DATA AVAILABILITY
FOR THE NEXT CENTURY
H
ALF
-Y
EAR
R
EPORT
2006
ACCORDING TO
IFRS
AS PER
30 J
UNE
2006
NOVASTOR AG, OVERVIEW
Thousand EUR
04.-06.06 04.-06.05 01.-06.06 01.-06.05
EUR EUR EUR EUR
Sales revenues 1'891 2'172 3'892 4'186
Gross profit 1'615 1'019 3'312 2'161
Gross profit margin 85.4% 46.9% 85.1% 51.6%
Operating expenses -1'468 -1'142 -3'186 -2'246 EBITDA 147 -123 126 -85 Depreciation -97 -71 -209 -143 Financial revenue -42 -54 98 -120 EBT 9 -248 15 -348 EBT-margin 0.5% -11.4% 0.4% -8.3% Period surplus/shortfall 19 -233 27 -373
Cash flow from operating acitvities -771 -544 -920 -657
Earnings per GDR 0.00 -0.02 0.00 -0.03 Average of GDRs in circulation 19'406'560 11'108'960 19'406'560 11'042'662 (number of pieces) 30.06.06 31.12.05 30.06.06 31.12.05 Equity capital 8'797 8'892 8'797 8'892 Equity ratio 69.7% 54.1% 69.7% 54.1% Balance sheet total 12'614 16'447 12'614 16'447 Headcount at end of period 55 73 55 73
T
HEC
OMPANYSince 3 July 2006 the former Mount10 operates as NovaStor. The standardization of the com-pany names serves to provide a higher level of transparence and to simplify communication with customers and business partners. With the renaming to NovaStor, Mount10 distances itself from the last link to the business model „managed hosting services“, which was operated from Switzer-land in 2000 and 2001 by Mount10 from a bunker facility. NovaStor stands for an international software company with headquarters in Switzerland and subsidiaries in Germany, Finland and the US. Through sales partnerships NovaStor is represented in numerous other countries.
NovaStor develops and sells software products in the areas of data security and compliant long term data storage. The core NovaStor products for online and network data security and compli-ant long term data storage addresses companies of all sizes and enable service providers and sales partners to develop scalable business modes for their customers.
NovaStor can be found under www.novastor.com, www.novastor.de, info@novastor.com and
info@novastor.de.
T
HEP
RODUCTSNovaNET-WEB is an online backup solution for all businesses. Bigger service providers offer
you with NovaNET-WEB a backup service that generates recurring revenues. Via the Inter-net, the software backs up the business’s critical data that is stored on mobile and internal and external Microsoft Windows workplaces. Centrally managed user profiles and policies control the data backup. NovaNET-WEB’s software architecture allows all the staff to backup and restore at any time in any place: “ATAP Backup & Restore”.
NovaBACKUP for smaller businesses and end users enables the user to restore data after a
complete system breakdown or on other emergencies. Employing a safe, user-friendly pro-cess, the software offers automatic, reliable and cheap protection for all critical sets of data. NovaBACKUP was the winner in a backup-software-test made by the well-known US-American computer magazine PC World in June 2006.
HiBack ixT is a backup and restoration software that meets highest demands. The product is
based on a modular architecture that guarantees no platform or hardware dependence, high speed, unlimited scalability, and constant availability. With active clients and passive servers, the software achieves far better performance than other products when it comes to data backup and data restoration.
NovaNET10 offers a comprehensive solution for data backup and data protection
require-ments within a single network (server and PC desktops) at small and medium-sized enter-prises. The software supports Microsoft Windows, Linux and Netware. The version of
No-HiFreezer™ is storage software for selectively archiving electronic business data over a period of several years in accordance with statutory regulations. The system functions in accordance with the rules on data access and the auditing of digital documents that are laid down by the German Ministry of Finance, and meets the requirements laid down in the Sarbanes-Oxley Act (SOX), which states that data backup, documentation, auditing and restoration must be guaran-teed at all times. HiFreezer™ provides businesses with cheap, efficient technology for meeting legal requirements, as well as self-defined processes for storing data. Thus for instance, the sys-tem covers functions of archiving syssys-tems that are relevant to tax inspections, and at the same time it takes precautions against data losses arising from out-dated technology, changes in equipment or defective copies. HiFreezer™ uses the existing infrastructure, is not contingent on hard- and software, meets legal requirements, and has been TÜV certified since October 2005.
HiFreezer™ Business Edition (HiFreezer™ BE) gives small and medium-sized enterprises and
individual departments in big companies an “out-of-the-box” means of storing data and archiving emails over long periods in accordance with legal requirements. With the HiFreezer™ Business Edition, system integrators can realise business and earnings models that are geared towards customer needs.
N
OVAS
TORS
HARESThe share price of NovaStor AG has developed as follows over the last 12 months:
Highest price (Xetra) 17.02.06: Euro 1.18
Lowest price (Xetra) 20.06.06: Euro 0.62
Benchmark Prime Standard (12 months)
Shareholders and interested readers who have not yet subscribed to our Investor Relations mail-ing list can register on our hompage at http://www.novastor.com/investors/newsletter.html or di-rectly via e-mail to investorrelation@novastor.com.
B
USINESSD
EVELOPMENT IN THEF
IRST6 M
ONTHS2006
VS.
THEF
IRST6 M
ONTHS2005
NovaStor is a pure software solution provider since 1 March 2006. The turnover in 2005 was attained with own software products as well as from the system integration business. With the system integration business being sold in the first quarter of 2006, NovaStors’ turnover is at-tained exclusively with own software products as from 1 March 2006.
Turnover
In the first 6 months 2006 the sales revenues amounted to EUR 3.9 million vs. EUR 4.2 million in the previous year’s period. As a result of the sale of the system integration business in the first quarter 2006, EUR 2.0 million less revenues from the system integration business were achieved relative to the same period last year. Revenues from the software business could be increased by EUR 1.7 million in the first half year 2006.
The contributions of the individual NovaStor entities to the adjusted group sales were als fol-lows:
2006 2005
Europe 51 % 97%
USA 49 % 3%
Gross Sales Profit
The concentration of NovaStor on the software business resulted in the first half year 2006 in gross profits of EUR 3.312 thousand (previous year: EUR 2.161 thousand). The gross margin increased in the first 6 months 2006 to 85.1% (2005: 51.6%).
Operating Expenses
In the first 6 months 2006, the operating expenses are 3.186 thousand vs. EUR 2.246 thousand in 2005. The increase of EUR 940 thousands is due to the changed consolidation group.
Earnings before Interests, Taxes, Depreciations and Amortizations (EBITDA)
The EBITDA result amounted to EUR 126 thousand versus EUR – 85 thousand in the prior year’s period.
Depreciations
Depreciation was EUR 209 thousand in the first 6 months 2006 versus EUR 143 thousand in the prior year’s period. The increased amount of depreciations is due to the changed consolidation group.
Depreciation of Goodwill
No depreciations of goodwill were made in the first half year 2006 (Prior year: EUR 0 thousand).
Result for the period
In the first 6 months 2006 the result for the period was EUR 27 thousand (2005: EUR -373 thou-sand).
Borrowed Capital
In the first 6 months 2006, the borrowed capital on which interest is payable was reduced by EUR 0.3 million. As per 30 June 2006 it amounts to EUR 1.1 million (31.12.2005: EUR 1.4 million).
Liquidity
The cash and cash equivalents per 30 June 2006 total EUR 1.9 million (31.12.2005: EUR 4.0 million). The decrease of liquidity in the first half year 2006 by EUR 2.1 million is based – with EUR 0.9 million – on the company’s operating activities, which aroused to a major part from cus-tomer prepayments in 2005. EUR 0.6 million of the liquidity decrease in the first half year are due to the deconsolidation of a company and approx. EUR 0.4 million due to compromise-payments in USA and Europe, which were covered by the reserves. Within the scope of the deconsolidation of a company EUR 0.7 million short-term liabilities were eliminated in the 2nd quarter 2006.
Working Capital
The working capital amounted to EUR 0.9 million as per 30 June 2006 (31.12.2005: EUR 1.3 million).
B
USINESSD
EVELOPMENT IN THE2
ND QUARTER2006
VERSUS THE2
ND QUARTER2005
Turnover
In the 2nd quarter 2006 the sales revenues amounted to EUR 1.9 million (2005: EUR 2.2 mil-lion). As a result of the sale of the system integration business, EUR 1.2 million less revenues from the system integration business were achieved relative to the same period last year. Revenues from Software sales were increased by EUR 0.9 million in the 2nd quarter 2006.
The contribution of the individual NovaStor entities to the adjusted group sales in the 2nd quarter were as follows:
2006 2005
Europe 53% 94%
USA 47% 6%
Gross Sales Result
The gross margin amounted to EUR 1.615 thousand in the 2nd quarter 2006 (2005: EUR 1.019
thousand). The gross sales result could be increased by 58.5%. The gross margin was 85.4% in the 2nd quarter 2006 (2005: 46.9%).
Operating Expenses
In the 2nd quarter 2006 the operating expenses were EUR 1.468 thousand vs. EUR 1.142
thou-sand in 2005. The increase of EUR 326 thouthou-sand or 28.5% is due to the changed consolidation group.
Earnings before Interest, Taxes, Depreciations and Amortizations (EBITDA)
The EBITDA result was EUR 147 thousand in the 2nd quarter 2006 (2005: EUR -123 thousand).
Depreciations
Depreciation was EUR 97 thousand in the 2nd quarter 2006 (2005: EUR 71 thousand). The
in-creased amount of depreciations is due to the changed consolidation group.
Depreciation of Goodwill
No depreciations of goodwill were made in the 2nd quarter 2006 (Prior year: EUR 0 thousand).
Result for the Period
In the 2nd quarter 2006 the result for the period was EUR 19 thousand (2005: EUR -233 thou-sand).
Consolidated Balance Sheet (IFRS)
30.06.06 31.12.05
A S S E T S EUR EUR
Short-term assets
Liquid resources 1'866'934 3'964'422
Accounts receivable from sales & services 566'292 2'223'939
Intercompany accounts receivable 61'845 68'636
Inventories 60'485 139'342
Accruals and other short-term assets 339'613 413'390
Short-term assets, total 2'895'169 6'809'729
Long-term assets
Tangible fixed assets 201'789 270'575
Intangible assets 1'496'419 1'469'329
Goodwill 7'690'572 7'548'624
Associated companies 309'187 311'476
Deferred taxes 20'636 37'494
Long-term assets, total 9'718'603 9'637'498
Consolidated Balance Sheet (IFRS)
30.06.06 31.12.05
E Q U I T Y & L I A B I L I T I E S EUR EUR Short-term liabilities
Short-term loans and short-term share of long-term loans 0 340'000
Accounts payable for goods and services 327'139 1'715'490
Intercompany accounts payable 26'900 0
Advance payments received 0 84'639
Short-term liability reserves 39'139 296'213
Deferred revenues 1'026'810 1'404'610
Income tax payable 1'818 166'567
Other short-term liabilities 285'871 649'569
Deferred income 244'539 895'581
Short-term liabilites, total 1'952'216 5'552'669
Long-term liabilities
Convertible bonds, long-term loans 1'096'807 1'059'999
Long-term liability reserves 747'192 890'783
Deferred taxes 20'634 51'955
Long-term liabilities, total 1'864'633 2'002'737
Equity capital
Subscribed capital 4'478'155 4'478'155
Capital reserve 6'369'919 6'416'811
Net profit 253'549 226'939
Cumulative exchange rate difference -2'304'700 -2'230'084
Equity capital, total 8'796'923 8'891'821
Consolidated Income Statement (IFRS)
04.-06.06 04.-06.05 01.-06.06 01.-06.05
EUR EUR EUR EUR
Sales revenues 1'890'533 2'172'392 3'892'364 4'186'476
Raw material and consumables -275'498 -1'153'607 -580'067 -2'025'036
Gross profit 1'615'035 1'018'785 3'312'297 2'161'440
Staff costs -1'024'597 -782'752 -2'197'549 -1'533'654
Other operating expenditure -443'542 -359'430 -988'739 -712'967
Depreciation -96'710 -71'367 -209'284 -143'064
Operating result 50'186 -194'764 -83'275 -228'245
Financial revenue 13'339 2'701 197'662 6'675
Financial expenditure -38'838 -53'525 -80'808 -106'780
Financial result for associated companies 0 0 0 0
Currency exchange result -16'124 -2'196 -18'880 -19'954
Earnings before taxes 8'563 -247'784 14'699 -348'304
Income Taxes 10'801 15'283 11'911 -24'701
Period surplus/shortfall 19'364 -232'501 26'610 -373'005
Earnings per GDR
undiluted and diluted 0.00 -0.02 0.00 -0.03
Average of GDRs in circulation
undiluted 19'406'560 11'108'960 19'406'560 11'042'662
Consolidated Cash Flow Statement (IFRS)
04.-06.06 04.-06.05 01.-06.06 01.-06.05
EUR EUR EUR EUR
Period profit (loss) 19'364 -232'501 26'610 -373'005
Depreciation of fixed assets and am ortization of intangible assets 96'710 71'367 209'284 143'064
Goodwill depreciation 0 0 0 0
Financial revenue 25'499 50'824 -116'854 100'105
Tax revenue -10'801 -15'283 -11'911 24'701
Loss (profit) from the sale of fixed assets 0 -3'103 0 -3'103 Change in accounts receivable from sales and services -284'866 -827'645 1'576'884 -675'227
Change in inventory -11'787 2'755 72'343 47'329
Change in other current assets -76'988 63'692 -76'291 -7'771 Change in accounts payable for goods and services 73'187 796'066 -898'383 473'042 Change in other short-term borrowings -600'308 -447'595 -1'700'488 -384'095
Taxes paid -855 -2'361 -855 -2'361
CASH FLOW FROM OPERATING ACTIVITIES -770'845 -543'784 -919'661 -657'321
Investm ent in fixed and intangible assets -394'510 -90'558 -381'016 -181'131
Sale of tangible fixed assets 0 0 0 0
Net-outflow of funds from deconsolidation -578'501 0 -578'501 0
Investm ent acitivities 0 0 0 3'487
Interest received 11'328 2'701 26'687 6'675
CASH FLOW AUS INVESTITIONSTÄTIGKEIT -961'683 -87'857 -932'830 -170'969
Change in equity capital -46'376 -8'620 -46'376 -8'620
Change in loans 0 11'587 -170'000 7'805
Interest paid -260 -12'705 -3'327 -13'067
CASH FLOW FROM FINANCING ACTIVITIES -46'636 -9'738 -219'703 -13'882
Currency difference 22'219 -7'041 -25'294 -12'548
CHANGE IN LIQUID RESOURCES -1'756'945 -648'420 -2'097'488 -854'720
LIQUID RESOURCES AT BEGINNING OF PERIOD 3'623'879 1'445'565 3'964'422 1'651'865
Consolidated Equity Capital (IFRS)
Subscribed Capital Net Cumulative TOTAL
capital reserves profit exchange rate
EUR difference
Balance 31.12.04 2'572'377 1'369'923 149'460 -2'193'916 1'897'844
Increase in capital 33'966 -42'586 -6'147 -14'767
Exchange rate difference 0
Result for the period -373'005 -373'005
Balance 30.06.05 2'606'343 1'327'337 -223'545 -2'200'063 1'510'072
Balance 31.12.05 4'478'155 6'416'811 226'939 -2'230'084 8'891'821
Increase in capital -46'892 -46'892
Exchange rate difference -74'616 -74'616
Result for the period 26'610 26'610
Segment Reporting
NovaStor comprises a single business entity. Therefore, segment reporting takes place along geographical lines.
The division of the balance sheet values and income values between the five geographical seg-ments is based on the location of the assets and liabilities, as well as the place where earnings are generated.
Basis for the earnings of this geographical structured business units are earnings before interest, taxes, depreciations and amortizations (EBITDA).
Thousand EUR
01.-06.06 01.-06.05 01.-06.06 01.-06.05 01.-06.06 01.-06.05
Sales Revenue
External sales 1'992 4'037 1'900 149 3'892 4'186 Intersegment sales 1'305 1'110 0 0 1'305 1'110 Total sales revenue 3'298 5'147 1'900 149 5'198 5'296
Result Segment result 126 -85 (EBITDA) Depreciation -143 -143 -66 0 -209 -143 EBIT -289 -285 206 57 -83 -228 Other information 30.06.06 31.12.05 30.06.06 31.12.05 30.06.06 31.12.05 Balance sheet total 8'359 11'801 4'255 4'646 12'614 16'447 Accounts payable 3'309 6'696 507 859 3'817 7'555 Investments 307 134 74 0 381 134 TOTAL EUROPE 272 57 USA -146 -142
A C
ORPORATED
ATA1. General
The headquarters of NovaStor AG (NovaStor) are located at Grundstrasse 12 in Rotkreuz, Canton Zug (Switzerland). The company incorporated on 16 December 1999. NovaStor had 55 employees on 30 June 2006. Mount10 Holding AG was renamed to NovaStor in June 2006. The balance sheet date is 31 December and the accounting period begins on 1 January and ends on 31 December.
B A
CCOUNTINGR
ULESThe consolidated financial statement of NovaStor AG is based on uniform accounting principles and standard of valuation. The consolidated financial statement is created and published in accordance with the International Financial Reporting Standards (IFRS) and the standards and interpretation guidelines of the International Accounting Standards Board (IASB). For the consolidated financial statement (“interim financial statement”) based on IAS 34 in particular the same accounting principles applied as for the consoli-dated financial statement of the financial year 2005. Necessary adjustments, which oc-curred due to new or revised standards, have been taken into consideration. The figures are not audited.
C C
ONSOLIDATIONP
RINCIPLES1. Consolidated Group
The consolidated group includes the following companies:
Name / Headquarters Country Share Capital stock Consolidation method
NovaStor AG, Rotkreuz Switzerland 100% CHF 6'792’296 Full consolidation NovaStor Corporation, Simi Valley (CA) USA 100% USD 0 Full consolidation 1) NovaStor Software AG, Rotkreuz Switzerland 100% CHF 100'000 Full consolidation NovaStor GmbH, Hamburg Germany 100% EUR 25'565 Full consolidation Mount10 Schweiz AG, Rotkreuz Switzerland 100% CHF 600'000 Full consolidation Mount10 GmbH, Dresden Germany 100% EUR 25'000 Full consolidation 2) Mount10 Software Inc., El Segundo (CA) USA 100% USD 1’000 Full consolidation Multicom Software Oy, Lappeenranta Finland 40% EUR 166'912 Equity method BC Business Computers AG, Aesch Switzerland 49% CHF 500'000 Equity method Mount10 PCM GmbH, Rotkreuz Switzerland 24% CHF 55'000 Equity method
1) The company was consolidated for the first time with effect from 31 December 2005. The company’s activities were consoli-dated for the first time as from 1 January 2006.
2) The company’s activities in 2006 are included in the consolidated income statement up to 31 March. The balance sheet items have been deconsolidated with effect from 1 April 2006 due to the sale of the company in May 2006.
2. Reporting Date for consolidated Financial Statement
All consolidated companies close their annual financial statements on 31 December.
3. Consolidation Methods
The financial statements for the individual group companies, drawn up on the key balance sheet date in accordance with uniform rules, constitute the basis on which the consoli-dated group statement is prepared.
Acquired subsidiaries are included in the accounts using the acquisition method. The ac-quisition costs correspond to the fair value of the expended assets, the equity instruments issued, and the debts created or assumed on the date of the transaction, plus the costs di-rectly attributable to the acquisition. Assets, debts and contingent liabilities that are identi-fiable in the context of a business combination are recognized on first consolidation at their fair values on the acquisition date, irrespective of the number of minority shares. The costs of the acquisition that exceed the group’s share in the net assets recognized at fair value is posted as goodwill. If the acquisition costs are less than the fair value of the acquired subsidiary’s net assets, then the difference is recognized directly in the income statement. Goodwill having an indefinite useful life is not subject to scheduled deprecia-tion; instead, it is reviewed annually to establish whether a reduction in value is required. Companies over which the group can exert a significant influence (as a rule, sharehold-ings between 20% and 50%) are consolidated using the equity method.
Differences from currencies that are converted on the key date of the consolidated bal-ance sheet are entered in equity as currency differences.
Inter-Group sales, expenses and earnings, as well as all receivables and payables exist-ing between the consolidated companies, are eliminated.
D A
CCOUNTINGP
OLICY1. Changes in Accounting Policy 1.1 General
The asset and liability items are valued taking into account the rules as laid down in IFRS. Explanations are given about any changes in the accounting policies used.
2. Historical Cost Concept
The annual financial statement is based on the historical cost concept. Unless otherwise indicated, assets and liabilities are posted at their nominal value minus any necessary ad-justments.
3. Currency Translation
Due to the stock exchange quotation in Frankfurt the report currency of the consolidated report is the EURO.
3.1 Transactions
Foreign currency transactions are translated at the current exchange rate on the day of the transaction. At the end of the period under review, assets and liabilities in foreign cur-rencies are translated at the reporting date exchange rate. Translation differences are taken into account in terms of net income.
3.2 Translation of Local Financial Statements
The companies’ financial statements are drawn up in the currency in which each entity does most of its operations (accounting currency). For the consolidated group statement, these are then translated into EUR. The balance sheet items are translated using the ex-change rate applying on the balance sheet date, and the income statement is translated using the average exchange rate for the year. This means that there is a reasonable ap-proximation to the cumulative effects that would emerge on making conversions using the exchange rates in force on the transaction dates. The conversion difference thus calcu-lated is posted in equity under exchange rate differences. The capital flow statement is converted using the average exchange rate.
3.3 Exchange Rates
The respective group exchange rate tables are used for foreign currency translation.
5. Realisation of Sales
Sales proceeds from providing consultancy services are entered as turnover when the service has been rendered in full.
NovaStor realises its sales proceeds on the basis of a contract with the final customer, as soon as the license has been delivered to the customer, the sales price is fixed or deter-minable, there are no significant obligations vis-à-vis the customer, and the collection of the receivables is deemed probable.
Revenues from maintenance work (including up-grade service) that are attained using the company’s own back-up, restore and data retention software are recurring revenues. Revenues from maintenance agreements are generated pro rate in a straight line over the period for which they have been calculated. Maintenance agreements are usually invoiced to the end customers in advance either once a year or once a quarter, and the revenues are thus realized in a straight line over a period of 12 months (in the case of annual invoic-ing) or 3 months (in the case of quarterly invoicinvoic-ing). If the revenues have not yet been re-alized, they are entered as deferred items of turnover.
6. Warranties
The warranties for the products supplied by the company are provided by the respective manufacturer. The company only provides a warranty for its own products. Any substantial warranty claim is taken into account at the time when the sale is posted. In the reporting period no substantial warranty claims were placed.
7. Pension Obligations
The NovaStor group provides pension schemes for employees in accordance with na-tional legislation. They are outsourced to establishments and foundations that are finan-cially independent of the NovaStor group.
In Switzerland, the NovaStor group bears the costs of benefits for all employees and their surviving dependents in accordance with legal requirements. The benefit obligations and the assets used to cover them are held by legally independent collective foundations of insurance companies. The organization, management and financing of the benefit schemes are based on Swiss insurance law (BVG), the foundation instruments and the applicable pension regulations.
In the case of schemes with defined benefit plans, the present value of expectancy based on seniority, expected salary and pension development, and expected return on the capi-tal investment is periodically calculated by independent insurance experts according to the projected unit credit method.
The differences in comparison between the benefit obligations and benefit assets, as well as between the employer contributions paid and the net pension expenses are
insignifi-9. Affiliated Persons and Companies
Transactions with affiliated persons and companies (related parties) are handled on terms that conform to the market. “Related persons” is understood to mean the members of the entity’s board of directors as well as the member of group management. “Related compa-nies” is understood to mean entities where members of the board of directors have a sig-nificant influence.
10. Liquid Resources
The liquid resources are posted at their nominal value. They include cash in hand, cash in post office and bank accounts, as well as fixed-term deposit investments up to 90 days.
11. Accounts Receivable from Sales & Services
Accounts receivable from sales and services are reported on the balance sheet at their nominal value. Non-payment risks are taken into account via individual value adjustments of an appropriate amount.
12. Inventories
Inventory is normally valued at the average acquisition costs. If the net sale value is lower, appropriate value adjustments are made.
13. Ordinary Taxes and Deferred Taxes
Ordinary taxes are calculated on taxable earnings according to the applicable tax rate. Deferred taxes are calculated on temporary differences between the tax balance sheet and the consolidated financial statement. The group applies the liability method, according to which the deferred taxes are determined on the basis of the tax rates applicable at the expected time of realization. Deferred tax credits are only carried as assets if realization can be expected.
14. Recording and Depreciation of Tangible and Intangible Assets
14.1 Leased Items
A lease arrangement is classified as an operating lease if all the risks and benefits asso-ciated with proprietorship predominantly remain with the lessor. Lease payments under operating lease arrangements are recognized as expenses in a straight line over the term of the lease contract. NovaStor’s leasing arrangements mainly involve vehicles. The terms of these operating lease contracts are generally between three and five years. NovaStor has not entered into any obligation to take over the lease items at the end of the term. The lease payments are recognized as costs in the income statement.
14.2 Tangible Fixed Assets
Tangible fixed assets are valued at purchase or production costs minus scheduled and non-scheduled depreciation. The costs of borrowed capital are not applied in determining the purchase or production costs, because they cannot be directly assigned to the respec-tive assets. Depreciation is basically linear over the expected effecrespec-tive life.
The following depreciation periods apply:
Tangible assets 3 to 5 years
Leasehold improvements 10 years
But at most the period of the tenancy agreements
Tangible assets include computing systems, movable property, furnishings, office equip-ment, communication equipequip-ment, and system software.
Low-value property items with purchase costs of EUR 500 or less are debited directly from the income statement in the purchase year. Maintenance costs are recorded directly as expenses.
14.3 Goodwill
Acquired subsidiaries are included in the accounts using the acquisition method. The ac-quisition costs correspond to the fair value of the expended assets, the equity instruments issued, and the debts created or assumed on the date of the transaction, plus the costs di-rectly attributable to the acquisition. Assets, debts and contingent liabilities that are identi-fiable in the context of a business combination are recognized on first consolidation at their fair values on the acquisition date, irrespective of the number of minority shares. The costs of the acquisition that exceed the group’s share in the net assets recognized at fair value is posted as goodwill. If the acquisition costs are less than the fair value of the acquired subsidiary’s net assets, then the difference is recognized directly in the income statement. Goodwill having an indefinite useful life is not subject to scheduled deprecia-tion; instead, it is reviewed annually during the second half of the accounting year to es-tablish whether any impairment has occurred.
14.4 Intangible Assets
Intangible assets are capitalized at acquisition or production cost, and are generally sub-ject to linear depreciation over their anticipated useful life. Intangible assets capitalized on the date of acquisition when consolidation is done for the first time are measured at fair value.
The following depreciation periods apply:
Licenses 5 years
14.5 Impairment of Non-Current Assets
Intangible assets or goodwill which have an indefinite useful life are not subject to sched-uled depreciation: they are reviewed annually to see whether any impairment has oc-curred. Assets that are subject to scheduled depreciation are checked to see whether a reduction in value is required if events or changes in circumstances indicate that the book value may possibly no longer be realizable. Impairment losses are recognized by posting the book value that exceeds the realizable amount. The realizable amount is the higher of the two following figures: the fair value of the asset minus sales costs, or the asset’s value in use. For testing intrinsic value, assets are combined at the lowest level for which cash flows can be identified separately (cash generating units).
No impairments of non-current assets were recognized in the period under review. A cor-rection is made in profit and loss of an impairment of a non-current asset that has been recognized in costs in preceding years, if there are indications that the impairment no longer exists or may have been reduced.
15. Lendings
Lendings are capitalized at the initial value and bear interest at a customary market rate. Loans in foreign currencies are valued at the reporting date exchange rate. Any value ad-justments are made on the basis of individual assets valuations, and are posted to the in-come statement.
16. Accounts Payable
Accounts payable are basically reported as the amount repayable. Foreign currency ac-counts payable are translated at the exchange rate on the reporting date, and differences due to exchange rate variations are posted in the current period operating result.
17. Advance Payments
Advance payments received are posted as advance payments within the framework of agreements, which are not accounted for in terms of current sales on the balance sheet date. They are treated as income following acceptance testing by the customer.
18. Instruments of Credit/Loans
When instruments of credit with options are issued, the loan portion is calculated on the basis of the market interest rate of comparable instruments of credit without options. After initial posting, the loan portion is reported at the amortized cost value. The issue costs are divided into a loan portion and an equity portion at the same ratio as the credit instrument. The amortization of the discount and issue cost share is debited from the consolidated re-sult over the term of the credit instrument. The value assigned to exchange options on ini-tial posting as equity capital remains unchanged during the subsequent reporting periods.
20. Development
The main focus of development within the group is the development and testing of the group’s own backup, restore and data retention software.
The cost of new product development are capitalized as intangible assets provided future economic benefits to the group are probable. The capitalized development costs are de-preciated in equal installments over their expected effective life, and check for impairment on each balance sheet date. Development costs that fail to meet the criteria for capitaliza-tion are continuously debited to the income statement.
21. Earnings per share (GDR)
The earnings per GDR has been determined as the quotient of the net profit for the period and the weighted average of GDRs in circulation. The diluted earnings per GDR are de-termined in the same way as the earnings per GDR, but the weighted average of GDRs in circulation is increased by the number of GDRs that would have to be issued if the exer-cisable options were to be exercised whose exercise price is below the GDR’s market value.
22. Estimates
In the consolidated financial statement, certain estimates and assumptions must be made, which impact the assets and liabilities reported on the balance sheet, the particulars of miscellaneous obligations on the balance sheet date, and the statement of earnings and expenditures during the period under review. The actual amounts may differ from the es-timates.
23. Share Options
The fair value of share options issued to employees and executives are recognized as payment on the date of distribution. The fair value of the share options was calculated us-ing the Black Scholes model, which is based on various assumptions that are in turn based on estimations of future uncertainties, such as the expected volatility of the GDR and the expected dividends.
24. Financial Instruments
24.1 General
Financial instruments are in particular cash in banks and indebtedness to banks, accounts receivable and accounts payable for goods and services, and short-term and long-term loans on the assets and liabilities sides. All purchases and sales of financial net assets are set to the commercial day, to which day, the company actually committed the
pur-24.2 Interest Change Risk
The interest change risk pertains primarily to long-term, interest-bearing loans. NovaStor used no financial instruments to protect against the interest change risk in the year under review.
24.3 Foreign Currency Risk
NovaStor buys and sells products in foreign currencies, and is, therefore, exposed to eign currency variations. NovaStor used no financial instruments to protect against the for-eign currency in the period under review.
24.4 Non-Payment Risk
Financial instruments that could possibly expose NovaStor to a concentration of non-payment risks are primarily cash resources and accounts receivables from sales and ser-vices. Bank affiliations are only maintained with first-rate financial institutions. NovaStor continually checks the creditworthiness of its customers and has no significant concentra-tions of non-payment risks.
25. Critical Estimates & Assumptions in Accounting
All estimates and appraisals are continuously revalued on the basis of past experience and other factors, including expectations with regard to future events that appear reason-able under the prevailing circumstances. The group makes estimates and assumptions regarding the future. This also includes e.g. provisions for on-going or potential litigation. It is obvious that the estimates thus deduced rarely exactly match the situation actually emerging later on.
26. Particulars of the Board of Directors and Group Management
Board of Directors: Adrian Knapp President
Peter Urs Naef Member
Markus Stalder Member
Group Management: Adrian Knapp Chief Executive Officer
Markus Bernhard Chief Financial Officer
27. Investor Relation
Claudia Schumacher NovaStor AG
Grundstrasse 12 CH-6343 Rotkreuz