its future in the further development and marketing of its following products:
§ QualiFlow In hospitals and health care organisations. Reference is made in the
Chairman’s Statement to Pro-GRAM BV a joint venture company formed by three
academic/teaching hospitals in The Netherlands to market, together with PolyDoc, the
QualiFlow software and the knowledge created. PolyDoc has accepted an invitation to
become a shareholder in this company.
§ ResearchFlow In any large manufacturing organisation, including pharmaceutical and
high technology companies, as well as any research organisation (commercial, academic
or government).
§ NormFlow For any large manufacturing company or utility.
§ ProfileFlow For any large information- based organisation or governmental department
(Corporate Yellow Pages/skills & experience memory).
§ XFlow combined with Customisation Toolkit plus TermFlow PolyDoc’s latest generation
base software to fulfil business partner aspirations in both specific industry sectors and in
a generic manner for Systems Integrator companies.
§ QuickScan & Detector PolyDoc’s methods & tools for inventory of processes,
preliminary valuation of knowledge assets and indication of potential improvements and
savings.
PolyDoc aims to grow through its own and business partner marketing efforts in the United
Kingdom, USA and Benelux and elsewhere predominantly through business partnerships. It
is anticipated that a significant contribution to longer term growth will be received through
a strategic alliance with a large global partner.
Research & Development
In the area of information and language technology PolyDoc continues to invest in research
to ensure the Company’s products and core software remain at the leading edge of proven
technologies. This includes the ITMC research project being partly funded by Eureka. In
addition to the application products mentioned above further products are planned to be
developed together with business partners through a customer- and market-driven approach.
19
Year 2000
As is well known, many computer and digital storage systems express dates using only the
last two digits of the year and will thus require modification or replacement to accommodate
the year 2000 and beyond. This is a complex and pervasive issue. The operation of our
business depends not only on our own products and computer platforms, operating systems
and application software, but also to some degree on those of our suppliers, customers and
business partners. Given this complexity, it is not possible for any organisation to guarantee
that no year 2000 problems will arise. We have investigated the risks to our business resulting
from the date change to the year 2000, and have developed prioritised action plans to deal
with the key risks. PolyDoc’s own products have been developed with year 2000 compliance
in mind. With regard to our hardware platforms, operating systems and application software,
the Board believes that the group will have achieved an acceptable state of readiness and also
believes that it will be able to deal promptly with significant failures or issues that might
arise.
The Board is satisfied that the total cost of modifications to the group’s systems and products
will not be significant.
20
DIRECTORS AND THEIR INTERESTS
The directors during the year and at 31 December 1998 and their interests in the share capital
of the Company (all beneficially held except those marked with an asterisk, * which are held
as trustee), were as follows:( the changes between S.A. Silcock’s beneficial and non-benficial
holdings relate to his children being over 18)
Ordinary Shares
31 December
1998
Number of
1 January
1998
Share Options
31 December
1998
Director
8.337.800
B. K. Mence
25.000
R. V. Maddocks
H. J. M. Rutten
507.500
E. R. E. I. Wiebenga 340.000
H. Coltof
S. A. Silcock
S. A. Silcock
D.C. Geest
-
192.450
107.010*
-
8.337.800
25.000
507.500
340.000
-
204.150
95.310*
-
-
400.000
-
-
100.000
-
-
-
1 January
1998
-
400.000
-
-
100.000
-
-
-
Of the 8.337.800 Ordinary Shares mentioned above B. K. Mence beneficially owns and is the
registered holder of 4.490.000 Ordinary Shares and he is, or his wife or children are, potential
beneficiaries under trusts holding an aggregate of 3.847.800 Ordinary Shares representing
20.56% of the voting rights of which trusts directors of Lawfords Ltd., in the Isle of Man, are
trustees and are registered as the holders of such shares. S.A. Silcock is a shareholder in
Lawfords Ltd. in the Isle of Man. An Extraordinary General Meeting of the Company held on
28 July 1998, approved the subscription by B.K. Mence for £ 523.640 5% Convertible Loan
Stock at par and to subscribe on or before 31 December 2000 to Warrants for 300.000
Ordinary Shares at £ 1.46 per share. If not exercised by that date the Warrants shall lapse.
On 28 July 1998, the Company issued £1,570,920 5% Convertible Loan Stock 1999
(“Convertible Loan Stock”). £523,640 of the Convertible Loan Stock was subscribed for by
Barry Mence following independent shareholders’ approval as required by The Panel on
Takeovers & Mergers (“the Panel”). Following agreement between the Company and the
Loan Stockholders, including Barry Mence, the redemption date and the conversion date for
the Convertible Loan Stock has been moved from 31 July 1999 to 31 July 2000 save that the
extension of the conversion date for the Convertible Loan Stock held by Barry Mence from
31 July 1999 to 31 July 2000 is subject to independent shareholders’ approval. Because the
extension in the conversion date for the Convertible Loan Stock held by Barry Mence is a
variation of the terms of the Convertible Loan Stock acquired by Barry Mence which were
approved at the shareholders meeting on 28 July 1998, the Panel requires that shareholders
permission be sought for this variation.
The notice of annual general meeting accompanying this report includes a resolution to that
effect which must be approved by over 50% of the votes cast on a poll on which poll the
shares held by Barry Mence or in which he is interested will not be voted. The Panel has
required that shareholders be provided with the following information:
21
The minimum price per Ordinary Share at which conversion of the Convertible Loan Stock
can take place is 20p, (the nominal value of the Ordinary Shares). While the Directors (other
than Barry Mence) consider that it is extremely unlikely that this would occur, Barry Mence’s
maximum potential holding of Ordinary Shares would be as illustrated below. If Barry Mence
converted all his Convertible Loan Stock at 20p per share and subscribed all his Warrants
(details of which were set out in the Circular to shareholders of 10 July 1998 (“the Circular”)
and neither of the other holders of Convertible Loan Stock converted any of their Convertible
Loan Stock or subscribed any of their Warrants, his interests in the Ordinary Shares would
increase to 50.87%.
The table below illustrates Barry Mence’s maximum potential interests in Ordinary Shares on
this basis.
Total Issued
Share Capital
No.
Barry Mence
Interests
in Ordinary
Shares
No.
%
19.208.885
8.337.800
43.41
Ordinary Shares in issue
at the date of this document
Maximum number of Ordinary Shares
which potentially may be issued to
Barry Mence on conversion
Conversion of Convertible Loan Stock
at 20p per share
2.618.200
2.618.200
Warrant subscription
300.000
300.000
Ordinary Shares in issue on this basis
22.127.085
11.256.000
50.87
Shareholders are advised that, should Barry Mence’s interests in the Ordinary Shares exceed
50%, Barry Mence would be free to increase his interests in the Ordinary Shares further
without incurring any obligation under Rule 9 of the City Code on Takeovers and Mergers to
make a general offer to shareholders.
Neither Barry Mence nor his family trusts has dealt in the Ordinary Shares during the period
12 months before the date of posting of these Report and Accounts. There are no agreements,
arrangements or understandings (including any compensation arrangements) existing between
Barry Mence and any of the Directors, shareholders or recent shareholders of the Company
having any connection with or dependence upon these proposals. There are no agreements,
arrangements or understandings pursuant to which any securities acquired by Barry Mence as
a result of these proposals will be transferred to any other persons.
The mid market prices of the Ordinary Shares as derived from the London Stock Exchange
Daily Official List on the first dealing day of each of the six months immediately before the
date of this Report and Accounts and on the last practicable date prior to the publication of
this document, were are follows:
22
Date
1 December 1998
4 January 1999
1 February 1999
1 March 1999
1 May 1999
4 May 1999
24 May 1999
Mid price
145 p
1421(cid:31)2
1571(cid:31)2
1471(cid:31)2
1521(cid:31)2
1611(cid:31)2
172 p
p
p
p
p
p
The change in the redemption and conversion date for the Convertible Loan Stock was
effected by an Extraordinary Resolution in writing dated 12 April 1999 of all the holders of
the Convertible Loan Stock agreed to by the Company. The resolution was passed pursuant to
the power given by the Convertible Loan Stock Instrument to a meeting of holders of the
Convertible Loan Stock, or written resolution in place thereof, to assent to any modification
or abrogation of the provisions contained in the conditions set out in that instrument or to
which the Convertible Loan Stock is subject proposed or agreed to by the Company.
No changes other than those set out above have been made to the Convertible Loan Stock.
Copies of the agreement dated 22 June 1998 for the subscription of the Convertible Loan
Stock, the Convertible Loan Stock Trust Instrument, the Circular and the Extraordinary
Resolution changing the redemption and conversion date to 31 July 2000 will be available for
inspection at the registered office of the company, 18 Southampton Place London WC1A 2AJ
from the posting of these Report and Accounts to shareholders until the conclusion of the
Annual General Meeting.
The options granted to R.V. Maddocks and H.Coltof on 28 August 1996, are at an exercise
price of 20 p per share exercisable at any time before 17 July 2001. The midmarket share
price ranged from 117.50p to 297.50p during the financial year.
(b) Save as disclosed above, no Director (or member of his family) or connected persons
within the meaning of Section 346 of the Companies Act 1985 has any interest, beneficial or
non-beneficial, in the share capital of the company.
Substantial Shareholdings
The Directors are aware of the following persons who as at 24 May 1999 are interested
directly or indirectly in three per cent or more of the company’s issued Ordinary Shares:
Name
Brandon Limited
NPM Capital NV
No. of % issued
Ordinary Shares
1.633.647
1.365.649
Ordinary Shares
8.50 %
7.11 %
In addition, as set out in paragraph (a) above, B. K. Mence and members of his family have
interests in 8.337.800 Ordinary Shares (43.41%).
23
Share Option Schemes
PolyDoc Plc Share Option Schemes: On 28 August 1996 the Directors adopted and the
company in general meeting approved a share option scheme to provide for the grant to
certain directors and employees of PolyDoc NV of options over Ordinary Shares in exchange
for the surrender by such directors and employees of their existing options over shares in
PolyDoc NV and to provide for the grant by the company of subsequent new options over
Ordinary Shares to employees of the Group.
Contracts
Service contracts between the company and the executive directors are terminable on 6
months notice.
Creditor payment policy and practice
It is the company’s policy that payments to suppliers are made in accordance with those
terms and conditions agreed between the company and its suppliers, provided that all trading
terms and conditions have been complied with. At 31 December 1998, the company had an
average of 63 days purchases outstanding in trade creditors.
Auditors
A resolution to reappoint Ernst & Young as auditors will be put to the members at the Annual
General Meeting.
Approved by the Board on 27 May 1999.
E.R.E.I. Wiebenga
Secretary
24
REPORT ON DIRECTORS’ REMUNERATION
The remuneration committee of PolyDoc Plc is responsible for determining the contract
terms, remuneration and other benefits for executive directors, including performance related
bonus schemes. The committee comprises the non-executive directors. It is chaired by Hans
Coltof. The details of directors’ interests in options is set out in the Directors’ Report.
The fees and emoluments of all directors are as follows:
Description
Fees
Other emoluments
Basic remuneration
Benefits
Pension contributions
1998
1997
£’000 £’000
19
29
238
47
15
18
29
243
46
15
348
351
Executive directors:
The emoluments of the executive directors for the financial year are as follows:
Barry Mence
1997
1998
£
£
68.412
67.721
11.510
11.409
79.922
79.130
4.200
3.600
Richard Maddocks
1998
£
79.137
15.729
94.866
6.975
1997
£
81.264
14.842
96.106
7.221
Huub Rutten
1997
1998
£
£
60.947
59.352
11.261
11.866
72.208
71.218
2.500
2.739
Iljitsj Wiebenga
1997
1998
£
£
32.507
31.655
8.156
8.198
40.663
39.853
1.500
1.461
82.730
84.122
101.841
103.327
73.957
74.708
41.314
42.163
Basic salary
Benefits
Subtotal
Pension
contributions
Total
Pension contributions are to a defined contribution scheme.
The basic salaries have remained unchanged. The lower emoluments in 1998 are caused by
differences in exchange rates.
25
Non executive directors:
The fees of the non executive directors for the year are as follows:
1997
£
Hans Coltof
1997
1998
£
£
6.300 6.564
-
6.300 6.564
The basic fees have remained unchanged. Certain of the other emoluments in 1998 are lower
due to differences in exchange rates.
Stuart Silcock
1998
£
6.392 6.564
28.629 29.221
35.021 35.785
David Geest
1997
1998
£
£
6.272 5.079
-
6.272 5.079
Fees
Other emoluments
Total
-
-
The emoluments of Hans Coltof ( in 1997) and Stuart Silcock were paid to Van der Bunt
Management Consultants and Lawfords Limited, Chartered Accountants, of which they are a
partner and director respectively.
Service contracts
Details of the directors’ service contracts are given in the Directors’ Report.
26
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
Statement of Directors’ responsibilities in respect of the accounts
Company law requires the directors to prepare accounts for each financial year which give a
true and fair view of the state of affairs of the company and of the group and of the profit or
loss of the group for that year. In preparing those accounts, the directors are required to:
§ select suitable accounting policies and then apply them consistently;
§ make judgements and estimates that are reasonable and prudent;
§ state whether applicable accounting standards have been followed, subject to any material
departures disclosed and explained in the accounts;
§ prepare the accounts on a going concern basis unless it is inappropriate to presume that
the company will continue in business;
The directors confirm that they have complied with the above requirements in preparing the
accounts. 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 accounts 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.
27
GROUP PROFIT AND LOSS ACCOUNT
Group profit and loss account
For the year ended 31 December 1998
Notes
2
Turnover
Cost of sales
Gross loss
Sales and Marketing expense
Administrative expense
Other operating income -
foreign exchange gains
Operating loss
Bank interest receivable
Interest payable and similar charges 5
3(a)
1998
£’000
891
(892)
(1)
(502)
(468)
29
(942)
13
(52)
1997
£’000
241
(993)
(752)
(484)
(467)
136
(1.567)
46
(6)
Loss on ordinary activities
before and after taxation
Loss per share-basic and
diluted (pence)
(981)
(1.527)
8
(5.2p)
(8.2p)
28
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
1998
£’000
(981)
47
(934)
1998
£’000
261
(934)
167
15
-
(491)
1997
£’000
(1.527)
(170)
(1.697)
1997
£’000
1.059
(1.697)
991
-
(92)
261
Group statement of total recognised gains and losses
Description
Loss on ordinary activities after taxation
Exchange difference on retranslation of net assets
of subsidiary undertakings
Total recognised gains and losses relating to the year
Reconciliation of shareholders’ funds
Description
Shareholders’ funds at 1 January
Total recognised gains and losses in year
Other movements:
New shares issued (including share premium)
Shares to be issued
Share issue costs
Shareholders’ funds at 31 December
(all equity interests)
29
At 31 December 1998
Fixed assets
Intangible assets
Tangible assets
Current assets
Debtors
Cash at bank and in hand
Creditors: amounts falling
due within one year
Net current assets/(liabilities)
Total assets less current liabilities
Creditors: amounts falling due
after more than one year
Capital and reserves
Called up share capital
Shares to be issued
Share premium account
Profit and loss account
Shareholders’ funds
(all equity interests)
Barry K. Mence
Executive Chairman
27 May 1999
GROUP BALANCE SHEET
Notes
1998
£’000
1997
£’000
540
203
743
127
674
801
2.032
(1.231)
(488)
3
(491)
3.773
15
2.213
(6.492)
192
223
415
104
434
538
375
163
578
317
261
3.743
-
2.076
(5.558)
(491)
261
9
10
12
14
15
17
18
18
18
30
COMPANY BALANCE SHEET
At 31 December 1998
Notes
1998
£’000
1997
£’000
11
12
14
17
18
18
18
Fixed assets
4.777
2.820
Investments
2.737
95
2.832
1.613
1.219
5.996
3.773
15
2.213
(5)
5.996
3.017
-
3.017
23
2.994
5.814
3.743
-
2.076
(5)
5.814
Current assets
Debtors
Cash at bank and in hand
Creditors: amounts falling due within one year.
Net current assets
Total assets less current liabilities
Capital and reserves
Called up share capital
Shares to be issued
Share premium account
Profit and loss account
Shareholders’ funds (all equity interests)
Barry K. Mence
Executive Chairman
27 May 1999
31
GROUP STATEMENT OF CASH FLOWS
For the year ended 31 December 1998
Notes
Net cash outflow from operating activities
3(b)
Return on investments and servicing of finance
Interest received
Interest paid
Interest element of finance lease rental payments
Capital expenditure and financial investment
Payments to acquire intangible fixed assets
Payments to acquire tangible fixed assets
Acquisitions and disposals
Purchase of subsidiary undertaking
Net cash acquired with subsidiary undertaking
1998
£’000
(699)
13
(50)
(2)
(39)
(247)
(52)
(299)
(95)
2
(93)
1997
£’000
(1.547)
46
(4)
(2)
40
(107)
(131)
(238)
-
-
-
Management of liquid resources
(Increase)/decrease in short term deposits
(401)
803
Net cash outflow before financing
(1.531)
(942)
Financing
Issue of ordinary share capital
Share issue costs
New long term loan
Repayment of long term loan
Repayment of capital element of finance lease
(Decrease)/increase in cash
32
110
-
1.571
(299)
(12)
1.370
(161)
991
(92)
336
-
(19)
1.216
274
NOTES TO THE ACCOUNTS
1. Accounting policies
Accounting convention
The accounts are prepared under the historical cost convention and in accordance with
applicable accounting standards.
Basis of consolidation
The consolidated accounts include the results of the company and its subsidiary undertakings.
The excess of the cost of acquisition of Lessenger Associates BV over its net asset value has
been included as goodwill under intangible fixed assets. The acquisition of PolyDoc NV in
1996 was accounted for as a merger under the provisions of Financial Reporting Standard
No. 6.
Tangible fixed assets
Tangible fixed assets are stated at historical cost, less accumulated depreciation. Tangible
fixed assets are depreciated on a straight line basis at 20% per annum on cost over their
expected useful lives.
Research and development
Research and development expenditure is written off as incurred, except that development
expenditure incurred for a specific product is capitalised as an intangible asset when its future
recoverability can reasonably be regarded as assured. The assets are amortised on a straight
line basis over their estimated useful economic life which is currently estimated to be 5 years.
The registration expenses of patents and trademarks are written off as incurred.
Grants and subsidies
Certain development projects benefit from a European funding programme which makes
subsidy payments on the basis of six-monthly returns. Grants and subsidies are credited to the
profit and loss account so as to match with the expenditure to which they relate.
Goodwill
Goodwill arising on consolidation is capitalised and amortised on a straight line basis over its
estimated useful economic life up to a presumed maximum of 20 years. The goodwill arising
on the acquisition of Lessenger Associates BV during the year is being amortised over 10
years. Goodwill is reviewed for impairment at the end of the first full year financial year after
acquisition and in other periods if events or changes in circumstances indicate that the
carrying value may not be recoverable.
Long term contracts
Profit on long-term contracts is taken as the work is carried out if the final outcome can be
assessed with reasonable certainty. The profit included is calculated on a prudent basis to
reflect the proportion of the work carried out at the year end, by recording turnover and
related costs as contract activity progresses. Turnover is calculated as that proportion of total
contract value which costs incurred to date bear to total expected costs for that contract.
Revenues derived from variations on contracts are recognised only when they have been
accepted by the customer. Full provision is made for losses on all contracts in the year in
which they are first foreseen.
33
Deferred taxation
Deferred taxation is provided using the liability method on all timing differences, including
those relating to pensions and other post retirement benefits, to the extent that they are
expected to reverse in the future without being replaced, calculated at the rate at which it is
anticipated the timing differences will reverse.
Foreign currencies
Company: Transactions in foreign currencies are recorded at the rate ruling at the date of the
transaction or at the contracted rate if the transaction is covered by a forward exchange
contract. Monetary assets and liabilities denominated in foreign currencies are retranslated at
the rate of exchange ruling at the balance sheet date or if appropriate at the forward contract
rate. All differences are taken to the profit and loss account. Group: The assets and liabilities
of the subsidiary undertaking are translated at the rate of exchange ruling at the balance sheet
date. The profit and loss account is translated at the average rate of exchange. The exchange
difference arising on the retranslation of the subsidiary undertaking is taken directly to
reserves. All other translation differences are taken to the profit and loss account.
Pensions
PolyDoc contributes to the personal pension arrangements of certain employees, the costs of
which are charged in the profit and loss account as incurred.
Leasing
Assets held under finance leases, which are leases where substantially all risks and rewards of
ownership of the assets have passed to the group are capitalised in the balance sheet and are
depreciated over their useful lives. The capital elements of future obligations under financial
leases are included as liabilities in the balance sheet. The interest elements of the rental
obligations are charged to the profit and loss account over the periods of the financial lease
and represent a constant proportion of the balance of capital repayments outstanding. Rentals
payable under operating leases are charged in the profit and loss account on a straight line
basis over the lease term.
2. Turnover and segmental information
Turnover (excluding valued added tax) represents the amounts derived from the provision of
services and software supplied which fall within the group’s ordinary activities. The group
operates in one principal area of activity, that of the design of software systems and the
development, production and marketing of software products and methodologies. It operates
within three geographical markets, the Benelux, the United Kingdom and the United States of
America.
34
An analysis of turnover by destination is given below:
1998
£’000
722
166
3
891
1997
£’000
93
111
37
241
Description
The Benelux
United Kingdom
United States of America
An analysis of turnover, loss on ordinary activities,
before taxation, and net assets by source is as follows:
1998
£’000
The Netherlands
1997
£’000
The Netherlands
Description
891
(981)
(491)
241
(1.527)
284
Turnover
Loss on ordinary activities before taxation
Net assets/(liabilities)
The United Kingdom has no turnover by source or losses on ordinary activities before
taxation, and had net liabilities of £ nil (1997: £23.000) by source. The United States of
America has no turnover by source or losses on ordinary activities before taxation or any net
liabilities (1997: £ nil).
3. Operating Loss
(a) This is stated after charging/(crediting)
1998
£’000
20
1.197
66
(304)
(29)
63
9
94
79
1997
£’000
26
1.155
23
(162)
(136)
60
7
67
83
Description
Auditors’ remuneration - audit services *
Research and development expenditure written off
Amortisation of deferred development expenditure
Eureka subsidies
Foreign exchange gains
Depreciation of owned assets
Depreciation of assets held under finance leases
Operating lease rentals - land and buildings
Operating lease rentals - motor vehicles
*£ 8.915 (1997: £ 6.000) of this relates to the company.
In the view of the directors, the turnover and operating loss of Lessenger Associates BV,
since acquisition on 3 December 1998 is not material for the purpose of analysing the
performance of continuing operations between acquisitions and other.
35
(b) Reconciliation of operating loss to net cash outflow from operating activities
1997
£’000
(1.567)
60
23
9
8
107
(14)
(173)
(1.547)
Operating loss
Depreciation
Amortisation
Intangible Fixed assets written off
Loss on disposal of Tangible Fixed Assets
decrease in debtors
Increase/(decrease) in creditors and provisions
Exchange movements
Net cash outflow from operating activities
4. Staff Costs
Wages and salaries
Social security costs
Other pension costs
1998
£’000
857
74
29
960
1998
£’000
(942)
72
66
-
-
9
50
46
(699)
1997
£’000
923
40
23
986
The directors’ emoluments are disclosed in the Report on Directors’ Remuneration on
page 22.
The average monthly number of employees during the year was made up as follows:
Full time employees
Contracted employees
1998
Number
1997
Number
25
6
31
25
5
30
5. Interest Payable and Similar Charges
Bank loans and overdrafts
Convertible loan stock
Finance charges on finance leases
1998
£’000
1997
£’000
16
34
2
52
4
-
2
6
36
6. Taxation
There was no tax charge during the year (1997:£ nil). Tax losses are available for carry
forward by the Group the amount of which is under discussion with the relevant authorities in
the UK and The Netherlands. In accordance with the group’s policy no provision has been
made for the potential deferred tax asset on these losses.
7. Loss attributable to members of the parent company
The loss dealt with in the accounts of the parent company for 1998 was nil (1997:£ nil).
Advantage has been taken of Section 230 of the Companies Act 1985 not to present a profit
and loss account for the parent company.
8. Loss Per Ordinary Share
The calculation of basic loss per ordinary share is based on a loss, of £ 981.000 (1997:
£ 1.527.000), and 18.730.633 (1997: 18.652.691) ordinary shares, being the weighted average
number of ordinary shares in issue during the year. All potential ordinary shares are
antidilutive.
9. Intangible Fixed Assets
Goodwill
£’000
Development
costs
£’000
-
-
167
167
-
-
-
-
167
-
214
25
227
466
22
5
66
93
373
192
Total
£’000
214
25
394
633
22
5
66
93
540
192
Group
Cost
At 1 January 1998
Exchange adjustments
Additions
At 31 December 1998
Amortisation
At 1 January 1998
Exchange adjustments
Provided during the year
Net book value
At 31 December 1998
At 31 December 1997
Goodwill arising on the acquisition of Lessenger Associates BV is being amortised evenly
over the directors’ estimate of its useful life of 10 years.
37
10. Tangible Fixed Assets
Group
Computer
equipment
£’000
Furniture and
fittings
£’000
Total
£’000
Cost
At 1 January 1998
Exchange adjustment
Additions
Disposals
At 31 December 1998
Depreciation
At 1 January 1998
Exchange adjustments
Provided during the year
Disposals
At 31 December 1998
Net book value
At 31 December 1998
At 31 December 1997
227
17
38
-
282
92
7
50
-
149
133
135
110
7
-
-
117
22
3
22
-
47
70
88
337
24
38
-
399
114
10
72
-
196
203
223
The net book value of furniture and fittings above includes an amount of £ 27.000
(1997: £ 36.000) in respect of assets held under finance leases. Other than those
held under finance leases, fixed assets are free and unencumbered.
11. Investments
Company
Investment in
subsidiary undertakings
£’000
Cost
At 31 December 1997
Additions
At 31 December 1998
2.820
1.957
4.777
On 18 May 1998 the company acquired a further 1.200.000 shares in its subsidiary company,
PolyDoc NV for a consideration of £ 1.790.000 satisfied by setting off the obligation to pay
part of the intercompany balances.
On 3 December 1998 the group acquired Lessenger Associates BV for consideration of £
168.000, satisfied by the payment in cash of £ 95.000, and by the issue of 40.000 ordinary
shares of 20p each. A further 10.000 ordinary shares of 20p may be issued as additional
consideration in the next 12 months if certain conditions are met. In the view of the directors
the additional consideration will be payable and accordingly it has been provided for as
shares to be issued at £1.46, the market price on the date of the acquisition.
38
Goodwill arising on the consolidation of Lessenger Associates BV has been included in the
consolidated balance sheet and is being amortised over the directors’ estimate of its useful
life of 10 years.
Analysis of the acquisition of Lessenger Associates BV:
Book value Company
£’000
Debtors
Cash
Creditors falling due within one year
Net assets
Goodwill arising on acquisition
Discharged by:
Fair value of shares issued
Shares to be issued
Cash
32
2
34
33
1
167
168
58
15
95
168
Lessenger Associates BV made a loss after tax of £1.000 in the year ended 31 December
1998 (1997 - £ 700). There was a profit of £2.500 in the period 1 January 1998 to 3
December 1998.
Details of the investments in which the group or company holds more than 20% of the
nominal value of any class of share capital are as follows:
Name of company Country of
registration
(or incor-
poration)
and operation
Holding
Nature of
Proportion
of voting rights business
and of business
PolyDoc NV
The
Netherlands
Ordinary
shares
100%
Lessenger
Associates BV
The
Netherlands
Ordinary
shares
100%
Knowledge
Management
Software
developer
Document
Management
Software
supplier
39
12. Debtors
Description
Trade debtors
Amounts owed by subsidiary undertakings
Other debtors
Prepayments and accrued income
Trade debtors are free and unencumbered.
Group
1998
1997
£’000 £’000
72
85
-
-
-
-
42 32
Company
1998
1997
£’000 £’000
-
-
2.737 3.017
-
-
- -
127
104
2.737 3.017
13. Net debt
(a) Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash
Repayment of long term loans
Cash inflow from increase in debt
Repayments of capital elements of finance leases
Cash (inflow)/ outflow from change in liquid resources
Change in net debt resulting from cash flows
Exchange differences
Other
1998
£’000
(161)
299
(1.571)
12
401
(1.020)
-
-
(1.020)
103
(917)
1997
£’000
274
(336)
-
19
(803)
(846)
37
(51)
(860)
963
103
Movement in net debt
Net debt at 1 January
Net debt at 31 December
(b) Analysis of net debt
Cash at bank
Liquid resources
New long term loan
Convertible loan stock
Finance leases
1 January
1998
£’000
433
1
(299)
-
(32)
Cashflow
£’000
(161)
401
299
(1.571)
12
31 December
1998
£’000
272
402
-
(1.571)
(20)
103
(1.020)
(917)
Liquid resources are included within cash at bank and in hand on the balance sheet.
40
14. Creditors: amounts falling due within one year
Company
1998
£’000
1.571
-
-
2
40
1997
£’000
-
-
-
8
15
Group
1998
£’000
1.571
17
306
25
113
1997
£’000
5% Convertible loan stock
Obligations under finance leases
Trade creditors
Other taxes and social security costs
-
14
226
45
90 Accruals
1.613
23
2.032
375
The 5% Convertible loan stock was issued to the company’s three largest shareholders on 31
July 1998 and was repayable or convertible into ordinary shares at a conversion price of £
1.46 on 31 July 1999,at the option of the loan stockholders. Interest on the Convertible Loan
Stock is payable on 30 June and 31 December. On 12 April 1999, the repayment or
conversion was extended to 31 July 2000 as disclosed in note 20. The amount of £ 1.571.000
is thus included in current liabilities at 31 December 1998, although it became an amount
falling due after more than one year on 12 April 1999.
15. Creditors: amounts falling due after more than one year
Company
1998
£’000
-
-
1997
£’000
-
-
Group
1998
£’000
-
3
1997
£’000 Bank loan falling due between one and
two years
299
18 Obligations under finance leases
-
-
3
317
The bank loan had an interest rate of 6%, and was repaid on 31 July 1998.
16. Obligations under leases
Amounts due under finance leases and hire purchase contracts:
1998
£’000
17
4
21
1
1997
£’000
16
19
35
3
20
32
Group
Amounts payable:
Within one year
In two to five years
Less finance charges allocated to future periods
41
The company had no amounts due under finance leases and hire purchase contracts. At 31
December 1998 the group had annual commitments under operating leases as set out at the
top of the next page:
Group
l
Operating leases which expire
other
1998
£’000
and &
buildings
1998
£’000
other
1997
£’000
land &
buildings
1997
£’000
within one year
in two to five years
26
63
-
100
8
48
-
91
89
100
56
91
The company had commitments under operating leases as at 31 December 1998 amounting to
£4.000 (1997: £ nil ) expiring within one year and £12.000 expiring within two to five years
(1997: £16.000).
17. Share Capital
Company
Authorised
Equity:
Ordinary shares of 20p each at
31 December 1998 and 31 December 1997
Number
30.000.000
Allotted, called up and fully paid
Equity:
Ordinary shares of 20p each at 31 December 1997 18.715.385
Ordinary shares of 20p each at 31 December 1998 18.863.885
£’000
6.000
3.743
3.773
On 15 October 1998, 30.000 ordinary shares were issued for cash at 20p each. On 20 October
1998, 10.000 ordinary shares were allotted for cash to a holder of share options at 20p each.
On 9 December 1998 68.500 ordinary shares of 20p each were issued at £1.46 for cash and a
further 40.000 ordinary shares of 20p each were issued at £1.46 as part consideration for the
acquisition of Lessenger Associates BV. As described in note 11, a further 10.000 ordinary
shares will be issued to the vendors of Lessenger Associates BV if certain conditions are met.
An Extraordinary General Meeting of the Company held on 28 July 1998, approved the
subscription by each of B.K. Mence, NPM Capital NV and Brandon Ltd, of £523.640 5%
Convertible Loan Stock at par the conversion terms of which are described in note 14, as well
as the award of 300.000 Warrants each. The Warrants did not attract any consideration. Each
Warrant entitles the holder to subscribe on or before 31 December 2000, for one Ordinary
Share at £1.46 per share. If not exercised by that date the Warrants shall lapse.
42
Share option scheme
The company has specified a maximum of 900.000 ordinary shares over which options could
be granted under any employee share option scheme. During 1998, 80.000 options were not
taken up and became available for re-issue and 10.000 options were exercised at 20p. During
1998 the company has granted options over 69.000 ordinary shares to employees, at a
subscription price equal to the market price of 170p. at the date of the grant, leaving a balance
at 31 December 1998, of 100.000 ordinary shares over which options could be granted.
Options granted to directors are specified in the Directors’ Report. The balance of options are
held by employees. Share options are granted by the Board of directors on a
discretionary basis.
Options subsisting under the share option scheme at 31 December 1998 were:
Year options
granted
Number
of options
Exercise price
pence
per share
Period during
which options
exercisable
1996
1997
1998
660.000
71.000
69.000
20
64,5-197.5
170
1998-2006
2000-2007
2001-2008
18. Shareholders’ funds
Share
capital
£’000
3.743
30
-
-
Shares to be Share Premium
issued
£’000
Account
£’000
Profit and
Loss Account
£’000
Total Group
£’000
-
-
15
-
2.076
137
-
-
(5.558)
261 At 1
January 1998
-
-
(981)
15
167 Arising on
share issues
Shares to
be issued
Retained loss
for the year
(981)
-
-
-
47
47 Exchange
differences on
retranslation of
net assets and
results of
subsidiary
undertaking
At 31
December 1998
3.773
15
2.213
(6.492)
(491)
43
Dutch law requires that an amount equal to the net book value of the amounts capitalised in
respect of development costs be transferred from the profit and loss reserve to a non-
distributable legal reserve. To this extent £ 373.000 (1997: £ 192.000) of PolyDoc NV’s
profits (if available) would not be distributable as at 31 December 1998.
Shareholders’ funds
Company
At 31 December 1997
Arising on share issues
Shares to be issued
Share Shares to be
capital issued
£’000 £’000
3.743 -
30
-
- 15 - - 15
Share Premium Profit and
Account
£’000
2.076
137
Loss Account
£’000
(5)
-
£’000
5.814
167
Total
At 31 December 1998
3.773 15
2.213
(5)
5.996
19. Contingent liabilities
Company
In accordance with Article 403, Paragraph 1, Subsection b, Book 2 of the Dutch Civil Code
(B.W.), PolyDoc Plc guarantees the liabilities of PolyDoc NV and agrees with the departure
from the regulations in Title 9 Book 2 of the Dutch Civil Code (B.W.), that prescribes the
submission of the accounts of PolyDoc NV to the Trade Register in The Netherlands. As a
consequence PolyDoc NV need not file its accounts at the Trade Register.
20. Post Balance Sheet Events
On 20 January 1999, a further 5.000 ordinary shares were allotted for cash to a holder of
share options at 20p each. On 12 March 1999, a further 340.000 ordinary shares were issued
for £ 499.800 in cash giving a share premium of £431.800.
On 12 April 1999, the repayment or conversion of the £ 1.570.920 Convertible Loan Stock
held by the Company’s three largest ordinary shareholders, was extended from its original
date of 31 July 1999 to 31 July 2000. This amount has been included in amounts falling due
within one year at 31 December 1998. Further details of the change in the redemption and
conversion date can be found in the Directors’ Report.
On 19 February 1999 Lessenger Associates BV changed its name to Lessenger BV.
44
AUDITORS’ REPORT TO THE SHAREHOLDERS OF POLYDOC PLC
We have audited the accounts on pages 25 to 41 which have been prepared under the
historical cost convention and on the basis of the accounting policies set out on pages 30
and 31.
Respective responsibilities of directors and auditors
The directors are responsible for preparing the Annual Report including, as described on page
24, the accounts. Our responsibilities, as independent auditors, are established by statute, the
Auditing Practices Board and by our profession’s ethical guidance. We report to you our
opinion as to whether the accounts give a true and fair view and are properly prepared in
accordance with the Companies Act. We also report to you if, in our opinion, the directors’
report is not consistent with the accounts, if the group has not kept proper accounting records,
if we have not received all the information and explanations we require for our audit, or if the
information specified by law regarding directors’ remuneration and transactions with the
company is not disclosed. We read the other information contained in the Annual Report and
consider whether it is consistent with the audited accounts. We consider the implications for
our report if we become aware of any apparent misstatements or material inconsistencies with
the accounts.
Basis of audit opinion
We conducted our audit in accordance with 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 accounts. It also includes an assessment of the significant
estimates and judgements made by the directors in the preparation of the accounts, and of
whether the accounting policies are appropriate to the group’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 accounts 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 accounts.
Opinion
In our opinion the accounts give a true and fair view of the state of affairs of the company
and of the group as at 31 December 1998 and of the loss of the group for the year then ended
and have been properly prepared in accordance with the Companies Act 1985.
Ernst & Young
Registered Auditor
Reading
27 May 1999
45
POLYDOC PLC
Address:
‘De Gelder’
A.J. Ernststraat 595 - G
1082 LD Amsterdam
Telephone:
(+31) 20 - 301 39 00
Telefax:
(+31) 20 - 301 39 99
General E-mail address:
info@polydoc.com
Internet:
http://www.polydoc.com
46