square one solutions group limited …the square one solutions group limited is incorporated in the...

SQUARE ONE SOLUTIONS GROUP LIMITEDANNUAL REPORT 2002

Solutions

Service

People

Vision 1

Salient financial highlights 1

Forward-looking statements 1

Mission statement 1

Preamble 2

Directorate and administration 3

Group structure 3

Board of directors 4

Chairman’s statement 5

Chief Executive Officer’s review of operations 7

Group results 7

Operational review 8

Outlook 9

Executive team 11

Corporate sustainable development 12

Health 12

Environment 12

Employment equity 12

Outsourcing, joint ventures and subcontractors 12

Training and development 12

Corporate governance 13

Code of ethics 13

King Code of Corporate Practice and Conduct 13

Board of Directors 13

Board committees 13

Internal and financial controls 13

Empowerment 14

Insider trading 14

Security 14

Financial statements contents 15

Report of the independent auditors 16

Secretary’s certificate 16

Report of the directors 17

Notice of Annual General Meeting 35

Form of proxy Attached

Branch Offices IBC

Head Office IBC

Branches IBC

CONTENTS

SALIENT FINANCIAL HIGHLIGHTS

1

Mission: To provide world-class products, strategies and solutions to target markets, applying the principles of

integrity, supplier loyalty and efficient customer support and retention.

The Square One Solutions Group Limited is incorporated in the Republic of SouthAfrica and is listed on the JSE Securities Exchange South Africa. At 31 December2002, the group had a market capitalisation of R30,8 million.

Forward-looking statementsCertain statements included in this report constitute forward-looking statements,be they express or implied. These statements are based upon tangible, knownfacts, alongside existing performance measures – and the usual risk anduncertainties involved in trend predictions. The unknown factors may cause theactual results, performances, objectives or achievements of the Square OneSolutions Group to differ materially from its projected results and performances, aswell as those of subsidiary and associated companies.

• Revenue R174 196 000

• Operating profit R13 327 000

• Net profit after interest, tax and exceptional items R465 000

• Headline earnings R8 324 000

• Headline EPS 37,8 cents

Square One’s vision is to be the leading provider

and integrator of interactive communication, information and

knowledge management technology solutions.

PREAMBLEGROUP MARKET CAPITALISATION: R30,8 MILLION

2

The Square One Solutions Group’s primary focus is the provision of IT-based solutions.Square One has been active in the IT industry for over 17 years. The company’s value-basedoffering is centred around:

• document handling and information sharing solutions;

• colour input and output devices;

• IT security and biometric authentication solutions;

• integrated wireless applications;

• infrastructure storage solutions;

• enterprise power solutions;

• variable data product coding and marking solutions.

These offerings are supported and backed by full repair and maintenance service facilities toclients.

To address the on-going envisaged potential, as well as sustain the business growth that werealised in 2002, amongst other things we intend to:

• develop and maintain strategic relationships with our suppliers, distribution partners,resellers and key customers;

• provide turnkey solutions through a well developed ecosystem of partners;

• identify and acquire the rights to additional technology and services;

• create value through solutions focused on enhancing flexibility and mobility;

• continually expand our sales and marketing efforts to address niche solution offerings,including relationships with third parties to sell our services;

• maintain and increase our customer base;

• focus on SME, BEE and enterprise departmental markets;

• retain and motivate our skilled and qualified personnel;

• successfully respond to competitive developments;

• remain a leading provider of highly integrated solutions that enable our customers tomaintain and develop in turn, their businesses’ respective and varied competitiveadvantages.

DIRECTORATE AND

ADMINISTRATIONVALUE-BASED IT OFFERINGS

3

Executive Chairman:Garth Alan Coetser (44), B.Comm, B.Acc, CA (SA)

Chief Executive Officer:William Trevor James (44)

Executive Directors:Terence Ian Morrison (47)Stephen Kenneth Berryman (59)

Non-executive Directors:Brian George van Rooyen (42) (NMB) (Accounting) CFAReginald Tafara Muzariri (34) CA (SA)

Changes to Board of Directors:S K Berryman resigned from the Board as at 31 March 2003.F D Bothma resigned from the Board as at January 2002.R D Wilk resigned from the Board as at January 2002.R T Muzariri was appointed to the Board during the 2002 year.

Company Secretary:Anthony Mervyn Craddock CA (SA)

Business address:1st Floor, East BlockEastgate Park8 Commerce Crescent WestEastgate Ext. 13Sandton, 2146

Transfer Secretaries:Computershare Investor Services LimitedEdura, 41 Fox Street, Johannesburg, 2001P O Box 61051, Marshalltown, 2107

Auditors:Russell Bedford Southern Africa (JHB) Inc.15 Catherine Avenue, Northcliff, 2195P O Box 1757, Northcliff, 2115

Square One SolutionsGroup Limited

New HeightsCommunications

(Pty) Limited100%

ThursdayMorning (Pty)

Limited100%

ActivatedLearning Group

(Pty) Limited100%

Square OneDocumentSolutions

(Pty) Limited100%

Square OnePower Solutions

(Pty) Limited51%

eServicesDocument

Sharing Solutions(Pty) Limited

100%

WorkstationSolutions

(Pty) Limited49%

IRT Projects(Pty) Limited

16%

GROUPSTRUCTURE

BOARD OFDIRECTORS CUSTODIANS OF SHAREHOLDERS’ INTERESTS

4

BRIAN VAN ROOYEN(Non-executive Director)

TREVOR JAMES(Chief Executive Officer)

GARTH COETSER(Chairman)

TERRY MORRISON(Executive Director)

REGINALD MUZARIRI(Non-executive Director)

5

CHAIRMAN’SSTATEMENT WE’VE BECOME A SOLUTIONS-BASED BUSINESS

The past year has underlined theimportance of implementing our long-termvision to move away from a distribution- toa solutions-based business. While ourfigures have shown a gratifying turnaroundback into a healthy profit, this turnaroundcan directly be credited to the businessfulfilled by our Special AuthenticationProjects unit – a totally solutions-baseddivision.

It would be accurate to say that thisprofitability achievement has beensomewhat overshadowed by theperformance of the distribution side –although this has not been unexpectedgiven that Square One could not escapethe effects of vendors tightening creditterms and business processes, coupled tofinancial institutions limiting their exposureto IT-related business. This has made theimportance of emphasis on working capitalthrough 2003 absolutely crucial.

Performance improvement, managementpractices, reporting systems, communicationsand the best possible fulfilment of ourcustomers’ needs, will be aligned to thedevelopment of new sales strategies asthe company continues to move fromdistribution- to solution-based business.

The company will also be looking todispose of unprofitable undertakings withinthe group. Our commitment to this isindicated through the closing of theAustralian operation in 2002 to concentrateon our own backyard and the fact that wehave no acquisitions planned for the nearfuture.

We believe we have made the right level ofinvestment in our solutions and servicescomponents of the group and I amoptimistic that these divisions are now wellpositioned to deliver a return on thisinvestment. Already these divisions havemade significant inroads in the

authentication and integrated wirelessapplication vertical markets and arecontinually entrenching this position byidentifying areas for potential partnerships.

Square One is committed to the on-goingdevelopment of strategic alliances and thishas been a key – and highly successful –priority in 2002. These alliances strengthenand add value to the group – particularly onthe international front.

There is no doubt that IT spending todayhas changed dramatically. Ourexperiences of yesterday meantaccommodating the needs of customersadopting new, cutting edge technology –and the need to be noticed as being thefirst in implementing and taking giant (andoften expensive) steps. Today, however,executives are looking for the tools thatprovide business process improvements inperformance and reliability – coupled toconsistency in return on investmentobjectives against historical and existingtechnology investments.

There is no difference in the way ourcustomers and ourselves as a group arefaced with reduced corporate spendingagainst a scenario of tighter controls underthe direct responsibility of financialexecutives rather than IT managers.Management teams today are continuallyand carefully planning their future needs.Included in these plans, we believe, are thebenefits of the web-enabled and wirelessapplications that are expected to drivecorporate productivity to new highs. Theseexpectations underline the need toconstantly cut operating costs, but in orderto meet productivity objectives they requiresimplicity, consistency and easy-to-manage technology solutions.

The degree of our success in 2003 will bedetermined by our ability to assist ourcustomers in the creative application of themeans to increase the value of existingresources by providing additional serviceofferings. Almost automatically this will

Garth CoetserGroup Chairman

“Executives are looking for tools that provide businesswith performance improvements and return oninvestment”

CHAIRMAN’SSTATEMENT

(continued)

6

ADDITIONAL SERVICE OFFERINGS ASSIST THELONGEVITY OF TECHNOLOGY INVESTMENTS

assist longevity issues of investment intechnology.

Our focus in 2003 will be to continue ourfinancial efficiency, cost-reduction, andbusiness process re-engineering (BPR)programmes. We intend to set sales andprofitability records again.

Corporate governance standards arereceiving our highest priority – a factor thatstarts and ends with our Board ofDirectors. I am very pleased to announcethe appointment to our Board towards theend of 2002 of Reginald Muzariri. Thisappointment affords the company evenmore depth of experience and perspectiveand I am looking forward to the expertiseReginald brings to the group.

I would like to thank my Board colleaguesfor their commitment and enthusiasm. Aspecial mention must go to both RolandWilk and Deon Bothma who resigned fromthe Board during the year to take uppermanent positions abroad. Both,however, continued to assist and advise

through to December – from various globalcentres! I must also thank Brian vanRooyen, who through 2002 challenged ourthinking and played a key role in thedevelopment of our corporate governancestandards. Both Brian and his associatesat Labat also brought to the Square Onetable some exciting future solutionsopportunities, the outcomes of which welook forward to reporting on in 2003.

To the most important stakeholders of all,our employees and our customers: mythanks for the support and input to shapeour future development. We have seensome extraordinary efforts towards mutualgrowth and success. It seems, year-on-year, that Square One’s employees domore to demonstrate their initiative,ownership and sense of responsibility tothe group. The intangible value of theloyalty and goodwill of our customers andemployees is inestimable.

Garth CoetserGroup Chairman

“We intend to set sales and profitabilityrecords in 2003”

7

CHIEFEXECUTIVEOFFICER’SREVIEW OF

OPERATIONS

MAXIMUM LIQUIDITY IS A PRIMARY 2003 OBJECTIVE

Group resultsIt gives me great pleasure to report that ourthird year of trading as a JSE-listedcompany has proved both successful andprofitable. During 2002, the Square OneSolutions Group increased turnover by 10 percent to R174-million and headlineearnings increased from a profit ofR1,975-million in 2001 to a profit of R8,3-million, despite the drop in IT andcorporate spending in the traditional goodsand services supplied by Square One to itschosen target markets.

Despite yet another difficult trading year,both internationally and locally, thecompany increased its revenue andprofitability. However, the efforts madeover the past two years to includebiometric technologies as part of oursolutions-based line-up paid dividends,with our authentication and securitydivision realising the first of the group’smajor identity verification biometricprojects. The division took a key role in theconsortium-driven implementation of avoter registration system in an Africancountry holding its first democraticelection.

Our operating profit of R13,3-millionrepresents an increase of 176 percentcompared with 2001. This can also beattributed to our being able to containpricing increases and improve thecompetitiveness of our offering to marketdue to the partial recovery of the Rand.This means that while the results are in linewith what was projected, additionalrevenues were realised from areas wherethere has been investment in new clientsolution-based initiatives. The 18 percentincrease in finance charges was primarilydue to the increase in interest rates in2002.

As discussed in the Chairman’s Statement,the special authentication projects teamwas primarily responsible for the improvedprofitability while some of the other

divisions have simply not performed.These will require real effort to turn aroundin 2003. We do believe that this effort willprove justified but some of the lessprofitable divisions will undergo somerationalisation in order to meet profitexpectations in the future. This effort willencompass our 2003 objective to achievemaximum liquidity given that it is vital thatthe company strives to reduce its debt ratioand work towards a "money in the bank"scenario.

We intend addressing the debt ratio bycentralising key areas – which alsoaddresses duplication of costs. This willapply particularly to the buying, orderprocessing and service functions of thebusiness.

Against the outcomes of the new marketenvironment resulting from vendormergers and acquisitions in 2001 and 2002is the scenario that those resellers thatsurvive 2003 will be tough, intelligent andcompetitive business partners who will addreciprocal value to our business. Thechannel remains faced with an ever-present margin squeeze and lack of creditwith vendors continually reducing paymentterms. Our commitment remains in termsof working towards profitable channelpartners by assisting them whereverpossible to overcome these barriers totrade.

The traditional distribution side of thebusiness now represents far less of thegroup’s revenues and contribution in linewith our vision to become a solutions-based operation. The distribution sidemade a considerable effort in 2002 tomanage its relationship with the resellerchannel, striving towards better businessprocesses, from sales through toreceivables management. It is our intentionto continue this process in 2003.

While we are changing the focus of ourefforts from simple distribution of products,this means that we will become far more

Trevor JamesChief Executive Officer


OPERATIONS(continued)

8

WE MUST MAINTAIN EXCELLENT RESELLER RELATIONSHIPS

involved with the end-user directly, in orderto understand individual requirements andinstall the right solution. However ourrelationship with the channel is importantto us and we recognise the need tomaintain our excellent relationships withour resellers.

Operational reviewIn the third quarter of 2002 the group’spower solution subsidiary, UPScom (Pty)Limited, changed its name to Square OnePower Solutions (Pty) Limited due to a webname clash with US based United ParcelServices. This did not however, preventthe division from maintaining its consistentgrowth through 2002, with the aggressivemarketing strategy embarked on in 2001paying real dividends through theirsuccesses within their customer base.

Square One Power Solutions securedseveral prestigious blue chip accounts inthe year under review and continues toregularly break sales records asrecognition by the South African market ofthe value of its product offering appears togrow exponentially each quarter.

Enterprise power solutions:• Uninterruptible power

* Design* Architecture* Implementation* Service and support

• Environmental analysis, surveysand planning

• Managed power* Remote management and

response

During the 2002 year Square One PowerSolutions entered into a strategic alliancewith an ABE (Affirmative BusinessEnterprise) company, by purchasing a 15 percent interest in the business.

IRT Projects (Pty) Limited is a projectmanagement and turnkey solution providerspecialising in emergency power,information and communication technology.During the past year the company achieved

some notable successes, particularly in thegovernment and telecommunication sectors.

Square One Power and IRT have committedthemselves to the implementation of a skillstransfer programme, which includesemployment and training of PDI staff.

Since the launch of the Integrated WirelessRetail Solutions division in 2002, we haveseen a steady growth in the number ofprojects relating to the provision of our in-store ticketing and signage solutions.Through key alliances with Episys,NordicID and Extech, the division is nowwell positioned to offer the South Africanretail market the finest back-office andpoint-of-sale retail solutions. We expect tosee a significant contribution by thisdivision to our revenues in 2003.

Data management solutions• Point of sale• Labelling• Signage• Store promotions

Square One’s prospects outside SouthAfrican borders look set to grow at a highlypromising rate. These prospects fall withinthe auspices of our Authentication division.Square One’s solutions-based technologieswill enhance the distribution side of thebusiness, as well as creating theopportunity for worthwhile annuity serviceand support income. The Authenticationdivision has also been working for sometime with key local partners on severalhighly strategic projects that should realiseexcellent profits and revenues in 2003 andbeyond. We are now well positioned toaddress the massive potential we see inbiometric-based authentication and othersecurity products and solutions.

Coding and marking solutions• Product identification

* Outer case coding* Laser coding* Continuous inkjet* Thermal transfer* Spray marking

9

REGIONS WILL RECEIVE CONSIDERABLE INPUT TOWARDS THEIR SUCCESS IN 2003

9

• Commercial printing* Mailing* Business forms* Postal solutions

We are starting to realise excellent growthin our Coding and Marking division asproduct-marking legislation looms evernearer and business begins to adopt thebenefits of date coding in terms of effectiveproduct manufacturing management andmarketing. The team worked extremelyhard through 2002 to gear itself toconsolidate its customer base and toaddress the potential. While the legislationis yet unpassed, consumerism is drivingmanufacturers to implement ourtechnology in advance of this standardbecoming law. We believe our competitiveadvantage has further been strengthenedthrough Square One’s largest codingsupplier, Domino, having purchased twoother companies recently, which providefor more depth of product offering,particularly in Laser and Outer CaseCoding (OCC).

We have not yet realised our investment inand the full potential of mid-range storagedemands. We see the potential here asuntapped and at the beginning of a growthcurve for solution providers such asourselves with the right scenarios at theright price points. This will be a key focusarea in 2003.

Channel services and solutions• Document solutions

* Xerox* Epson

• Storage• Software• Power• Tailored services and support

While Square One remains a key providerof the Xerox product range of colour printersinto the South African market, in 2002 it alsosuccessfully secured the distribution forcomplementary products from Epson. This

now enables the company to take to marketa broader line-up of best-of-breed colourinput and output devices.

Square One’s continued strategy towardsexcellence in customer service saw thecompany establishing new branches inBloemfontein and Pretoria in 2002. In linewith our strategy of improving our focus onlocal branches, both regions can anticipateconsiderable input towards their success in2003. We do not intend opening any newbranches in 2003.

OutlookWeb-enabled mobility affords businessesrapid response to customer needs and theability to be in touch with customersvirtually 24 hours a day. This interactivecustomer support and the high probabilityof e-commerce being involved forces therequirement for security to play a large rolein securing customers’ intellectual data.

Biometric-based authenticationsolutions• Time and attendance• Internet and network access• Information encryption• Point-of-sale protection• Pension and grant payments• Voter registration• Retail customer validation

Through 2003 Square One’s focus will beon mobile, wireless solutions and all levelsof biometric security and interactive,meaningful IT-based access control.These, in particular, are driving the latestspin-offs to existing technology investments.Research now indicates that businesseswill be specifically addressing the massivesecurity risks associated with mobility,given that its value extends and exposes acompany’s intellectual data outside of theoffice. This risk will be addressed inconjunction with in-house security (or lackthereof) via a holistic approach that willaddress both the technologies involvedand corporate governance issues.

10


OPERATIONS(continued)

NEW BUSINESS PROCESSES AS PART OF OUR "ROUTE TOMARKET" REINVENTION PROGRAMME

Integrated wireless solutions• Mobile, Thin-client, multi-function

solutions for:* Asset tracking* Goods receiving* Stock taking and management* Price checks* Queue busting* Remote field usage* Real time delivery verification

The industry does not foresee new wavessimilar to the huge growth waves of thepast, such as Internet access, wirelessdata and e-commerce. Therefore we as acompany have to capture small waves ofbusiness by customer segment. Ourcompany has identified, backed by marketresearch, that the most significant growthis currently within the consumer, small andmedium size enterprises, and government.It is our intention – as part of our solutionsand service offering – to assist ourcustomers through guiding them in theirsecurity implementations. This will allowthem to concentrate on their corebusinesses while maximising the value ofrapid, on-demand, reliable and constantaccess to information.

Infrastructure storage solutions• Storage virtualisation• RAID-based storage• Storage area networking (SAN)• Network attached storage (NAS)

The exponential growth of data – and howand where to most appropriately store it –has undoubtedly been one of businesses’main challenges. Two issues that havehad an impact on the data storage sector,and will continue to influence thistechnology in the foreseeable future, arestorage software requirements and thecommoditisation of the mid-tier storagesector. This will change the dynamics ofthe mid-tier market as it will becomedependent on software and services as itshigh-end counterpart in the enterprisestorage arena. The most significant growthhas been witnessed in the middle-tiersector as volumes have increaseddramatically. We have appropriately turned

our attention to this rapidly expandingmiddle sector.

Professional services• Installation services• Support and maintenance• Specific business and technology

consultancy• Multi-vendor consolidation and

management• Technology design services

Service is the single most important aspectof our company in its solution offering toclients. In the age of commoditisation,service has become the differentiator thatwill secure our business growth andexistence in years to come. CustomerRelationship Management (CRM) is oneplatform for our company and ourimplementation of CRM software, while adifficult task and behavioural changechallenge, is now sufficiently part of ourculture to enable us to derive real benefit.

Through our identification of the need toreview and refine our strategy, we haveadopted new business processes as partof our "Route to Market" reinventionprogramme. Our internal mission for 2003is: "achieving service execution excellenceacross the organisation". Against this, weacknowledge that we must balance ouremphasis on technology whilst recognisingthe limitations of the customer technologyadoption curve, and seek to understandand meet more specific customer needs.

Addressing these opportunities will requiredifficult choices and greater focus in termsof what customers are demanding andwhich customers to serve, and with whatproducts and services. I believe this can bedone and I’m looking forward to realising agreat year with a great team of peoplebehind me!

Trevor JamesChief Executive Officer

EXECUTIVETEAM IMPLEMENTERS OF THE COMPANY MISSION

11

TREVOR JAMES NEILL SCHREIBER CRAIG ALEXANDER

STEPHEN BEKKER HUGH MARR ANTON MEYER

PETA KASSEL

REGIONAL MANAGERS:Antoinette Jansen – Port Elizabeth

Garth Proudfoot – Cape town

Luther Norval – Bloemfontein

Newton King – Sandton

Neil Burnard – Pretoria

Sean Sheedy – Durban

12

CORPORATESUSTAINABLE

DEVELOPMENT

EQUITABLE AND SAFE WORKING ENVIRONMENT

12

Square One continually strives to developand retain its staff through the provision ofan equitable, safe and healthy workingenvironment.

HealthThe company made inroads into anaggressive and visible HIV/AIDS campaignthat it believes has achieved its awarenessobjectives – the primary objectives being toprevent new infections. Square One isaware of the psychological and social needsof its workforce and the humanitarianaspects of providing help and support tothose employees and their families that areHIV-positive.

Square One repeated its active eye caretesting and action programme inconjunction with Occuvision.

EnvironmentSquare One’s Coding and Marking divisionmeans employees dealing with specialistchemicals and solvents. At all times theinternational guidelines and regulationsgoverning the management of suchsubstances, including the InternationalStandard ISO 14001, are followed in order tomaximise both the health of employees aswell as the safety of the environment we allenjoy. It is our primary environmentalobjective to work towards – and in all cases,exceed legal requirements.

Employment equitySquare One has actively motivated itspolicy of transformation and through 2002worked towards implementing itsemployment equity programme.

Throughout 2002, national and industrydemographics against group profiles werereviewed and the dynamics thereofaddressed. Group succession plans wereinvestigated, as was the applicability ofperformance measures against jobdescriptions. It is believed that textbook jobdescriptions are guidelines only within ourfast-paced industry and that we have fairlysuccessfully managed to marry these toour company culture, and the expertiseand experience we have at all levels of ourteam has made our sustaineddevelopment possible.

Square One follows a policy of absoluterejection of tokenism, window dressing andother such demeaning concepts. It is astated company objective that the groupwill not allow its affirmative actionprogramme to impact upon its competitive

advantage, nor undermine its ability tomaintain world-class sales, operationaland service levels.

As part of Square One’s Five YearEmployment Equity Policy thatcommenced 1 December 2000, the groupis continually adapting its culture towardsthe full development and utilisation of thepotential of all its employees. Square Oneis doing this through proactive training anddevelopment, as well as adequaterepresentation of designated groups.

Outsourcing, joint ventures andsubcontractorsSquare One followed a strategic intentthrough 2002 to promote the use ofoutsourcing both essential and non-essential functions. It is believed that thisaffords an environment whereentrepreneurship is encouraged as well ascontinually circulating internally thedynamics of external thinking andawareness of the marketplaces in whichSquare One operates. Work is outsourcedin a non-discriminatory fashion.

The group continually works on thedevelopment and building of meaningfuljoint venture operations and partnershipswith black economically empowered (BEE)companies and small-, medium- andmicro-entrepreneurial enterprises.

Training and developmentSkills development still remains one ofSouth Africa’s biggest challenges and wetoo are striving to accelerate this processwithin our own organisation. Although thetraining and development of our humancapital on all levels still requires urgentattention, the company has met alllegislative requirements for the planningand implementation of the skills levy andreimbursement for completion thereof.

Square One continued its activeinvolvement in the Business Against Crimeprogramme, also assisting in areas whereequipment donations add value to crimeprevention and control. While the nature ofthe company’s involvement is usuallyhighly sensitive, it must be said thatSquare One continues to add value,through its equipment, financial andtechnical consulting, to the process ofrecovering abducted children, crimeinvestigation, access control and otheranti-crime projects.

13

CORPORATEGOVERNANCE RESPONSIBILITY FOR ACCOMPLISHMENTS TO SHAREHOLDERS

13

The Square One Solutions Group iscommitted to a wide range of corporategovernance practices. The directors ofSquare One believe in theirresponsibilities, collectively andindependently, to ensure that theydemonstrate and sustain a high level ofcorporate governance – and recognisetheir accountability to their shareholders.

Code of ethicsThe company is committed to the higheststandards of behaviour in dealing with allits stakeholders. All directors andemployees are required to maintain thehighest ethical standards towards ensuringthat Square One’s business practices areconducted in a reasonable manner and areboth in the interests of the company and ingood faith.

As part of the process of complying withthe requirements of the King II Report, thecompany has begun undertaking thecodifying of its standards in a code ofethics.

King Code of Corporate Practice andConductThe Board of Square One is committed tomaintaining the standards of integrity;accountability and openness advocated inthe King Report on Corporate Governance(King I) and is working towards theattainment of the succeeding King IIReport requirements.

Board of DirectorsThe Board consists of five directors,comprising the chairman, a chief executiveofficer, two executive directors and twoindependent non-executive directors.

As of 31 December 2002, Roland Wilk andDeon Bothma no longer participated on theSquare One Board having resigned duringthe year to pursue their own businessinterests offshore. Reginald Muzariri wasappointed to the board during the periodunder review. We expect to announce newappointments in strategic executivepositions in 2003.

Board committeesThe non-executive directors of the Boardare expected to play an active role in thevarious committees established by theboard. However, it should be noted that thedelegation of authority to committees doesnot discharge nor mitigate the Board andits directors of their responsibilities for theirduties to the group’s stakeholders.

Audit committeeThe primary responsibilities of thiscommittee include the maintenance of highstandards of records and systems ofinternal control, the safeguarding of thecompany’s assets and shareholders’investments, assisting the Board tomonitor the standards of corporategovernance and advising the Board of the"going concern" status of the company.The external and internal auditors haveunrestricted access to the audit committee.

Remuneration committeeThis committee meets periodically toassess, authorise and implementappropriate levels of remuneration for theexecutive directors and seniormanagement of the group.

Internal and financial controlsThe group’s systems of internal andfinancial control are designed to safeguardthe integrity and reliability of the financialinformation and to verify and maintainaccountability of revenue and assets.These controls are implemented andmanaged by skilled operational personneland monitored by the directors.

The group’s personal performanceappraisal system contributes towards theway in which internal controls aremeasured and regular managementreviews conducted. Financial managementis measured against industry standardinternal control norms and is constantlyreviewed to ensure consistency andobjectivity.

14

CORPORATEGOVERNANCE

(continued)

ACCESS TO LATEST BENCHMARKS IN SECURITY TECHNOLOGY

EmpowermentSquare One is an equal opportunityemployer, committed to a workingenvironment that is free from any racial- orgender-based discrimination. The groupcontinually evaluates the development ofthe skills and abilities of its employees.

Insider tradingDealing in Square One shares by anySquare One director or employee on thebasis of unpublished or confidentialinformation, whether directly or indirectly, isstrictly prohibited. Restrictions are imposedon employee trading where suchinformation could affect the price sensitivityof the shares.

SecurityIn terms of the King Commission II oncorporate governance, the Board ofDirectors acknowledges its ultimateresponsibility for the risks associated witha breach of the company’s networks.Square One’s directors understand thevalue of the company’s data andintellectual capital and continually addressand evaluate the level of risk they deemacceptable and address accordingly.

Square One remains in the fortunateposition – as an IT company, of havingaccess to the latest benchmarks in securityas well as a top-level understandingthereof. The company has an effective ITinfrastructure in place and continues toexamine and deploy leading biometricsecurity technology recognised as wellabove industry standard levels.

15

FINANCIALSTATEMENTS

CONTENTSSQUARE ONE SOLUTIONS GROUP IS JSE-LISTED

The reports and statements set out below comprise the annual group financialstatements presented to the shareholders:

1. Report of the independent auditors 162. Secretary’s certificate 163. Report of the directors’ 174. Consolidated balance sheets 195. Consolidated income statements 206. Consolidated statement of changes in equity 217. Consolidated cash flow statements 228. Notes to the annual group financial statements 23

The annual financial statements and group financial statements, which appear on pages17 to 34, were approved by the Board of Directors on 31 March 2003 and signed ontheir behalf.

G A Coetser W T James

16

REPORT OF THE INDEPENDENT AUDITORS

We have audited the annual financial statements and group financial statements of SquareOne Solutions Group Limited set out on pages 17 to 34 for the year ended 31 December2002. These financial statements are the responsibility of the company's directors. Ourresponsibility is to express an opinion on these financial statements based on our audit.

ScopeWe conducted our audit in accordance with statements of South African Auditing Standards.Those standards require that we plan and perform the audit to obtain reasonable assurancethat the financial statements are free of material misstatement. An audit includes:

• examining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements,

• assessing the accounting principles used and significant estimates made by management,and

• evaluating the overall financial statement presentation.

We believe that our audit provides a reasonable basis for our opinion.

The financial statements for the year ended 31 December 2002 have been prepared on thegoing concern basis, which basis is dependent on the continued support of the shareholders,the company’s bankers and the providers of loan finance. The shareholders have agreed tosubordinate their loans to the company until such time as the company’s assets, fairly valued,exceed its liabilities. In forming our opinion we have considered the adequacy of thedisclosures made in the directors’ report of the financial statements concerning the existenceof the going concern matter.

Audit opinionIn our opinion, the financial statements fairly present, in all material respects, the financialposition of the company and the group at 31 December 2002 and the results of its operationsand cash flows for the year then ended in accordance with South African Statements ofGenerally Accepted Accounting Practice, and in the manner required by the Companies Actin South Africa.

Russell Bedford South Africa (Jhb) Inc.Chartered Accountants (S.A.), NorthcliffRegistered Accountants and Auditors 31 March 2003

SECRETARY’S CERTIFICATE

I hereby certify, in terms of Section 268 of the Companies Act, 1973, as amended, that thecompany has lodged with the Registrar of Companies all such returns as are required of apublic company in terms of the Act, and that all such returns are true, correct and up to dateas at 31 December 2002.

A M CraddockCompany Secretary

31 March 2003

16

17

REPORT OF THE DIRECTORSFOR THE YEAR ENDED 31 DECEMBER 2002

The directors present their report for the year ended 31 December 2002. This report formspart of the audited financial statements.

1. General reviewThe main business of the company and the group is that of importation and distributionof computer printers, peripherals and related items.

The company and group's business and operations and the results thereof are clearlyreflected in the attached financial statements.

2. Statements of responsibilityThe directors are responsible for monitoring the preparation of and the integrity of thefinancial statements and related information included in this annual report.

In order for the Board to discharge its responsibilities, management has developed andcontinues to maintain a system of internal control. The Board has ultimate responsibilityfor the system of internal control and reviews its operation, primarily through the AuditCommittee and various other risk-monitoring committees.

The internal controls include a risk-based system of internal accounting andadministrative controls designed to provide reasonable but not absolute assurance thatassets are safeguarded and that transactions are executed and recorded in accordancewith generally accepted business practices and the group's policies and procedures.These controls are implemented by trained, skilled personnel with an appropriatesegregation of duties, are monitored by management and include a comprehensivebudgeting and reporting system operating within strict deadlines and an appropriatecontrol framework.

The external auditors are responsible for reporting on the financial statements.

The financial statements are prepared in accordance with the South African Statementsof Generally Accepted Accounting Practice and incorporate disclosure in line with theaccounting philosophy of the group.

The annual financial statements are based on appropriate accounting policiesconsistently applied and supported by reasonable and prudent judgements andestimates.

The directors believe that the group will be a going concern in the year ahead. For thisreason they continue to adopt the going concern basis in preparing the group annualfinancial statements.

The auditors have concurred with the above statements.

3. Financial results and dividendsNo dividends have been declared and none are recommended.

4. Share capitalThere were no changes in the authorised or the issued share capital of the company andthe group during the year under review.

5. Fixed assetsThe company purchased fixed assets costing R1 035 481 (Group: R2 389 169) duringthe year under review. (2001: R359 022) (Group: R1 761 494).

6. Acquisitions, investments and disposalsAt the beginning of the year the company had a 100% share holding in eServicesDocument Sharing Solutions (Proprietary) Limited, a 100% share holding in Square OneDocument Solutions (Proprietary) Limited, a 51% shareholding in Square One Power

REPORT OF THE DIRECTORS (continued)FOR THE YEAR ENDED 31 DECEMBER 2002

18

Solutions (Proprietary) Limited, a 100% share holding in Activated Learning Group(Proprietary) Limited and a 50% share holding in Square One Investments (Proprietary)Limited (in Australia).

During the year the company acquired a 100% share holding in New HeightsCommunications (Proprietary) Limited and 100% share holding in Thursday Morning(Proprietary) Limited. During the year the company disposed of its investment in SquareOne Investments (Proprietary) Limited (in Australia).

7. Subsequent eventsThere have been no facts or circumstances of a material nature that have occurredbetween the accounting date and the date of this report.

8. Number of employeesThe number of employees at year-end was 167 (2001: 160).

9. Directors and secretaryThe directors of the company during the accounting period and up to the date of thisreport were as follows:

Executive directors:G A Coetser ChairmanT I MorrisonW T James Chief Executive OfficerS K Berryman British, resigned 31 March 2003

Non-executive directorsF D Bothma Resigned 16 January 2002R D Wilk Resigned 16 January 2002B van RooyenR T Muzariri Appointed 18 December 2002

Company secretaryA M Craddock

Transfer secretaryThe transfer secretary of the company is Computershare Investor Services Limited,whose business and postal addresses are:

70 Marshall StreetJohannesburg, 2001

PO Box 61051Marshalltown, 2107

10. AuditorsRussell Bedford South Africa (Jhb) Inc. will continue in office in accordance with section270(2) of the Companies Act.

19

CONSOLIDATED BALANCE SHEETSAS AT 31 DECEMBER 2002

Company Group2002 2001 2002 2001

Notes R R R R

ASSETSNon-current assets (1 205 188) 4 370 381 3 740 321 3 226 507

Fixed assets 2 1 646 168 1 411 259 1 917 561 2 683 992Goodwill 3 – – – –Investments in subsidiaries 4 (4 422 844) 2 416 607 – –Investments 5 – – 16 000 –Loans receivable 6 1 571 488 542 515 1 049 346 542 515Deferred taxation – – 757 414 –

Current assets 28 194 184 46 319 314 51 249 187 62 055 763

Inventories 7 15 649 955 17 774 813 19 098 586 22 449 205Accounts receivable 8 11 877 539 27 847 279 30 957 179 38 410 823Taxation 29 649 – – –Bank balances 9 637 041 697 222 1 193 422 1 195 735

Total assets 26 988 996 50 689 695 54 989 508 65 282 270

EQUITY AND LIABILITIESCapital and reserves 4 416 068 6 567 280 4 844 421 6 009 924

Issued capital 10 220 000 220 000 220 000 220 000Share premium 8 799 724 8 799 724 8 799 724 8 799 724(Accumulated loss)/retained income (4 603 656) (2 452 444) (4 901 444) (5 004 863)Non-distributable reserve – – – 62 765Outside shareholders' interest 11 – – 361 124 1 567 281Outside shareholders' loans 12 – – 365 017 365 017

Non–current liabilities 1 881 096 1 574 219 2 353 929 1 588 014

Shareholders' loans – – – –Non interest-bearing liabilities 13 1 744 634 1 444 633 2 253 929 1 444 633Interest-bearing liabilities 14 136 462 129 586 100 000 143 381

Current liabilities 20 691 832 42 548 196 47 791 158 57 684 332

Accounts payable 4 846 277 26 827 621 25 367 898 35 029 960Taxation – 221 410 (31 011) 221 410Current portion of interest-bearing liabilities 14 95 753 145 002 199 603 274 621Provisions 15 241 168 231 059 261 419 251 365Bank overdrafts 9 15 508 634 15 123 104 21 993 249 21 906 976

Total equity and liabilities 26 988 996 50 689 695 54 989 508 65 282 270

20

CONSOLIDATED INCOME STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2002

Company Group2002 2001 2002 2001

Notes R R R R

Gross revenue 16 96 620 455 125 178 684 174 196 068 158 967 520Cost of sales (68 288 222) (92 456 440) (129 995 678) (117 602 589)

Gross profit 28 332 233 32 722 244 44 200 390 41 364 931Operating costs (34 795 388) (28 625 200) (38 133 932) (40 875 612)Exceptional loss 17 – (3 203 584) (8 221 400) (10 525 176)Other (costs)/income 6 746 277 (1 082 440) 7 260 260 4 343 885

Operating profit/(loss) 18 283 122 (188 982) 5 105 318 (5 691 972)Interest received 19 738 490 90 375 807 583 100 584Finance costs 20 (3 138 123) (2 564 606) (4 152 038) (2 940 931)

Loss before taxation (2 116 511) (2 663 213) 1 760 863 (8 532 319)Taxation 22 34 701 – 1 296 369 –

Loss after taxation (2 151 212) (2 663 213) 464 494 (8 532 319)Outside shareholders' interest – – (361 075) (5 247)

(Loss)/earnings attributable to shareholders (2 151 212) (2 663 213) 103 419 (8 537 566)

(Loss)/earnings per share (cents) 23 (9,7) (12,1) 0,05 (38,8)

Headline (loss)/earnings (cents) 23 (9,7) (12,2) 37,8 (7,3)

Headline earnings per share adjusted for severe devaluation of SA Rand (cents) 23 – 2,4 – 8,9

21

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2002

Company:(Accumulated

Share Share loss)/retainedcapital premium income Total

R R R R

Balance at 1 January 2001 220 000 8 799 724 210 769 9 230 493Net loss for the year – (2 663 213) (2 663 213)

Balance at 1 January 2002 220 000 8 799 724 (2 452 444) 6 567 280Net loss for the year (2 151 212) (2 151 212)

Balance at 31 December 2002 220 000 8 799 724 (4 603 656) 4 416 068

Group:Non- (Accumulated

Share Share distributable loss)/retainedcapital premium reserve income Total

R R R R R

Balance at 1 January 2001 220 000 8 799 724 – 3 532 703 12 552 427Net loss for the year – – – (8 537 566) (8 537 566)Translation reserve – – 62 765 – 62 765

Balance at 1 January 2002 220 000 8 799 724 62 765 (5 004 863) 4 077 626Net profit for the year 103 419 103 419Disposal of translation reserve (62 765) – (62 765)

Balance at 31 December 2002 220 000 8 799 724 – (4 901 444) 4 118 280

22

CONSOLIDATED CASH FLOW STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002

Company Group2002 2001 2002 2001

Notes R R R R

Cash flows from operating activitiesCash receipts from customers 108 081 029 128 055 249 181 649 712 156 932 849Cash paid to suppliers and employees (110 873 973) (117 511 502) (165 775 433) (148 517 615)

Cash (utilised in)/generated by operating activities 27.1 (2 792 944) 10 543 747 15 874 279 8 415 234Interest received 738 490 90 375 807 583 100 584Interest paid (3 138 123) (2 564 606) (4 152 038) (2 940 931)Taxation paid 27.2 (285 760) – (188 011) –

Net cash inflow/(outflow) from operating activities (5 478 337) 8 069 516 12 341 813 5 574 887

Cash flows from investing activitiesFixed assets acquired (1 035 481) (359 022) (150 470) (1 761 494)Goodwill acquired – – (4 352 807) (6 938 322)Proceeds on disposals of fixed assets – 421 214 – 525 508Increase in loans receivable (1 028 972) (542 515) – (542 515)Investment in subsidiaries 6 839 451 (2 376 138) (11 904 771) –Increase in loans to subsidiary companies – (3 447 928) – –Other investments – – (16 000) –

Net cash generated by/(used in) investing activities 4 774 998 (6 304 389) (16 424 048) (8 716 823)

Cash flows from financing activitiesNon-distributable reserve – – – –Increase in loans from outside shareholders – – – 365 017Non interest-bearing loans raised – 1 444 633 – 1 444 633Loans repaid 257 628 (862 992) (359 158) (758 606)

Net cash inflow/(outflow) from financing activities 257 628 581 641 (359 158) 1 051 044

(Decrease)/increase in cash and cash equivalents (445 711) 2 346 768 (4 441 393) (2 090 892)Cash and cash equivalents at beginning of the year 27.3 (14 425 882) (16 772 650) (20 711 241) (18 620 349)

Cash and cash equivalents at end of the year 27.3 (14 871 593) (14 425 882) (25 152 634) (20 711 241)

23

NOTES TO THE ANNUAL GROUP FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2002

1. Accounting basisThe annual financial statements incorporate the following principal accounting policies, set out below,which are consistent with those adopted in the previous year.

1.1 Statement of complianceThe financial statements are prepared in accordance with the South African Statements ofGenerally Accepted Accounting Practice and the requirements of the South African CompaniesAct.

1.2 Basis of preparationThe financial statements are prepared on the historical cost basis.

1.3 Revenue recognitionSales are recorded in the financial statements at the date the goods are delivered to customersor services are performed.

1.4 Basis of consolidationThe consolidated financial statements include the assets and liabilities of the subsidiaries aswell as their results for the period. Where changes of interest took place during the year theresults of the subsidiary are included as from the effective date of becoming a subsidiary to theeffective date of disposal. Intragroup sales and profits are eliminated fully on consolidation.

1.5 GoodwillThe difference between the fair value of the consideration paid and the fair value of net tangibleassets of subsidiaries at the date of acquisition is charged or credited to goodwill arising onconsolidation. Goodwill is amortised over a period of 10 years. In the event of a permanentimpairment in the value of a subsidiary, the relevant unamortised balance is written off.

1.6 InvestmentsInvestments, other than in associates, are stated at cost and are written down only where thereis a permanent impairment in value. Dividends are brought to account as at the last day ofregistration in respect of listed shares, and when declared in respect of unlisted shares.

1.7 Fixed assetsFixed assets are included at cost. Cost includes all costs directly attributable to bringing theassets to working condition for their intended use.

Depreciation is calculated by a charge to income computed on a "straight line" basis so as towrite off the cost or amount of the valuation of the assets over their expected useful lives. Thedepreciation rates applicable to each category of fixed assets is as follows:

Motor vehicles 20%Furniture and fittings 20%Workshop equipment 20%Office equipment 20%Computer equipment 33%Computer software 50%

1.8 Leased assetsFinance leasesWhere assets are acquired under finance lease agreements that transfer to the companysubstantially all the risks and rewards of ownership, their cash cost equivalent is capitalised. Thecapital element of the leasing commitment is disclosed under long-term liabilities. Lease rentalsare apportioned between capital and interest elements, using the effective interest rate method.

Operating leasesLeases where the lessor retains the risks and rewards of ownership of the underlying assets areclassified as operating leases. Payments made under operating leases are charged againstincome on a straight-line basis over the period of the lease.

NOTES TO THE ANNUAL GROUP FINANCIAL STATEMENTS(continued)FOR THE YEAR ENDED 31 DECEMBER 2002

24

1.9 InventoriesInventories are stated at the lower of cost and net realisable value. Cost is determined on aweighted average basis and includes transport and handling costs. Where necessary, provisionis made for obsolete, slow moving and defective inventory.

1.10 TaxationCurrent tax comprises tax payable calculated on the basis of the expected taxable income forthe year, using the tax rates enacted at the balance sheet date, and any adjustment of taxpayable for previous years.

Deferred tax is provided using the balance sheet liability method, based on temporarydifferences. Temporary differences are differences between the carrying amounts of assets andliabilities for financial reporting purposes and their tax base. The amount of deferred taxprovided is based on the expected manner of realisation or settlement of the carrying amountof assets and liabilities using the tax rates enacted or substantively enacted at the balancesheet date. Deferred tax is charged to the income statement. The effect on deferred tax of anychanges in tax rates is recognised in the income statement.

A deferred tax asset is recognised to the extent that it is probable that future taxable profits willbe available against which the associated unused tax losses and deductible temporarydifferences can be utilised. Deferred tax assets are reduced to the extent that it is no longerprobable that the related tax benefit will be realised.

1.11 ImpairmentThe carrying amounts of the group's assets are reviewed at each balance sheet date todetermine whether there is any indication of impairment. If there is any indication that an assetmay be impaired, its recoverable amount is estimated. The recoverable amount is the higher ofits net selling price and its value in use.

In assessing value in use, the expected future cash flows from the asset are discounted to theirpresent value using a pre-tax discount rate that reflects current market assessments of the timevalue of money and the risk specific to the asset. An impairment loss is recognised wheneverthe carrying amount of an asset exceeds its recoverable amount.

For an asset that does not generate cash inflows that are largely independent of those fromother assets the recoverable amount is determined for the cash-generating unit to which theasset belongs. An impairment loss is recognised in the income statement whenever the carryingamount of the cash-generating unit exceeds its recoverable amount.

A previously recognised impairment loss is reversed if the recoverable amount increases as aresult of a change in the estimates used to determine the recoverable amount, but not to anamount higher than the carrying amount that would have been determined (net of depreciation)had no impairment loss been recognised in prior years.

1.12 Employee benefitsShort-term employee benefitsThe cost of all short-term employee benefits is recognised during the period in which theemployee renders the related service.

The provision for employee entitlements to wages, salaries and annual leave represents theamount which the company has a present obligation to pay as a result of employees' servicesprovided to the balance sheet date. The provisions have been calculated at undiscounted amountsbased on current wage and salary rates.

Retirement benefitsThe company contributes to a defined contribution plan. Contributions to the definedcontribution fund are charged against income as incurred.

25


1.13 ProvisionsProvisions are recognised when the group has a present legal or constructive obligation as aresult of past events, for which it is probable that an outflow of economic benefits will occur, andwhere a reliable estimate can be made of the amount of the obligation. Where the effect ofdiscounting is material, provisions are discounted. The discount rate used is a pre-tax rate thatreflects current market assessments of the time value of money and, where appropriate, therisks specific to the liability.

1.14 Derivative financial instrumentsThe derivative instruments used by the group, which are used solely for hedging purposes (i.e.to offset foreign exchange risks) are forward rate agreements and forward foreign exchangecontracts. Such derivative instruments are used to alter the risk profile of an existing underlyingexposure of the group in line with the group's risk management policies.

Forward foreign exchange contracts are valued at the closing rates of exchange. Resultinggains and losses are dealt with in the income statement.

Where the instrument ceases to meet the criteria of being a hedge transaction or the underlyingexposure which it is hedging is sold, matures or is extinguished, then the instrument is valuedat the appropriate market rate, after having taken account of selling costs. Any resultant gainsand losses are reflected in operating income in the consolidated profit and loss account. Asimilar treatment is applied where the hedge is of a future transaction and that transaction is nolonger likely to occur.

1.15 Financial instrumentsFinancial assets are recognised when the group has the rights or other access to economicbenefits. Such assets consist of cash, equity instruments, a contractual right to receive cash oranother financial asset, or a contractual right to exchange financial instruments with anotherentity on potentially favourable terms.

Financial liabilities are recognised when there is an obligation to transfer benefits and thatobligation is a contractual liability to deliver cash or another financial asset or to exchangefinancial instruments with another entity on potentially unfavourable terms. When these criteriano longer apply, a financial asset or liability is no longer recognised.

If a legally enforceable right exists to set off recognised amounts of financial assets and liabilities,which are in determinable monetary amounts, and the group intends to settle on a net basis, therelevant financial assets and liabilities are offset.

Interest costs are charged against income in the year in which they are incurred. Premiums ordiscounts arising from the difference between the net proceeds of financial instrumentspurchased or issued and the amounts receivable or repayable at maturity are taken to netinterest payable over the life of the instrument.

Where the fair value of an asset's carrying amount falls below the asset's carrying value, anydifference is, in the case of fixed assets, provided for if it is regarded that impairment exists. Inthe case of current assets, provision is only made to the extent that it is considered as resultingin a lower net realisable value.

MeasurementFinancial instruments are initially measured at cost, which includes transaction costs.Subsequent to initial recognition these instruments are measured as set out below.

Trade and other receivablesTrade and other receivables originated by the company are stated at cost less provision fordoubtful debts.


26

Cash and cash equivalentsCash and cash equivalents are measured at fair value.

Financial liabilitiesNon-derivative financial liabilities are recognised at cost, comprising original debt less principalpayments.

Credit riskManagement has a credit policy in place and the exposure to credit risk is monitored on anongoing basis. Credit evaluations are performed on all customers requiring credit over a certainamount. Reputable financial institutions are used for investing and cash handling purposes.

At balance sheet date there were no significant concentrations of credit risk. The maximumexposure to credit risk is represented by the carrying amount of each financial asset in thebalance sheet.

Liquidity risk managementLiquidity risk is managed using cash flow forecasts and by the maintenance of adequateborrowing facilities with the holding company and the banks.

1.16 Foreign currency transactionsTransactions in foreign currencies are translated at the rates of exchange ruling at thetransaction date.

Monetary assets and liabilities in foreign currencies are translated at the rates of exchangeruling at the balance sheet date. Any foreign exchange differences are dealt with in the incomestatement in the year in which the difference occurs.

1.17 Segment reportingThe group imports and distributes a wide range of printer and printer related products,uninterruptible power supply units, coding and marking machines, software and associatedhardware and biometric IT security products and solutions.

As well as supplying the above products the group is involved with a number of follow upservices from which income is derived. Segment results include revenue and expenses directlyattributable to a segment and the relevant portion of group expenses that can be allocated ona reasonable basis to a segment, whether from external transactions or from transactions withother group segments. Inter-segment transfer pricing is based on cost plus an appropriatemargin.

Assets, liabilities and capital expenditure per segment have not been presented as these areaccounted for within the specific legal entities, that represent multiple business units whichshare many operating assets and liabilities.

27


2. Fixed assetsCompany

2002 2001Accumulated Carrying Accumulated Carrying

Cost depreciation value Cost depreciation value

Owned assetsMotor vehicles 3 468 3 466 2 3 468 3 466 2Furniture and fittings 750 136 394 231 355 905 642 654 269 013 373 641Workshop equipment 106 180 66 934 39 246 82 775 33 781 48 994Computer equipment 2 063 081 1 188 640 874 441 1 313 640 724 567 589 073

2 922 865 1 653 271 1 269 594 2 042 537 1 030 827 1 011 710

Capitalised leased assetsMotor vehicles 635 866 265 529 370 337 481 424 127 177 354 247Computer equipment 184 530 178 293 6 237 184 530 139 228 45 302

820 396 443 822 376 574 665 954 266 405 399 549

3 743 261 2 097 093 1 646 168 2 708 491 1 297 232 1 411 259

The carrying amounts of fixed assets can be reconciled as follows:

Carrying value Carryingat beginning of value at

year Additions Transfer Depreciation end of year

Owned assetsMotor vehicles 2 – – – 2Furniture and fittings 373 641 118 140 (10 658) (125 218) 355 905Workshop equipment 48 994 24 867 – (34 615) 39 246Computer equipment 589 073 738 032 10 658 (463 322) 874 441

1 011 710 881 039 – (623 155) 1 269 594

Capitalised leased assetsMotor vehicles 354 247 154 442 – (138 352) 370 337Computer equipment 45 302 – – (39 065) 6 237

399 549 154 442 – (177 417) 376 574

1 411 259 1 035 481 – (800 572) 1 646 168


28

2002 2001Accumulated Carrying Accumulated Carrying

Cost depreciation value Cost depreciation value

2. Fixed assets (continued)GroupOwned assetsMotor vehicles 3 468 3 466 2 3 468 3 466 2Furniture and fittings 891 174 503 772 387 402 1 061 266 378 081 683 185Workshop equipment 192 983 103 504 89 479 254 033 63 972 190 061Computer equipment 3 274 110 2 312 217 961 893 2 190 915 937 017 1 253 898Computer software 50 000 36 905 13 095 – – –

4 411 735 2 959 864 1 451 871 3 509 682 1 382 536 2 127 146

Capitalised leased assetsMotor vehicles 761 966 302 513 459 453 534 653 138 240 396 413Computer equipment 184 530 178 293 6 237 308 909 148 476 160 433

946 496 480 806 465 690 843 562 286 716 556 846

5 358 231 3 440 670 1 917 561 4 353 244 1 669 252 2 683 992

The carrying amounts of fixed assets can be reconciled as follows:

Carryingvalue at Carrying

beginning value at endof year Additions Transfer Disposals Depreciation of year

Owned assetsMotor vehicles 2 – – – – 2Furniture and fittings 683 185 154 203 (10 658) (296 317) (143 011) 387 402Workshop equipment 190 061 73 138 – (123 458) (50 262) 89 479Computer equipment 1 253 898 1 886 599 10 658 (650 272) (1 538 990) 961 893Computer software – 50 000 – – (36 905) 13 095

2 127 146 2 163 940 – (946 589) (1 769 168) 1 451 871

Capitalised leased assetsMotor vehicles 396 413 225 229 – (8 056) (154 133) 459 453Computer equipment 160 433 – – (115 131) (39 065) 6 237

556 846 225 229 – (123 187) (193 198) 465 690

2 683 992 2 389 169 – (1 069 776) (1 962 366) 1 917 561

Assets with a book value of R588 877 (2001: R556 846) are subject to capitalised lease agreements. Refer note 14.

3. Goodwill

Group:Carrying value Additions Carryingat beginning of at end of value at end

year year Amortisation of year

Goodwill – 4 352 807 (4 352 807) –

– 4 352 807 (4 352 807) –

29


Company Group2002 2001 2002 2001

R R R R

4. Investments in subsidiariesShares at cost less provisions and amounts written off: 300 451 2 376 389 – –Square One Document Solutions (Proprietary) Limited: 100 Ordinary shares at cost (100% holding) 100 100 – –eServices Document Sharing Solutions (Proprietary) Limited: 100 Ordinary shares at cost (100% holding) 100 100 – –Square One Power Solutions (Proprietary) Limited: 51 Ordinary shares at cost (51% holding) 51 51 – –Activated Learning Group (Proprietary) Limited:1000 ordinary shares at cost (100% holding) 100 100 – –Square One Investments (Proprietary) Limited (Australia) – 2 376 038 – –Thursday Morning (Proprietary) Limited 300 000 – – –New Heights Communications (Proprietary) Limited: 100 Ordinary shares at cost (100% holding) 100 – – –

Amounts owing by/(to) subsidiaries: 4 968 200 1 597 184 – –

eServices Document Sharing Solutions (Proprietary) Limited 213 163 240 698 – –Square One Power Solutions (Proprietary) Limited 245 770 521 453 – –Activated Learning Group (Proprietary) Limited – 835 033 – –Thursday Morning (Proprietary) Limited 4 509 267 – – –

Less:Loans by subsidiaries 9 691 495 – – –

Square One Document Solutions (Proprietary) Limited 7 849 940 – – –Activated Learning Group (Proprietary) Limited 1 841 555 – – –

Less:Provision for losses on subsidiary companies – (1 556 966) – –

eServices Document Sharing Solutions(Proprietary)Limited – (200 329) – –Square One Power Solutions (Proprietary) Limited – (521 504) – –Activated Learning Group (Proprietary) Limited – (835 133) – –

(4 422 844) 2 416 607 – –

The loans to all subsidiary companies have been subordinated in favour of external creditors of these companies untilsuch time as the assets of the subsidiary companies, fairly valued, exceeds their liabilities.


30

Company Group2002 2001 2002 2001

R R R R

5. InvestmentsThe group held investments in the following companies:

IRT Projects – – 16 000 –

Directors' valuation of unlisted shares – – 16 000 –

6. Loans receivableWorkstation Solutions (Proprietary) Limited – – 299 346 –Square One Solutions Incorporated (UnitedStates of America) 750 000 500 000 750 000 500 000New Heights Communications (Proprietary) Limited 821 488 42 515 – 42 515

1 571 488 542 515 1 049 346 542 515

These loans are unsecured, interest free and have no fixed terms of repayment.

7. InventoriesThe amounts attributable to the different categories are as follows:

Finished goods 15 649 955 17 774 813 19 098 586 22 449 205

8. Accounts receivableAccounts receivable consists of the following:Trade debtors 9 482 192 25 069 808 26 363 098 35 025 806Sundry deposits 52 667 64 950 60 998 64 951Director's loan – S K Berryman – 52 337 – –Prepaid expenses 194 688 269 448 201 753 325 448Sundry debtors 2 147 992 2 390 736 4 331 330 2 994 618

11 877 539 27 847 279 30 957 179 38 410 823

9. Bank balancesBank overdrafts of the group are secured by means of unlimited cross company guarantees between the company and:Activated Learning Group (Proprietary) LimitedeServices Document Sharing Solutions (Proprietary) LimitedSquare One Power Solutions (Proprietary) Limited

10. Issued capitalAuthorised200 000 000 ordinary shares of 1c each 2 000 000 2 000 000 2 000 000 2 000 000

Issued22 000 000 ordinary shares of 1c each 220 000 220 000 220 000 220 000

The directors are authorised, until the forthcoming annual general meeting, to dispose of the unissued shares for anypurpose and upon such terms and conditions as they deem fit.

31


Company Group2002 2001 2002 2001

R R R R

11. Outside shareholders’ interestBalance at beginning of year – – 1 567 281 722 845Share of current year profits – – 361 075 5 247Loss on disposal of subsidiary – – 1 567 232 839 189Balance on acquisition of subsidiary – – – 839 189

Balance at end of year – – 361 124 2 406 470

12. Outside shareholders' loansN Schreiber – – 20 322 20 322L Mampe – – 64 619 64 619N Burnard – – 92 921 92 921E Uken – – 94 235 94 235A van der Westhuizen – – 92 920 92 920

– – 365 017 365 017

13. Non interest-bearing liabilitiesGAC Investment Holdings (Proprietary) Limited 1 744 634 1 444 633 2 071 206 1 444 633Square One Investments (Proprietary) Limited – – 182 723 –

1 744 634 1 444 633 2 253 929 1 444 633

This loan is unsecured, currently interest free and has no fixed terms of repayment.

14. Interest bearing liabilitiesFinance leases 232 215 274 588 299 603 418 002

The finance leases are secured by financial lease agreements over certain of the fixed assets mentioned in note 2.These bear interest at rates linked to the prime overdraft rate, and are repayable in monthly instalments.

Less: current portion of interest bearing liabilities (95 753) (145 002) (199 603) (274 621)

136 462 129 586 100 000 143 381

15. ProvisionsLeave pay 241 168 231 059 261 420 251 365

241 168 231 059 261 420 231 059

16. Gross revenueGross revenue that excludes value-added tax represents the invoiced value of goods and services supplied.

17. Exceptional lossGoodwill written off – – 4 352 806 6 938 322Severe devaluation of the Rand – 3 203 584 – 3 586 854Provision for loss on subsidiary – – 3 868 592 –

– 3 203 584 8 221 398 10 525 176


32

Company Group2002 2001 2002 2001

R R R R

18. Operating profit/(loss)Operating profit/(loss) is stated after charging:Audit fee: current year 192 000 16 942 271 693 322 972Depreciation 800 572 624 970 878 075 1 383 102

Owned assets 623 155 341 589 603 872 877 527Capitalised leased assets 177 417 283 381 274 203 505 575

Foreign exchange profits/(losses) 3 540 531 69 285 1 198 526 69 285Lease rentals: premises 1 557 758 1 326 719 1 788 891 1 586 804

and after crediting:Profit on disposals of fixed assets – 16 728 – 16 728

19. Interest receivedInterest incomeBank balances 138 490 90 375 207 583 100 584Interest received from subsidiaries 600 000 – 600 000 –

738 490 90 375 807 583 100 584

20. Finance costsBank overdrafts 3 138 123 2 444 664 4 152 038 2 816 450Finance leases – 119 942 – 124 481

3 138 123 2 564 606 4 152 038 2 940 931

21. Directors' remunerationDirectors' emoluments Services as Other Services as Other

directors services directors services2002 2002 2001 2001

Executive directors:G A Coetser – 374 271 – 345 000T I Morrison – 75 372 – 351 000S K Berryman – 26 556 – 370 000W T James – 576 000 – 480 000

Non–executive directors:L J Mampe – – 15 000 –B van Rooyen – – 15 000 –R D Wilk – – 5 000 –F D Bothma – – 5 000 –R T Muzariri 5 000 – – –

5 000 1 052 199 40 000 1 546 000

The directors did not receive any benefits and do not have any share options.

Company Group2002 2001 2002 2001

R R R R

22. TaxationSouth African normal taxCurrent year 34 701 – 34 701 –

Deferred taxCurrent year – – 1 261 668 –

33


Company Group2002 2001 2002 2001

R R R R

23. (Loss)/earnings per share(Loss)/earnings attributable to ordinary shareholders (2 151 206) (2 663 213) 103 418 (8 537 566)Amortisation of goodwill – – 4 352 807 6 938 322Profit on disposal of vehicle – (16 789) – (16 728)Loss on foreign subsidiary disposal – – 3 868 593 –Headline (loss)/earnings (2 151 206) (2 680 002) 8 324 818 (1 615 972)Severe devaluation of the Rand – 3 203 584 – 3 586 854

Headline earnings adjusted for severedevaluation of the Rand (2 151 206) (2 680 002) 8 324 818 1 970 882

Headline (loss)/earnings per share and (loss)/earnings per share are calculated on the weighted average number ofordinary shares in issue being 22 000 000 (2001: 22 000 000).

24. Segmental informationBusiness segmentsThe following table shows the distribution of the group's consolidated revenue by business segment:

2002 2001

Document Solutions 15 802 912 23 761 469Knowledge and Information Management Solutions 48 455 558 22 751 898Coding and Marking Solutions 8 930 192 10 919 182Power Solutions (formerly UPScom) 26 012 012 17 545 770Consumables Solutions 65 585 707 60 121 799Services Solutions 9 265 782 7 345 637Activated Learning Group 143 905 951 358Square One Investments (Proprietary) Limited – Australia – 15 570 407

174 196 068 158 967 520

25. Related partySquare One Solutions Group Limited is the holding company of Square One Power Solutions (Proprietary) Limited,Activated Learning Group (Proprietary) Limited, eServices Document Sharing Solutions (Proprietary) Limited, SquareOne Document Solutions (Proprietary) Limited, New Heights Communications (Proprietary) Limited and ThursdayMorning (Proprietary) Limited. Square One Solutions Group Limited is not a subsidiary of another company. Loans toand from these subsidiaries have been identified in note 4.

The company does not have any associates or joint ventures.

The directors are listed in the directors' report.

Transactions that occurred with other companies in which the directors have an interest have been identified in note 14.

26. Shareholders’ spreadNo. of No. of %

shareholders shares Shareholding

Directors 4 3 714 506 17Persons other than directors holding more than 10% 2 12 581 617 57

Total "non-public" shareholders 6 16 296 123 74Total "public" shareholders 187 5 703 877 26

193 22 000 000 100


34

27. Notes to the cash flow statementCompany Group

2002 2001 2002 2001R R R R

27.1 Cash (utilised in)/generated from operationsNet loss before taxation (2 116 511) (2 663 213) 1 760 863 (8 532 319)Adjustments for:Depreciation 800 572 624 970 916 911 878 075Amortisation of goodwill – – – 6 938 322Interest received (738 490) (90 375) (807 583) (100 584)Finance costs 3 138 123 2 564 606 4 152 038 2 940 931Profit on disposals of fixed assets – (16 728) – (16 728)Translation reserve – – – 62 765Goodwill less provision for loss on subsidiary – – 8 221 400 –Unrealised foreign exchange losses – 3 203 584 – 3 586 854Outside shareholders' interest – – – 1 204 207Provision for losses in the subsidiary companies – 1 172 008 – –

1 083 694 4 794 852 14 243 629 6 961 523

Movements in working capitalDecrease in inventories 2 124 858 4 102 225 3 350 414 2 577 614Decrease in accounts receivable 15 969 739 4 014 820 7 389 820 (2 034 671)Decrease in accounts payable and provisions (21 971 235) (2 368 150) (9 109 584) 910 768

(2 792 944) 10 543 747 15 874 279 8 415 234

27.2 Reconciliation of taxation paid during year

Charge in income statement (34 701) – (1 296 369) –Movement in taxation balance (251 059) – 1 108 358 –

Payments made (285 760) – (188 011) –

27.3 Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and balances with banks.

Cash and cash equivalents included in the cash flow statement comprise the following balance sheet amounts:

Bank balances 637 041 697 222 1 193 422 857 232Bank overdrafts (15 508 634) (15 123 104) (21 993 249) (19 477 581)

(14 871 593) (14 425 882) (20 799 827) (18 620 349)

35

NOTICE OF ANNUAL GENERAL MEETING

Notice is hereby given that the third annual general meeting of the Square One Solutions Group Limited willbe held at the offices of the company, First Floor, Eastgate Park, 8 Commerce Crescent West, EastgateExtension 13, Sandton, on Thursday, 26th June 2003, at 12h00 for the transaction of the following business:

1. To receive and consider the annual financial statements for the year ended 31 December 2002.

2. To elect the directors who retire by rotation in terms of the company’s Articles of Association and beingeligible, offer themselves for re-election.

3. To reappoint the auditors and to authorise the directors to decide the remuneration of the auditors for thepast year’s audit.

4. To consider, and if deemed fit, to pass with or without amendment the following ordinary resolution interms of Section 221 of the Companies Act and the Listings Requirements of the JSE SecuritiesExchange South Africa:

That until the next annual general meeting of the company the unissued ordinary shares of the company(excluding for the purpose the shares in respect of which the directors have been granted specificauthority in terms of the company share incentive scheme) be and are hereby placed under the controlof the directors to allot and issue to such person or persons and on such terms and conditions and atsuch times as the directors in their discretion may determine.

5. To transact such other business as may be dealt with at an ordinary general meeting.

A member entitled to attend and vote at the meeting may appoint a proxy (who need not be a member ofthe company) to attend and speak and to vote in his/her stead. A form for the purpose of appointing a proxyis included in the annual report.

Certified shareholders and own-name dematerialised shareholders who are unable to attend the generalmeeting but wish to be represented thereat should complete and return the attached form of proxy inaccordance with the instructions contained therein so as to be received by the transfer secretaries by 12h00on Wednesday, 25 June 2003.

Dematerialised shareholders, other than own-name dematerialised shareholders, who wish to attend thegeneral meeting must request their CSDP or broker to provide them with a Letter of Representation or mustinstruct their CSDP or broker to vote by proxy on their behalf in terms of the agreement entered into betweenthe shareholder and their CSDP or broker.

By order of the Board.

A M CraddockCompany Secretary30 May 2003

Printed by Ince (Pty) Ltd

FORM OF PROXY

The Square One Solutions Group Limited(Incorporated in the Republic of South Africa)Registration number: 1999/026822/06

I/We

(Name)

of

(Address)

Being a member of the Square One Solutions Group Limited

and the registered holder of ordinary shares

do hereby appoint

or, failing him/her, the chairman of the meeting as my proxy to vote for me and on my behalf at the thirdannual general meeting of members of the company to be held on Thursday, 26 June 2003 at 12h00, andat any adjournment thereof, as follows:

For Against Abstain

1. Resolution approving the annual financial statements

2. Resolution re-electing those directors retiring by rotation

3. Resolution re-appointing the auditors and authorising the directors to decide their remuneration

4. Resolution placing the unissued shares of the company under the control of the directors

Signature Date

A member entitled to attend and vote at the above-mentioned meeting is entitled to appoint one or moreproxies (who need not be members of the company) to attend and vote in his/her stead.

The completion and lodging of this form of proxy will not preclude the relevant ordinary shareholder fromattending the annual general meeting and speaking and voting in person thereat instead of the proxy, shouldthe ordinary shareholder so wish.

Unless otherwise indicated in the appropriate spaces above, the proxy holder may vote or abstain at his/herdiscretion.

This form must be completed, signed and returned to the company’s transfer secretaries: ComputershareInvestor Services Limited, Edura, 41 Fox Street, Johannesburg, 2001 or to the group company secretary: A M Craddock, P O Box 1163, Gallo Manor, 2052 or per fax to: (011) 444-2462, at least 24 hours before themeeting.

INSTRUCTIONS ON SIGNING AND LODGING THE ANNUALGENERAL MEETING PROXY FORM

1. A shareholder may insert the name(s) of two alternative proxies (neither of whom need be a shareholderof the company) in the space provided, with or without deleting the words "chairman of the generalmeeting". The person whose name stands first on the form of proxy and has not been deleted and whois present at the annual general meeting will be entitled to act as proxy to the exclusion of those whosenames follow. In the event that no names are indicated, the proxy shall be exercised by the chairman ofthe annual general meeting.

2. A shareholder’s instructions to the proxy must be indicated by the insertion of an "X" or the relevantnumber of votes exercisable by that shareholder in the appropriate box/boxes provided. If a proxy form,fully signed, is lodged without specific directions as to which way the proxy is to vote, the chairman ofthe Annual General Meeting will be deemed to have been authorised as he/she thinks fit. A shareholderor the proxy is not obliged to use all the votes exercisable by the shareholder or by the proxy.

3. A deletion of any printed matter and the completion of any blank spaces need not be signed or initialled.Any alteration or correction must be initialled by the authorised signatory/ies.

4. When there are joint holders of shares, all joint shareholders must sign the form of proxy.

5. The completion and lodging of this form of proxy will not preclude the shareholder, who grants this proxy,from attending the general meeting and speaking and voting in person thereat to the exclusion of anyproxy appointed in terms hereof, should such shareholder wish to do so.

6. Documentary evidence establishing the authority of the person signing this form of proxy in arepresentative capacity must be attached to this form unless previously recorded by the transfersecretaries.

7. Where this form is signed under power of attorney, such power of attorney must accompany this formunless it has been previously registered with the company or the transfer secretaries.

8. A minor must be assisted by his/her parent or guardian unless the relevant document establishing his/herlegal capacity has been produced or registered by the transfer secretaries.

9. Completed forms of proxy must be forwarded to the company’s transfer secretaries, ComputershareInvestor Services Limited, PO Box 61051, Marshalltown, 2107 or to the group company secretary: A MCraddock, P O Box 1163, Gallo Manor, 2052 or per fax to: (011) 444-2462 so as to be received at least24 hours, excluding Saturdays, Sundays and public holidays, before the Annual General Meeting.

HEAD OFFICESandton, Johannesburg BranchSquare OneEastgate Office Park8 Commerce Crescent WestEastgate Ext. 13, SandtonTel: (011) 321-5900Fax: (011) 444-2462

BRANCHESBloemfontein BranchSuite 5, Oxford Building154 Zastron StreetBloemfonteinTel: (051) 448-5451Fax: (051) 448-5456

Cape Town Branch9 Drake Street,Observatory, Cape TownTel: (021) 464-4000Fax: (021) 448-3226

Durban Branch36 Intersite AvenueUmgeni Business ParkUmgeni, DurbanTel: (031) 263-3900Fax: (031) 208-3415

Port Elizabeth Branch28 Pickering StreetNewton Park, Port ElizabethTel: (041) 391-9200Fax: (041) 364-0594

Pretoria Branch1021 Pretorius StreetArcadia, PretoriaTel: (012) 342-9046Fax: (012) 342-9028

BRANCHOFFICES

www.sq1.co.za

square one solutions group limited …the square one solutions group limited is incorporated in the...

Documents