annual report 1999annual report 1999

2

CONTENTS

mission statement - board of directors - auditors 3

message to our shareholders – the quest for productivity 4

overview 1999 – abandon all well-trodden paths 8

"le défi américain" – reaching for the sky 12

product folio – broadening our horizon 16

major events 1999 20

consolidated financial statements 21

financial statements 22

notes to the financial statements 36

annual report 48

summary – building bridges, closing gaps 58

contents

3

mission statement

board of directors

auditors

founding partners

MISSION STATEMENT

As a "Member of the Graphic Valley", Artwork Systems is dedicated to its mission

as an industry leading, global, software pre-production company to service the

needs of the label, packaging, publication, and commercial color printing markets.

Artwork Systems will continue to deliver the ‘best of all worlds’ on all levels,

functionality, productivity, profitability, and growth, for our customers, partners,

and shareholders.

BOARD OF DIRECTORS

Mr. Guido Van der Schueren

Mr. Peter Denoo

Mr. Bart Denoo

Mr. Mark Ecker

Mr. Peter Hughes (Oct. 1, 1998 – March 31, 1999)

Mr. Johan Volckaerts (Apr. 1 – Sept. 30, 1999)

AUDITORS

Ernst & Young Bedrijfsrevisoren,

Represented by Mr. Marc Cosaert.

FOUNDING PARTNERS

Bart Denoo Peter Denoo Guido Van der Schueren

4

the quest for

productivitypioneering the future of the graphic arts industryPIONEERING THE FUTURE OF THE GRAPHIC ARTS INDUSTRY

message to our shareholders

By any measure - operating performance, cash flow, or competitive strength -

1999 was the best year in Artwork Systems' history. From a technical point of view,

our products were at the top of their categories. Operating results were outstanding.

Artwork Systems' earnings before goodwill amortization grew 42 percent over the

previous year on an apples-to-apples basis.

With a focused portfolio of the finest pre-press software products and a unified

management strategy of providing the maximum value for our customers, we

began the year better positioned than ever before. Two key factors contributed to

our success.

First, our company had its full-year debut as an integrated workflow supplier to the

graphic arts industry with front-end and back-end, raster and vector capabilities.

Our key emphasis was workflow products and pre-press applications for the flexo-

graphic market, but a strong showing in the commercial market strengthened our

financial results.

Second was our back-to-basics direct sales distribution policy. After setting up

subsidiaries in the U.K. and France, and augmenting our existing German office, we

directly control distribution in Western Europe and the U.S.A. Having achieved solid

revenue growth of 102 percent - an acknowledgement of our superior products, our

employees, and our firm financial footing - we will continue to invest in future growth.

5

6

strong, consistent revenue and profits

We have worked for many years at building our unique dual franchise: leadership

in our industry combined with a high level of profitability. The past five years have

demonstrated the success of this strategy. The company has delivered strong and

consistent earnings under widely varying market conditions, year after year. In

fiscal year 1999, revenues for the year were € 28.6 million , an increase of

102 percent over fiscal year 1998. Net profits were up 42% - from € 6.6 million in

1998 to € 9.4 million in 1999. We continue to be among the most profitable com-

panies in the world in terms of gross margin - 82% of FY99 turnover - a fact often

overlooked.

revenue

profit (before goodwill)

strong strategic focus

From the outset, our goal has been to equip the company with the competitive

resources required to deliver a superior software product line to the pre-press industry.

We put together the right assets. We made major investments in strengthening our

core business and now have more than 4500 licenses of ArtPro (packaging and

labels) and ArtPro Repro (commercial color) installed worldwide. We obtained North

American market share and strategically valuable technology through the acquisition

of PCC, and added a Raster Image Processor-based workflow for commercial

printing and flexographic markets to our existing set of vector-based tools.

In addition to our fundamental faith in the future of the graphic arts industry, we are

confident that the power of our operations, coupled with prudent financial discipline,

will further spur a dramatic improvement in our rate of return on invested capital.

7

global presence, and "le défi américain"

Global leadership requires sophisticated cross-border capabilities and a strong

presence in selected worldwide markets. Artwork Systems has established itself

as a true global market leader with a unique look: it acts as a European Company

outside the USA and as an American company on the North American continent.

Worldwide, the U.S.A. represented 52% of turnover, Western Europe 41%, and the

rest of the world including the Far East 7%. This represents a substantial change

from previous years and will be discussed in more detail in subsequent sections

of this report.

strategic goals

We have set these specific goals :

To become the undisputed leader in professional pre-press

software for labels and packaging.

To extend our leadership in new markets including publishing

and commercial color.

To continue strengthening our organization in terms of development,

marketing, sales, training and customer support.

To expand our presence not only in the United States and Europe,

but also in emerging markets where opportunities are great.

To rank among the most admired companies in our industry.

To enhance the value of our stock by managing costs and risks

and by continuing to increase earnings and shareholder returns.

These goals reflect profound change taking place in our industry. The graphic arts

industry is approaching a kind of "end-game" in which a handful of companies are

racing to establish global leadership in the most desirable businesses. Artwork

Systems has been a prime mover in revolutionizing the dynamics of pre-press, the

road from analog to digital workflows. Today the momentum of growth is greater

than ever before. Artwork Systems will continue to drive changes as well as

embrace them. Emphasis on innovation and a constant search to find better ways

to serve our customers makes the difference. We want Artwork Systems to be a

symbol of excellence.

Sincerely Yours,

Guido Van der Schueren, Peter Denoo & Bart Denoo

8

9

abandon all well-trodden

paths

Andrew Blau: "Artpro Repro and ArtFlow are the final missing

link in Time’s quest for digital convergence - where all of the

pages we produce, both advertisingand editorial can be produced

on non-proprietry systems within a common file format."

exploring the boundaries of sales and marketingEXPLORING THE BOUNDARIES OF SALES AND MARKETING

Fiscal year 1998 was a year of acquisitions and consolidations. This clearly set

the stage for the strong growth of 1999. The combination of our complete

product line together with our direct sales strategy quickly confirmed our position

as supplier of integrated workflow solutions to a broad segment of the graphic arts

industry, including packaging as well as commercial printing and publishing.

While most of revenues in 1998 were generated through ArtPro for packaging

applications, 1999 clearly changed this trend through the active pursuit of

the commercial markets with workflow products. In FY99, we further strengthened

our position in the flexographic markets, with application as well as workflow

software solutions.

The breakthrough in the publishing market quickly became apparent with repeat

purchases from major publishers and printers throughout the world. Indeed, many

of those were following the example of Time Inc., who had successfully imple-

mented a fully automated workflow in their pre-press production department

through the use of ArtFlow and ArtPro Repro. Eighteen months after the initial

installation, Andrew Blau, Time Magazine’s Director of Operations is unambiguous

about the success in their operation: "Artpro Repro and ArtFlow are the final

missing link in Time’s quest for digital convergence - where all of the pages we

produce, both advertising and editorial can be produced on non-proprietry

systems within a common file format."

Other publishers followed, including key publishers like Cahners Publishing (part

of Reed Elsevier), Wenner Media, publisher of the famous Rolling Stone Magazine,

and Primedia. Many installations of ArtFlow and ArtPro Repro also took place

in Europe.

Kin Wah LamAndrew Blau

10

sales office France

sales office UK

the benefits of synergy

new offices, direct communication

THE BENEFITS OF SYNERGY

While the breakthrough in publishing was apparent, the synergy between the

different product lines as well as the distribution organizations in Europe and the

U.S. resulted in a strong growth of revenues. As the sales of ArtPro and related

products boomed in the U.S., workflow products based on PageFlow and

PackFlow quickly became accepted in Europe. The net result was the milestone

of 4500 installed ArtPro licenses worldwide and the milestone of over 500

workflow customers based on PageFlow/PackFlow RIP solutions. With this,

the U.S. grew from 29% of revenues in FY98 to over 50% this year!

The Americas 52%

Europe 41%

Asia 6%

Rest of the World 1%

NEW OFFICES, DIRECT COMMUNICATION

The achievement of this important growth in revenues was clearly not influenced

by the postponed secondary offering of shares and the new listing on the Neuer

Markt in April 1999. With a strategy of implementing software workflow solutions,

some important steps were taken towards completing a direct sales strategy that

offered a much closer communication with strategic accounts worldwide. In the

course of 1999, new offices were opened in the United Kingdom and France,

while support organizations were implemented in Brazil and Singapore to explore

new and exciting markets. Less than one year after opening, the United Kingdom

operation already shows a tremendous success with a turnover increase of 70%

over 1998 (when sales was still handled through an independent distribution

channel). Equally successful is Germany, which now represents over 18% of

the company’s turnover, with a growth of 67% over 1998! All of this illustrates that

the direct sales and distribution strategy has paid off, and paid off well! Obviously,

this strategy resulted in a substantial increase in staff. In FY99, Artwork Systems

grew to 110 employees, while at the time of the IPO on Easdaq only 3 years ago,

our staff was only about 15 employees…

11

But at the same time, the company continues to pursue an active cooperation with

major industry suppliers. While the existing cooperation with Heidelberg continued

to grow, Agfa and Artwork Systems announced a strategic alliance in the North

American packaging market for Direct-to-Plate in flexographic and offset markets.

software development 14

sales & marketing 37

training, demos & support 39

administration 20

total staff 110

Francebusiness unit

6 staff

UKbusiness unit & development

11 staff

Belgiumhead officebusiness unit & development33 staff

Singaporeinternational support1 staff

Germanybusiness unit14 staff

USbusiness unit & development

43 staff

Brazilinternational support2 staff

12

13

reaching for

the sky

US office inside

US office outside

le défi américainLE DÉFI AMÉRICAIN

The North American market is the most important single market worldwide. This is

due to several factors. One of these is the willingness of the market to adapt to

new technologies. Another is the fact that it is an extremely demanding market,

demanding in issues like service and quality. And thirdly, the North American

continent has been living an economic revival since a couple of years, also in the

printing economy.

Artwork Systems has had a presence in this market since 1997 with its own offices

in Chicago. In August 1998 this office was replaced by PCC Artwork Systems,

a wholly-owned subsidiary of Artwork Systems responsible for all North American

sales, distribution, and support as well as the ongoing software development

activities for the Raster Image Processor (RIP) product line. It was formed when

Professional Computer Corporation (PCC) was acquired by Artwork Systems.

With the products, technology, and personnel of both companies now combined

into a single entity, PCC Artwork Systems has become the dominant player in the

North American packaging market and now has a strong focus on commercial

printing and publishing markets as well.

The success in North America in 1999 can be attributed to several factors, sum-

marized below and discussed in more detail in subsequent paragraphs:

Leveraging full integrated product line in the sales process

Development of strong sales force

Market penetration through independent distributor channel

Major business focus on corporate accounts

Cultivation of strong relationships with major engine vendors

Emphasis on commercial as well as packaging markets

14

a powerful integrated product line

a corporate account program

A POWERFUL INTEGRATED PRODUCT LINE

One of the biggest contributors to the strong North American financial results in

1999 was the powerful integrated product line. The combination of Raster Image

Processor (RIP) products (called PageFlow™ for commercial environments and

PackFlow™ for labels and packaging) with the powerful vector capabilities

of ArtPro and ArtFlow resulted in an integrated product line, running on standard

off-the-shelf platforms, with features unmatched by all but the most expensive

proprietary systems. This product line was leveraged strongly in North America,

with over 40% of all system sales combining the RIP workflow with ArtPro

software solutions.

Also key to our success was the development of a strong sales force and the

redefinition of the independent distribution channel. The North American sales

force was increased to a total of twelve (12) regional territory managers located

in key markets, working both independently and with OEMs and distributors.

The dealer channel was also restructured.

A CORPORATE ACCOUNT PROGRAM

The third part of our sales strategy in 1999 was the implementation of a corporate

account program. Contrary to the situation in Europe, North America has many

corporate accounts. These accounts, with multiple plants throughout the

continent, are especially attractive sales prospects because a successful instal-

lation at one plant can lead to repeat orders from many other plants. Approximately

30% of 1999 sales were from national accounts. American Color Graphics and

Master Graphics were the two largest accounts. Both companies purchased

PageFlow RIPs and ArtPro software to drive new platesetting equipment at their

various printing facilities. In fact, Master Graphics was hailed in October as the

purchaser of the 500th PageFlow™ system. Bob Diehl, CEO of Master Graphics,

states, “We selected PageFlow for our divisions, based on technical capabilities,

system flexibility, and most importantly a shared vision of the future. We see the

future as software based with an open interface which is in direct contrast with the

solutions presented by alternative vendors.” Bob explains, “We could only form a

close business relationship with a partner who shared our vision of the future and

was willing to put the full weight of their resources into attaining the future sooner

rather than later, even if it meant the sacrifice of short term objectives. This is

the differentiation of PCC Artwork Systems, leadership that backs the vision now.”

15

good and strong relationshipGOOD AND STRONG RELATIONSHIP

Because the PageFlow and PackFlow RIPs interface directly with a large number

of output devices, it was important for PCC Artwork Systems to cultivate relation-

ships with many of the largest output device vendors. The most significant event

was the announcement of a formal co-marketing agreement with Agfa Corporation

specifically aimed at increasing market share in packaging accounts. This agree-

ment also facilitated stronger technical cooperation between the software devel-

opment teams of Artwork Systems and Agfa, and resulted in new or improved

interfaces for many Agfa devices, including the Galileo platesetter, the Phoenix

imagesetter, and the Sherpa proofer. Our relationships with many other engine

vendors, including Scitex, Creo, Heidelberg, Fuji, Cymbolic Sciences, and Screen,

were also strengthened in 1999 and should pay dividends in coming years.

Another key success factor for PCC Artwork Systems in 1999 was its strong

showing in commercial printing and publishing markets. Based on strong sales of

PageFlow™ RIPs, this market segment accounted for over 50% of total North

American sales in 1999. ArtFlow and ArtPro Repro were also included in many

RIP configurations or sold as a standalone workflow system in publishing accounts.

Major publishing accounts include Primedia, Cahner’s Publishing, and Time Inc.

16

17

broadening

our horizonPRODUCT FOLIO

Until the acquisition of PCC, revenues of Artwork Systems were mainly based

on the flagship product ArtPro for packaging and label production, followed by

ArtPro Repro for complex page assembly and ArtFlow, for automated version

page processing. Since the acquisition, Artwork Systems has had an impressive

suite of pre-press software tools not only for front-end interactive production

but also workflow solutions and complete RIP configurations, including PageFlow

and PackFlow. All of these solutions are available today for packaging and labeling

as well as commercial color printing and publishing and have their own set of

unique advantages that put them at the top of their categories.

Related RIP technologies like FlexoCal and Hybrid Screening have had a tremen-

dous impact on the flexographic industry by delivering real quality improvements

using existing imagesetting equipment, therefore keeping the investment for the

customers to a minimum.

Nevertheless, to further service the market of professional pre-press, new and

exciting software products were introduced in the course of 1999 in addition to

new releases of the existing products.

ArtPro and ArtFlow 4.99 contain a number of productivity enhancements as well

as several new production features and extended format support. New formats

have been added to achieve more flexibility with incoming advertisements for pub-

lishing and for a better compatibility with existing customer equipment. At the same

time, additional editing tools were provided to easily allow for language changes,

for pattern generation (especially important in the cigarette packaging industry),

for positioning and/or aligning of images or objects, and for special screening

requirements. Also, to enhance the comfort and productivity level of operators,

several menus were reworked and a new Navigator tool was introduced to inter-

actively position the view of the documents on screen.

product folio

ArtPro

ArtFlow

PackFlow

PageFlow

18

pageflow and packflow 1.7

the artcruise module

PageFlow and PackFlow 1.7, the new release of the RIP-based workflow

solutions for commercial printing and publishing, as well as labels and packaging

applications, feature an equally important set of new tools, formats and productivity

enhancements. An improved graphical workflow editor has been greatly

appreciated by existing and new users while a substantial speed increase

has improved throughput at every production plant. Enhanced trapping tools,

including image to image trapping, drastically improve quality of the output and

position the product at the highest-ranking level of RIP products in the industry.

A brand new stitching tool has been added to PageFlow and PackFlow

to automatically place outputs of different jobs together on one film or plate, thus

optimizing media usage and reducing costs.

Even though these exciting new updates of existing software have been greatly

appreciated by the users, new products and optional features for existing

products have been announced to further put our customers at the highest level

of productivity.

The ArtCruise module offers a complete new set of features, included with every

ArtPro seat, which will extensively check incoming files for errors, consistency, and

quality. A full-fledged reporting procedure, for which the parameters are fully deter-

mined by the user, will identify any potential problem with the file, navigate the user to

the problem in the document, and even allow for automatic corrections. Typical errors

which can occur include missing fonts, improper image resolutions or image color,

strokes or type smaller than a specified size, the use of special colors inside

a file instead of the standard process colors cyan, magenta, yellow and black, etc…

ArtCruise

low resolution image

high resolution image

19

powerlayout

poweroptimizer

PowerLayout, a new option to an existing ArtPro license or used as a standalone

application, contains an extensive set of new step-and-repeat functionality for

labels and packaging purposes. Enhancements to the existing step-and-repeat

tools include a new interactive mode, more comprehensive parameter setup, and

the ability to combine different colors of a job on one film or plate, optimizing the

media usage. Control of screening per job has equally been added to provide a

complete level of flexibility in the step-and-repeat process.

PowerOptimizer, a new option to an ArtPro license or to a standalone PowerLayout

application, is greatly appreciated by label users who want to combine multiple

labels with different sizes and needed volumes on one single film or plate.

PowerOptimizer automatically calculates an optimal distribution of all labels with the

required step-and-repeat on the sheet, taking into account how the sheet will have

to be cut after printing. PowerOptimizer is a great help in the production depart-

ment of the label printing plant as well as the calculation department responsible

for order processing and follow-up.

It is obvious that Artwork Systems is ideally positioned to start the year 2000

with these new sets of products and tools. As the existing raster and vector

technologies become further integrated, more new products and technologies

will be introduced in the course of 2000 to strengthen the leading position

of the company!

PowerOptimizer

20

major events 1999MAJOR EVENTS 1999

january opening of business unit in United Kingdom;

further implementation of direct sales strategy in Europe.

april confirmation of breakthrough in publishing market in the U.S.

with over 900.000 US$ in revenues from key publishers.

may opening of business unit in France:

completion of direct sales strategy in Western Europe.

september Agfa Corporation and Artwork Systems announce strategic

marketing alliance in the North American packaging market

for Direct-to-Plate in Flexo and Offset.

october over 4500 ArtPro licenses are installed worldwide, while at

the same time the 500th PageFlow/PackFlow sale is announced.

21

consolidated financial statement for the year ended september 1999

ARTWORK SYSTEMS GROUP N.V.

consolidated financial statement for the year ended september 1999

22

FINANCIAL STATEMENTS

In this document, the terms “Artwork Systems” and “the Company” refer to artwork Systems Group N.V. and

its consolidated subsidiaries.

SELECTED SUMMARY FINANCIAL DATA

The selected financial data presented below have been extracted and derived from the consolidated financial

statements of Artwork Systems Group N.V. included in section 3 of this document.

30/09/1999 Euro 30/09/1998 Euro 30/09/1997 Euro

Net revenue 28,572,274 14,137,642 11,582,922

Cost of revenues 5,130,401 580,113 285,812

Gross margin 23,441,873 13,557,529 11,297,110

Operating expenses

Research and development 1,727,515 546,762 514,461

Sales and marketing 4,892,534 2,286,155 1,054,353

General and administrative 1,956,517 818,121 413,371

Depreciation 467,188 185,720 82,385

Amortization of goodwill 3,223,632 1,675,158 0

Income from operations (*) 14,398,119 9,720,771 9,232,540

Non-operating expenses 604,421 0 0

Financial income 482,899 126,001 574,958

Profit before income taxes (*) 14,276,597 9,846,772 9,807,498

Provision for income taxes -4,916,480 -3,277,109 -3,546,289

Net income (*) 9,360,117 6,569,663 6,261,209

Net income after goodwill 6,136,485 4,894,505 6,261,209

(*) before amortization of goodwill

30/09/1999 Euro 30/09/1998 Euro 30/09/1997 Euro

Cash and cash equivalents 6,488,761 1,811,672 10,116,909

Goodwill 8,578,136 8,389,754 0

Total assets 26,452,756 18,822,264 14,573,176

Total current liabilities 6,834,054 3,169,811 1,291,232

Shareholders’ equity 19,618,702 15,652,453 13,281,945

1.

Income Statement (in euro)

Balance Sheet (in euro)

23

description of business

major events

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Description of Business

Artwork Systems develops and markets software for pre-press and provides training and support for these products.

Artwork Systems’ most important products are:

• ArtPro, its first product, for pre-press of packaging and labels;

• ArtPro Repro, introduced in 1997, for general commercial color pre-press (for magazines, catalogs, direct

mail, brochures, etc.);

• ArtFlow, launched in 1998, a product for workflow automation;

• PageFlow and PackFlow, RIP (Raster Image Processor) products, added through the acquisition of PCC.

The Company generally sells software only, except for the RIPs which are sometimes sold together with the

hardware they run on.

The Company offers its customers an annual maintenance contract, that includes telephone support and

software updates.

Artwork Systems sells its products directly to end-users in the most important countries and through specialized

distributors in the rest of the world. The Company also sells through OEMs to specific markets. The direct

sales area now consists of Belgium, the Netherlands, Germany, Austria, Switzerland, North America, Canada,

the United Kingdom and France.

Artwork Systems has offices in Gent (Belgium), Freiburg (Germany), Bristol (Pennsylvania, US), Redditch and

Cheltenham (UK) and Paris (France). The Company’s headquarters are located in Belgium. Total staff is 110.

Major events

During the last quarter of the previous financial year, Artwork Systems acquired PCC, a competitor in the United

States. PCC has been merged with the Company’s own operations in the US and now operates as “PCC

Artwork Systems”. It continues to develop its RIP products and also performs direct sales, customer support

and training for all the Company’s products in North America.

During the second quarter, the Company started direct sales in the United Kingdom and opened a sales and

support office in Redditch near Birmingham.

During the third quarter, the Company acquired the business unit handling sales and support for its products

in France from its distributor Elcede. This unit now operates under the Artwork Systems name and has been

moved to Paris.

2.

results of operations

24

financial reporting considerationsFinancial Reporting Considerations

The Company reports its consolidated financial statements in accordance with generally accepted accounting

principles in the United States (US GAAP).

The reporting currency is the Euro (EUR). For subsidiaries outside the Euro-zone, assets and liabilities are

translated at exchange rates in effect at the end of the reporting period, and revenues and expenses are

translated at the average exchange rate during the period. Equity is translated at historic exchange rates. Gains

or losses resulting from these translations are reflected in the component “cumulative translation adjustment” in

the balance sheets.

Exchange rates (USD/EUR) applied in the financial statements are as follows (rounded to 4 digits):

Period Income Statement Balance Sheet

(average rate) (end of period rate)

FY 1997 1.1658 1.1044

FY 1998 1.0968 1.1676

FY 1999 1.0982 1.0665

All discussions in this document are based on comparisons of Euro amounts.

Results of Operations

The following table sets forth income statement data as a percentage of revenue:

FY 99 FY 98 FY 97

Revenue from Products 86.4% 85.5% 93.9%

Revenue from Services 13.6% 14.5% 6.1%

Cost of Revenues 18.0% 4.1% 2.5%

Gross Margin 82.0% 95.9% 97.5%

Research and Development 6.0% 3.9% 4.4%

Sales and Marketing 17.1% 16.2% 9.1%

General and Administrative 6.8% 5.8% 3.6%

Depreciation and Amortization (*) 1.6% 1.3% 0.7%

Operating Margin (*) 50.4% 68.8% 79.7%

Non-operating Expenses 2.1%

After Tax Margin (*) 32.8% 46.5% 54.1%

After Tax Margin after goodwill 21.5% 34.6% 54.1%

(*) before amortization of goodwill

net revenues

25

The following table compares income statement data with last year:

% increase

FY 99 over FY 98

Revenue 102.1%

Revenue from Products 104.1%

Revenue from Services 90.3%

Cost of Revenues 784.4%

Gross Margin 72.9%

Research and Development 215.9%

Sales and Marketing 114.0%

General and Administrative 139.1%

Depreciation and Amortization (*) 151.6%

Income from Operations (*) 48.1%

Net Income (*) 42.5%

Net Income after goodwill 25.4%

(*) before amortization of goodwill

The percentages of net revenues for each major regional market were as follows:

FY 99 FY 98 FY 97

Europe 41% 54% 50%

Americas 51% 30% 17%

Asia 6% 16% 33%

Rest of the World 1% 1% 1%

The percentages of net revenues for each sales channel were as follows:

FY 99 FY 98 FY 97

Direct Sales 50% 45% 14%

Distributors 45% 49% 67%

O.E.M.s 4% 6% 19%

Net Revenues

Net revenues show strong growth thanks to the synergy between Artwork Systems and its US subsidiary PCC,

which was acquired at the end of last financial year. This synergy results from geographic complementarity as

well as complementarity with regard to product lines. PCC’s sales force now sells Artwork Systems’ products

in the United States and Artwork Systems’ international sales organization sells PCC’s products in the rest of

the world.

Starting financial year 1999, the new US GAAP rule SOP 97-2 is in effect. This rule imposes the Company to

defer part of its revenues, to account for the so-called “warranty period”, i.e the maintenance period which is

included in the initial sale, even though costs related to this free maintenance period historically have been

immaterial. This has a negative impact of EUR 197,892 on net revenues for the year.

cost of revenues

operating expenses

non-operating expenses

goodwill

26

Cost of Revenues

For software sales, cost of revenues consists of the costs of the software protection keys, printing costs for

the user’s manuals and license fees payable to Pantone and Scitex. For RIP sales, cost of revenues also

includes the cost of the computer that runs the RIP software. For services it primarily consists of salaries and

related costs for the product specialists that provide training and telephone support.

Cost of revenues, expressed as a percentage of net revenues, has significantly increased, because it now also

includes the cost of the RIP hardware. Management expects cost of revenues to decrease in the future,

because of efforts to reduce hardware sales.

Operating Expenses

Research and development expenses consist primarily of compensation and related costs. Sales and marketing

expenses consist of salaries, travel and participation in trade shows. General and administrative expenses

consist of compensation and related expenses, and consulting and professional fees.

The increase in operating expenses is due to the costs of the new subsidiaries in Germany, the US, the UK

and France, and to the growing emphasis on direct sales in general.

As required by US GAAP, operating expenses include a non-cash compensation expense of EUR 62,999 for

the Employee Stock Option Plan.

Non-operating Expenses

All costs relating to the postponed secondary offering of shares and the listing on the Neuer Markt were recorded

as non-operating expenses. These expenses mainly consist of fees for lawyers and auditors, translation,

printing, financial P.R. and travel. They amount to EUR 604,421.

Goodwill

Goodwill on acquisitions is amortized over 18 months for sales organizations and over 3 to 5 years for R&D

units, in line with software industry practice and SEC guidelines.

Company Acquired as of Goodwill Amortization over

PIC GmbH January 1, 1998 EUR 3,118,717 18 months

distributor for Germany, Austria and Switzerland

PCC August 28, 1998 EUR 9,375,703 5 years

competitor in the United States

Elcede business unit May 18, 1999 EUR 1,016,464 18 months

distributor for France

The purchase agreement for PCC contains an adjustment mechanism (based on the amount of working capital

at the date of the acquisition) as well as an earn-out mechanism (based on the EBITDA amounts for financial

years 1999 and 2000). Under these mechanisms goodwill resulting from the PCC acquisition has increased

with USD 2,410,835 on September 30, 1999. This additional goodwill is amortized over the remainder of the

amortization period. Goodwill will increase once more on September 30, 2000.

liquidity and capital resources

27

Liquidity and Capital Resources

As of September 30, 1999, the Company had EUR 6,488,761 of cash and cash equivalents. These funds are

invested in short-term bank deposits. The Company had no borrowings during the year.

On May 18, 1999 the Company paid EUR 981,206 for the French business unit.

On August 31, 1999 the Company paid an interim dividend of EUR 0.16 per share or EUR 2,724,424 in total.

After the end of the financial year, the Company paid a total amount of USD 3,143,100 under the above-

mentioned adjustment and earn-out mechanisms in the purchase agreement for PCC. At the end of financial

year 2000, the Company will have to pay a final earn-out amount. Management currently estimates this amount

to be less than 3 million USD.

Management believes it will be able to satisfy the Company’s cash requirements for the foreseeable future from

cash flow from operations and short term borrowings.

28

3. DETAILED FINANCIAL STATEMENTS

ARTWORK SYSTEMS GROUP

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders

Artwork Systems Group N.V. consolidated

We have audited the accompanying consolidated balance sheet of Artwork Systems Group N.V. as of

September 30, 1999, 1998 and 1997 and the related consolidated statements of income, shareholders’ equity,

and cash flows for each of the three years in the period ended September 30, 1999. These consolidated financial

statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on

these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the

consolidated financial statements are free of material misstatement. An audit includes examining, on a test

basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also

includes assessing the accounting principles used and significant estimates made by management, as well as

evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis

for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,

the financial position of Artwork Systems Group N.V. at September 30, 1999, 1998 and 1997, and the

consolidated results of its operations and its cash flows for each of the three years in the period ended

September 30, 1999, in conformity with accounting principles generally accepted in the United States.

Gent, December 14, 1999

Ernst & Young Bedrijfsrevisoren B.C.V. (B 160)

Represented by

Marc Cosaert

Partner

29

Assets

ARTWORK SYSTEMS GROUP

CONSOLIDATED BALANCE SHEETS AT

SEPTEMBER 30, 1999, 1998 AND 1997

30/09/1999 Euro 30/09/1998 Euro 30/09/1997 Euro

Current Assets:

Cash and cash equivalents 6,488,761 1,811,672 10,116,909

Accounts receivable, net of allowances for

uncollectable accounts of Euro 1,306,229, 8,127,009 5,748,858 3,359,650

Euro 1,562,657 and Euro 247,413

at Sept. 30, ‘99, ‘98 and ‘97 resp.

Inventory 263,603 196,540 11,828

Prepaid license costs (note 4) 564,483 615,800 667,117

Value added taxes 0 104,090 157,751

Other current assets 185,960 148,855 44,189

Income taxes receivable 0 703,788 0

Deferred tax asset (note 9) 1,360,485 342,733 0

Total current assets 16,990,301 9,672,336 14,357,444

Property and equipment, net (note 5) 884,320 760,173 215,732

Goodwill (note 2) 8,578,136 8,389,754 0

Total assets 26,452,756 18,822,264 14,573,176

See the accompanying notes to the audited financial statements

30

Liabilities and

shareholders' equity

ARTWORK SYSTEMS GROUP

CONSOLIDATED BALANCE SHEETS AT

SEPTEMBER 30, 1999, 1998 AND 1997

30/09/1999 Euro 30/09/1998 Euro 30/09/1997 Euro

Current liabilities:

Short term debt from bank 0 0 34,848

Accounts payable 1,222,228 1,519,484 331,637

Accrued payroll and related taxes 276,689 184,605 106,336

Accrued license fees 98,148 22,184 204,902

Accrued fees and other expenses 986,288 604,543 77,992

Accrued commissions payable 0 0 13,006

Value added taxes 11,328 0 0

Income taxes payable 71,082 0 237,531

Deferred income 918,527 643,270 266,189

Deferred tax liability (note 9) 208,965 195,726 18,232

Other amounts payable 93,682 0 558

Additional purchase price payable 2,947,117 0 0

Total current liabilities 6,834,054 3,169,811 1,291,232

Shareholders' equity:

Common stock; no par value, 17,026,650, 6,861,871 6,850,243 6,845,270

17,002,400 and16,991,000 shares

authorized, issued and outstanding

at Sept. 30, ‘99, ‘98 and ‘97 resp.

Additional paid-in capital 554,755 446,673 445,662

Retained earnings, restricted 133,375 0 0

Retained earnings, unrestricted 14,629,952 11,155,713 6,261,208

Dividend paid out -2,724,424 -2,528,871 0

Cumulative translation adjustment 290,252 -70,803 5,741

Unearned compensation expense (note 7) -127,080 -200,504 -275,937

Total shareholders' equity 19,618,702 15,652,453 13,281,945

Total liabilities and shareholders' equity 26,452,756 18,822,264 14,573,176

See the accompanying notes to the audited financial statements

31

ARTWORK SYSTEMS GROUP

CONSOLIDATED INCOME STATEMENTS FOR THE YEARS ENDED

SEPTEMBER 30, 1999, 1998 AND 1997

30/09/1999 Euro 30/09/1998 Euro 30/09/1997 Euro

Net revenue

Products 24,676,605 12,090,225 10,872,904

Services 3,895,669 2,047,417 710,018

Total revenues 28,572,274 14,137,642 11,582,922

Cost of revenues

Products 2,956,685 184,187 183,378

Services 2,173,716 395,926 102,434

Total cost of revenues 5,130,401 580,113 285,812

Gross margin 23,441,873 13,557,529 11,297,110

Operating expenses

Research and development 1,727,515 546,762 514,461

Sales and marketing 4,892,534 2,286,155 1,054,353

General and administrative 1,956,517 818,121 413,371

Depreciation 467,188 185,720 82,385

Amortization of goodwill 3,223,632 1,675,158 0

Total operating expenses 12,267,386 5,511,915 2,064,570

Income from operations 11,174,487 8,045,614 9,232,540

Non-operating expenses 604,421 0 0

Interest income 142,535 372,589 269,558

Interest expense 485 44,272 34

Net exchange gain (loss) 340,849 -202,316 305,434

Profit before income taxes 11,052,966 8,171,614 9,807,497

Provision for income taxes (note 9) 4,916,480 3,277,109 3,546,289

Net income 6,136,485 4,894,505 6,261,208

Net income before amortization of goodwill 9,360,117 6,569,662 6,261,208

Net income per share 0.36 0.29 0.37

Diluted earnings per share 0.36 0.29 0.37

Net income per share, before amortization of goodwill 0.55 0.39 0.37

Diluted earnings per share, before amortization of goodwill 0.55 0.39 0.37

See the accompanying notes to the audited financial statements

32

1999 in Euro:

1998 in Euro:

ARTWORK SYSTEMS GROUP

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY FOR

THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997

Accumulated

Common stock Additional Retained other Total

Paid-In Earnings comprehensive Shareholders’

Shares Amount Capital income Equity

Balances, September 30, 1998 17,002,400 6,850,243 246,170 8,626,842 -70,803 15,652,453

Exercise of employee stock options 25,250 11,628 118,507 130,135

Employee stockholders plan net 62,999 62,999

Components of comprehensive income

Foreign currency translation 361,054 361,054

Net income 0 0 0 6,136,485 0 6,136,485

Total Comprehensive income 0 0 0 6,136,485 361,054 6,497,540

Dividend paid out -2,724,424 -2,724,424

Balances, September 30, 1999 17,027,650 6,861,871 427,675 12,038,903 290,252 19,618,702

Accumulated

Common stock Additional Retained other Total

Paid-In Earningscomprehensive Shareholders’

Shares Amount Capital income Equity

Balances, September 30, 1997 16,991,600 6,845,270 169,725 6,261,208 5,741 13,281,945

Exercise of employee stock options 10,800 4,974 381 5,355

Employee stockholders plan net 76,064 76,064

Components of comprehensive income

Foreign currency translation -76,544 -76,544

Net income 0 0 0 4,894,505 0 4,894,505

Total Comprehensive income 0 0 0 4,894,505 -76,544 4,817,961

Dividend paid out -2,528,871 -2,528,871

Balances, September 30, 1998 17,002,400 6,850,243 246,170 8,626,842 -70,803 15,652,453

33

1997 in Euro:

Accumulated

Common stock Additional Retained other Total

Paid-In Earnings comprehensive Shareholders’

Shares Amount Capital income Equity

Balances, December 9, 1996 16,978,000 6,839,007 0 0 0 6,839,007

Exercise of employee stock options 13,600 6,263 480 0 0 6,743

Employee stockholders plan net 0 0 169,245 0 0 169,245

Components of comprehensive income

Foreign currency translation 0 0 0 0 5,741 5,741

Net income 0 0 0 6,261,208 0 6,261,208

Total Comprehensive income 0 0 0 0 0 0

Balances, September 30, 1997 16,991,600 6,845,270 169,725 6,261,208 5,741 13,281,945

34

Operating activities

ARTWORK SYSTEMS GROUP

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS

ENDED SEPTEMBER 30, 1999, 1998 AND 1997

30/09/1999 Euro 30/09/1998 Euro 30/09/1997 Euro

Net income 6,136,485 4,894,505 6,261,208

Adjustments to reconcile net profit to net cash

provided by operating activities:

Deferred taxes -1,009,708 -165,240 18,232

Depreciation and amortization 3,690,820 1,860,878 82,385

(Gain)/loss on sale of equipment 36,799 -820 -2,231

Provision for losses on accounts receivable 402,466 245,580 185,564

Compensation expense (ESOP) 62,999 76,064 169,245

Changes in operating assets and liabilities

Accounts receivable -3,181,898 -68,143 -1,153,186

Prepaid taxes 332,463 -703,788 0

Prepaid license costs 51,317 51,317 -667,117

Value added taxes 113,049 4,345 -144,597

Other current assets 67,115 -20,406 -13,403

Inventory -75,432 -47,076 -11,828

Short term debt from bank 0 -34,848 34,848

Accounts payable -586,026 -257,476 222,379

Accrued payroll and related taxes 91,745 -423,223 37,246

Accrued license costs 75,964 -182,719 123,616

Accrued fees and other expenses 497,274 226,389 -97,463

Accrued commissions payable 0 -13,006 -39,879

Income taxes payable 434,737 -615,334 -121,708

Deferred income 433,858 268,180 114,668

Other current liabilities 14,125 -558 558

Additional purchase price payable 2,947,117 0 0

Net cash provided by operating activities 10,535,269 5,094,618 4,998,538

See the accompanying notes to the audited financial statements

35

Investing activities

Financing activities

30/09/1999 Euro 30/09/1998 Euro 30/09/1997 Euro

Purchases of property and equipment -603,518 -147,866 -171,909

Proceeds from sales of equipment 23,076 10,600 2,231

Investment in PIC 0 -2,475,453 0

Investment in PCC -2,280,335 -7,148,294 0

Investment in France -1,026,408 0 0

Net cash used in investing activities -3,887,185 -9,761,012 -169,678

Net proceeds of public offering 0 0 6,095,326

Exercise of stock options for cash (ESOP) 130,135 5,355 6,743

Dividend payment -2,724,424 -2,528,871 0

Repayment of bank debt 0 -1,054,632 -6,470,021

Translation adjustment 513,299 -76,544 5,741

Net cash used in financing activities -2,080,990 -3,654,693 -362,210

Effect of exchange rate changes on cash 109,995 15,850 1,010

Net increase in cash and cash equivalents 4,677,089 -8,305,237 4,467,660

Cash and cash equivalents at beginning of year 1,811,672 10,116,909 5,649,249

Cash and cash equivalents at end of year 6,488,761 1,811,672 10,116,909

See the accompanying notes to the audited financial statements

36

1.

2.

ARTWORK SYSTEMS GROUP NOTES TO THE FINANCIAL STATEMENTS

ORGANIZATION

Artwork Systems Group N.V. (the Company) is organized as a company limited by shares ("naamloze

vennootschap"), under the laws of the Kingdom of Belgium. The company was incorporated on November 20,

1996 and went public on December 9, 1996. The company develops software for pre-press applications in

the graphic arts industry .

ACQUISITIONS

On May 18, 1999 Artwork Systems Group NV acquired a portion of the net assets of Elcede, a distributor of

the Company in France, for FRF 6,436,300 (Euro 981,206). The excess of purchase price over the estimated

fair value of net assets acquired of approximately Euro 1,016,000 has been recorded as goodwill and is being

amortized using the straight line method over 18 months.

The acquired company was incorporated in conjunction with the acquisition and had not engaged in

operations until the acquisition.

Effective January 1, 1998 Artwork Systems Group N.V. acquired Pic GmbH, its distributor for Germany, Austria

and Switzerland, for DEM 6,287,500 (Euro 3,215,143). The transaction has been recorded using the purchase

method. The company who started operating under the name Artwork Systems GmbH & Co KG, handles

direct sales, customer support and training for the German speaking countries. The goodwill resulting from this

acquisition, in the amount of Euro 3,118,717 is amortized over 18 months.

Key figures (in Euro) for the year preceding the acquisition:

1998 1997

(pro forma) unaudited

Revenue 14,137,642 12,626,088

Income before extraordinary items 8,171,614 10,474,742

Net income, before goodwill 6,569,662 6,606,328

Earnings per share, before goodwill 0.39 0.39

On August 28, 1998 Artwork Systems Group N.V. acquired PST (Professional Software Technologies Inc) and

PCC International Ltd, operating under the name PCC (Professional Computer Cooperation) for USD 8 million

(Euro 7,323,766) and an earn out over the next two years based on future EBITDA. Professional Software

Technologies Inc. and PCC International are software developers and system integrators for the packaging and

commercial offset pre-press industries. The transaction has been recorded using the purchase method.

The goodwill resulting from the acquisition, in the amount of Euro 6,946,165 is amortized over 5 years. An

appraisal performed by an independent specialist indicates that there should be no write-off of in-process R&D

for this acquisition nor assignment to other intangibles than goodwill.

goodwill

37

In accordance with the purchase agreement of August 28, 1998 the purchase price was comprised of a cash

payment, as defined in the agreement, the satisfaction by Artwork Systems of Professional Software

Technologies’ indebtness to its bank and an earn out provision, as defined in the agreement. The initial

purchase price is subject to a working capital adjustment.

PCC was acquired at the end of Financial Year 1998, therefore no pro forma figures are presented. Alternatively,

the effect of the acquisition of PCC on the income statement of 1998 is shown below.

1998 Euro

Revenue 745,882

Income before extraordinary items 200,785

Net income, before goodwill 113,796

Earnings per share, before goodwill 0.01

In accordance with the purchase agreement the Company has determined that the additional purchase price

contingent on the result of fiscal year 1999 is USD 2,543,100 (Euro 2,384,529). This amount has been record-

ed as additional goodwill at September 30, 1999. In addition, the Company recorded an adjustment to

decrease goodwill of USD 132,265 (Euro 124,018) at September 30, 1999 to reflect the settlement with the

previous owners related to certain working capital adjustments provisions of the purchase agreement.

Goodwill

Goodwill results from the acquisition of PIC GmbH, PCC and Artwork Systems SA and can be determined as

follows (in Euro):

PIC 30/09/1999 30/09/1998

Goodwill 3,118,717 3,118,717

Amortization -3,118,717 -1,559,388

Net goodwill 0 1,559,329

PCC 30/09/1999 30/09/1998

Goodwill 9,375,703 6,946,165

Amortization -1,541,625 -115,769

Net goodwill 7,834,078 6,830,396

Artwork Systems SA 30/09/1999 30/09/1998

Goodwill 1,026,408 0

Amortization -282,351 0

Net goodwill 744,057 0

property and equipment

goodwill

income taxes

inventory

cash and cash equivalents

basis of presentation and principles of consolidation

38

3. SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation and principles of consolidation per September 30, 1999

The accompanying Consolidated Financial Statements have been prepared in accordance with accounting

principles generally accepted in the United States. They reflect adjustments made for US reporting purposes

which are not recorded in the company’s statutory accounts.

The Consolidated Financial Statements comprise the accounts of Artwork Systems Group NV, Artwork

Systems NV, Artwork Systems Inc, Artwork Systems GmbH & Co KG, Artwork Systems Beteiligungs-GmbH,

Artwork Systems Verwaltungs-GmbH, Artwork Systems Ltd and Artwork Systems SA. Artwork Systems Group

NV owns directly or indirectly a 100 % of all subsidiaries. All significant intercompany balances and transactions

have been eliminated in the consolidation.

Cash and cash equivalents

The company considers all highly liquid investments purchased with an original maturity date of three months

or less to be cash equivalents. Cash and cash equivalents consist primarily of deposits with banks.

Inventory

Inventory is stated at the lower of cost or market on a first-in, first-out basis.

Property and equipment

Property and equipment are stated at cost and depreciated over the estimated useful lives of the assets

ranging from three to nine years using the straight line method. The cost of maintenance and repairs is

charged against income as incurred.

Goodwill

Goodwill is recognized as the excess of the cost of an acquired business over the sum of fair valued

identifiable net assets. Goodwill is amortized (using the straight line method) over the period of the expected

future economic benefit, generally 18 months to five years.

Income taxes

The company provides for income taxes using the liability method pursuant to Statement of Financial

Accounting Standards No. 109 "Accounting for Income Taxes". Deferred income taxes are provided for

temporary differences arising between the statutory accounts, used as the tax basis, and the financial

statements prepared under accounting principles generally accepted in the United States.

foreign currency translation

software development costs

revenue recognition

fair value of financial instruments

39

Fair value of financial instruments

The Company considers cash and cash equivalents, debt and certain accrued expenses to be financial

instruments as defined by Statement of Financial Accounting Standards No. 107 "Disclosures About Fair

Value of Financial Instruments". The amounts of these assets and liabilities as presented in the balance sheet

approximate their fair value.

Foreign currency translation

The reporting currency of the company is the Euro. All assets and liabilities are translated using the exchange

rates in effect on the balance sheet date. Equity accounts are translated at historical rates. Income and expens-

es are translated at average rates in effect for the periods presented. The resulting currency translation adjust-

ment is reflected as a separate component of shareholders’ equity on the financial statements.

Foreign currency transaction gains and losses are included in net income.

The definition of the currencies used:

USD for US Dollar;

DEM for German Mark;

FRF for French Franc;

GBP for Pound Sterling;

EUR for Euro.

Software development costs

Software development costs are accounted for in accordance with Statement of Financial Accounting

Standards N° 86. Costs incurred in the research and development of new software products are expensed as

incurred until technological feasibility has been established. Costs incurred subsequent to establishment of

technological feasibility and prior to general release to customers are capitalized. To date, the establishment of

technological feasibility (as defined by FAS 86) and general release substantially coincide. As a result, the com-

pany has not capitalized any software development costs, since such costs have not been significant.

Revenue recognition

Revenue is recognized in accordance with the American Institute of Certified Public Accountants Statement of

Position 97-2 on Software Revenue Recognition. Revenue from software sales is recognized upon delivery of

the software and the protection key, provided that the fee is fixed and determinable and that the collection of

the receivable is considered probable. Maintenance revenue is recognized on a straight-line basis over the

maintenance period. Revenue from training and other services is recognized at the time the actual services are

performed.

In software arrangements that include multiple software products, and/or, maintenance and other services, the

Company allocates the total arrangement fee among each deliverable based on the relative fair value of each

deliverable.

concentration of credit risks

use of estimates

computation of net earnings per share

employee stock options

other Comprehensive income

40

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires

management to make estimates and assumptions that affect the reported amounts of assets and liabilities and

disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts

of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Concentration of credit risks

The company sells its software and hardware products either to end users or distributors throughout the world.

The company does not require collateral from its customers.

Computation of net earnings per share

Net Earnings Per Share is computed using the weighted average number of shares and dilutive equivalent

shares from warrants (using the treasury stock method).

Employee stock options

The Company accounts for stock options granted to employees in accordance with the provisions of

Accounting Principles Board Statement N 25 (APB 25), "Accounting for stock issued to employees".

Other Comprehensive income

Statement of Financial Accounting Standards (SFAS) N 130, Reporting Comprehensive Income, is adopted by

the company as from financial year 1999.

management services fees and directors’ compensa

41

4.

5.

6.

PREPAID LICENSE COSTS

The company made a lump sum payment of USD 830,000 to Scitex Corporation Ltd. in connection with a

license agreement. This amount is amortized using the straight line method over the useful life of the license,

i.e. 14 years.

Prepaid license cost consists of the following (in Euro):

30/09/1999 30/09/1998 30/09/1997

Prepaid license costs 718,433 718,433 718,433

Accumulated amortization -153,950 -102,633 -51,317

Prepaid license costs, net 564,483 615,800 667,117

PROPERTY AND EQUIPMENT

Major classes of property and equipment are summarized as follows (in Euro):

30/09/1999 30/09/1998 30/09/1997

Computer equipment 1,365,281 1,170,288 122,918

Office equipment 150,289 159,022 89,736

Furniture 207,516 154,266 48,230

Cars 388,676 242,176 178,038

Total property and equipment 2,111,763 1,725,753 438,923

Accumulated depreciation -1,227,443 -965,579 -223,190

Property and equipment, net 884,320 760,173 215,732

RELATED PARTY TRANSACTIONS

Management services fees and directors’ compensation

The commercial, financial and software development services of Guido Van der Schueren, Peter Denoo and

Bart Denoo are provided through the companies PowerGraph NV, Ingenieursbureau Peter Denoo BVBA and

Bart Denoo Engineering BVBA respectively. During financial year 1999, 1998 and 1997, the company paid

these companies a total amount of Euro 455,851, Euro 451,120 and Euro 446,208 respectively.

42

7. OPTION PLAN

In December 1996, the company adopted an Employee Stock Option Plan ("ESOP"), in order to provide long-

term incentives and rewards to the company’s employees. Under the plan, the company has issued 161,000

warrants, each incorporating the right to purchase a share at net book value for options granted before the IPO,

and, for options granted after the IPO, at the average closing price of the share over the last 120 days of trading.

In April 1999, the Company adopted a stock option plan for the former owner of Professional Software

Technologies. Under the plan the Company has issued 61,788 warrants, each incorporating the right to

purchase a share at the value determined at acquisition date.

In connection with the issuance of these options and warrants, the Company has recorded compensation in

the statement of operations resulting from the amortization of unearned compensation as follows (in Euro)

30/09/1999 30/09/1998 30/09/1997

62,999 76,064 169,245

At September 30, 1999 Euro 127,080 of unearned compensation expense remains unamortized and is

recorded as a component of equity.

Pro forma information regarding net income and net income per share is required by FAS 123, and has been

determinated as if the Company had accounted for its employee stock options under the fair value method of

FAS 123. The fair value for these options for 1999, 1998 and 1997 was estimated at the date of grant using

a Black-Scholes option pricing model assuming no dividends, risk-free weighted average interest rate of 4%

and a weighted average expected option life of 2.5 years, 2.9 years and 2.2 years for 1999, 1998 and 1997

respectively. The volatility factor of the expected market price of the Company’s ordinary shares was assumed

to be 65%.

The Black-Scholes option valuation model was developed for use in estimating the fair value of trade options

that have no vesting restrictions and that are fully transferable. The Black-Scholes model requires the input of

highly subjective assumptions including the expected stock price volatility. Because the Company’s employee

stock options have characteristics significantly different from those of traded options, and because the

changes in the subjective input assumptions can materially affect the fair value estimate in management’s

opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its

employee stock options.

43

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the

option’s vesting period. The Company’s pro forma information is as follows (in thousands except for the net

income and pro forma net income per share information)

1999 1998 1997

Net income as reported 6,136 4,895 6,261

Pro forma expense -423 -329 -55

Pro forma net income 5,713 4,566 6,206

Net income per share as reported-basic 0.36 0.29 0.37

Pro forma net income per share-basic 0.34 0.27 0.36

Net income per share as reported-diluted 0.36 0.29 0.37

Pro forma net income per share-diluted 0.34 0.27 0.36

The effects on pro forma disclosure of applying FAS 123 are not likely to be representative of the effects on

pro forma disclosures of future years.

Available Outstanding Average price Amount

per share

Options authorized 161,000 0 0 0

Options authorized 1999 61,788 0 0 0

Options granted 1996 -59,900 59,900 0.50 29,698

Options granted 1998 -18,500 18,500 7.31 135,288

Options granted 1999 -148,788 148,788 13.70 2,038,513

Options forfeited 11,850 -11,850 6.93 -82,065

Options exercised 0 -49,650 2.90 -143,915

Balances, September 30, 1999 7,450 165,688 11.94 1,977,519

44

8.

The following table summarizes the status of the Company’s stock options outstanding and exercisable at

September 30, 1999:

Stock options outstanding Stock options exercisable

Weighted

Average Weighted Weighted

Remaining average average

Number Contractual Exercise Number exercise

Range of exercise prices of shares Life Price of shares price

Euro 0.5 21,900 7.2 0.5 0 0

Euro 7.31 –13.18 143,788 7.2 20.28 43,096 5.70

All options 165,688 7.2 17.67 43,096 5.70

EXPORTS AND MAJOR CUSTOMERS

The company sells its products and services to customers in Europe (41%), Asia (6%), the Americas (51%) and

the rest of the world (2%).

The company sells and markets its products through a direct sales force operating from its offices in Gent

(Belgium), Freiburg (Germany), Bristol (Pennsylvania, USA), Redditch (United Kingdom) and Paris (France),

through independent graphic arts dealers and through Original Equipment Manufacturers (OEMs). Revenues

generated by independent dealers represent 45% of the Company’s turnover, direct sales 50% and OEMs 5%.

One major customer (distributor) represents approximately 26% of total net revenue for 1999.

45

9. INCOME TAXES

The provision for income taxes consists of the following:

30/09/1999 Euro 30/09/1998 Euro 30/09/1997 Euro

Current 5,920,995 3,442,349 3,528,057

Deferred -1,004,514 -165,240 18,232

4,916,481 3,277,109 3,546,289

A reconciliation of income taxes computed at the average local statutory rate ( 41%) to the provision for income

taxes is as follows:

30/09/1999 Euro 30/09/1998 Euro 30/09/1997 Euro

Income taxes computed at local statutory rate 4,531,716 3,084,784 3,939,672

Goodwill amortization 277,805 342,733 0

Translation difference 185,495 -206,192 0

Expensed IPO cost 0 0 -393,574

SOP 97/2 38,486 0 0

Expensed prepaid license costs -75,584 -75,584 -75,584

Disallowed expenses -161,635 98,650 76,689

Unearned compensation expense 25,307 30,555 67,986

Taxes on intra group dividend 99,579 0 0

Tax regularization 0 0 -42,182

Other items, net -4,687 2,163 -26,718

4,916,481 3,277,109 3,546,289

The components of the deferred tax asset (liability) are as follows:

30/09/1999 Euro 30/09/1998 Euro 30/09/1997 Euro

Goodwill amortization 1,086,299 342,733 0

Receivable allowances 249,315 161,635 62,985

Other items, net 24,871 0 0

Deferred tax asset 1,360,485 504,368 62,985

Translation differences -20,697 -206,192 0

Deferred revenue 38,486 0 -5,633

Expensed prepaid license costs -226,753 -151,169 -75,584

Deferred tax liability 208,964 -357,361 -81,217

Total deferred taxes: 1,151,521 147,008 -18,232

pantone license

barco graphics

46

COMMITMENTS

Pantone license

In 1994, Artwork Systems NV entered into a license agreement with Pantone to use the Pantone Color System.

The license fee amounts to 1% of net sales of products integrating the licensed system with an annual

minimum of USD 25,000 (Euro 22,764).

Operating lease obligations

Artwork Systems leases its facilities, cars and office equipment under operating lease agreements with vary-

ing expiry dates. Future minimum lease payments are as follows:

2000 Euro 205,368

2001 Euro 136,600

2002 Euro 26,449

2003 Euro 1,751

2004 Euro 0

Rent expense for the previous financial years are as follows:

1997 Euro 26,029

1998 Euro 118,021

1999 Euro 258,698

CONTINGENCIES

The company is involved in various legal proceedings arising in the normal course of business. The Company

believes that the ultimate resolution of these matters will not have a material effect on the Company’s financial

position, results of operations, or cash flows.

In addition the Company was involved in the following matters:

Barco Graphics

Artwork Systems NV and its French distributor Elcede France SA are involved in a legal proceeding with Barco

Graphics NV. Barco Graphics seeks a permanent injunction from further commercializing the Artpro Software

in France and from hiring away its personnel in France, and claims a provisional amount of damages of 4

million FRF. A preliminary injunction was denied by the Limoges Court on December 3, 1992 and by the

Paris Court on May 24, 1994. In a judgement of June 19, 1996, the Paris Commercial Court denied Barco

Graphics’ requests.

Barco Graphics has launched an appeal against this judgement. A first pleading on June 8, 1998 has not lead

to a decision yet. The next hearing is scheduled for March 6, 2000.

The Company, based on the advice of French and Belgian Counsel in the procedure, is of the opinion, that

the Judgement of the Paris Commercial Court will not be reversed.

10.

11.

artios

scitex

47

Artios

On March 22, 1999 Artios UK Ltd. ("Artios"), the Company’s former distributor for the United Kingdom,

summoned Artwork Systems NV before the Commercial Court of Gent, claiming a total amount of GBP

547,929 for retroactive discounts and for damages as a result of the termination of the distribution contract.

Artwork Systems had terminated this contract after Artios was acquired by Barco Graphics, a competitor of

the Company. Pleading is scheduled for February 24, 2000.

Although Artwork Systems intends to strongly defend its rights, it has completely reserved the receivables on

Artios, in the amount of EUR 451,990, as bad debts.

Scitex

In June 1995, PCC received a letter from Scitex Corporation, Ltd. ("Scitex") alleging that PCC’s trapping

software was infringing upon Scitex’s patent rights. This allegation has been repeated in a letter from

Scitex to Artwork Systems dated September 2, 1998. Based on the advice of its US patent attorney,

the Company believes the Scitex patents are subject to challenges for several reasons. Accordingly no

provision has been recorded.

SEGMENT INFORMATION

The Company has evaluated FAS 131 "Disclosures about Segments of an Enterprise and Related Information"

and has concluded that the Company operates in one reportable industry segment, the development,

marketing, sales and support of pre-press software and related hardware.

12.

48

barco graphics

artios

ANNUAL REPORT

EMPLOYEES

102 employees currently work for Artwork Systems, 31 in Belgium, 14 in Germany, 40 in the United States,

11 in the United Kingdom and 6 in France.

96 97 98 99

Research & Development 3 5 13 13

Sales & Marketing 7 13 55 70

Administration 3 4 13 19

Total 13 22 81 102

PROPERTY

The Company does not own any real estate. All office space is leased with an option to renew at the expiry

date.

LEGAL PROCEEDINGS

The company is involved in various legal proceedings arising in the normal course of business. The Company

believes that the ultimate resolution of these matters will not have a material effect on the Company’s financial

position, results of operations, or cash flows.

In addition the Company was involved in the following matters:

Barco Graphics

Artwork Systems NV and its French distributor Elcede France SA are involved in a legal proceeding with Barco

Graphics NV. Barco Graphics seeks a permanent injunction from further commercializing the Artpro Software

in France and from hiring away its personnel in France, and claims a provisional amount of damages of 4 mil-

lion FRF. A preliminary injunction was denied by the Limoges Court on December 3, 1992 and by the Paris

Court on May 24, 1994. In a judgement of June 19, 1996, the Paris Commercial Court denied Barco Graphics’

requests.

Barco Graphics has launched an appeal against this judgement. A first pleading on June 8, 1998 has not lead

to a decision yet. The next hearing is scheduled for March 6, 2000.

The Company, based on the advice of French and Belgian Counsel in the procedure, is of the opinion, that

the Judgement of the Paris Commercial Court will not be reversed.

Artios

On March 22, 1999 Artios UK Ltd. ("Artios"), the Company’s former distributor for the United Kingdom, sum-

moned Artwork Systems NV before the Commercial Court of Gent, claiming a total amount of GBP 547,929

for retroactive discounts and for damages as a result of the termination of the distribution contract. Artwork

Systems had terminated this contract after Artios was acquired by Barco Graphics, a competitor of the

Company. Pleading is scheduled for February 24, 2000.

Although Artwork Systems intends to strongly defend its rights, it has completely reserved the receivables on

Artios, in the amount of EUR 451,990, as bad debts.

1.

2.

3.

49

scitexScitex

In June 1995, PCC received a letter from Scitex Corporation, Ltd. ("Scitex") alleging that PCC’s trapping soft-

ware was infringing upon Scitex’s patent rights. This allegation has been repeated in a letter from Scitex to

Artwork Systems dated September 2, 1998. Based on the advice of its US patent attorney, the Company

believes the Scitex patents are subject to challenges for several reasons. Accordingly no provision has been

recorded.

INVESTMENT POLICY

Purchases of property and equipment amounted to Euro 162,089, Euro 171,909, Euro 147,866 and Euro

603.518 in Financial Years 1996, 1997, 1998 and 1999, respectively.

Euro 7,155,992 was paid for Artwork Systems N.V. during Financial Year 1997 and Euro 3,215,143 for PIC

GmbH and USD 8,000,000 (Euro 7,323,766) for Professional Computer Corporation International Ltd ("PCCI")

and Professional Software Technologies Inc. ("PSTI") (PCCI and PSTI together named as "PCC") as well as the

indebtedness on PCC's lines of credit for an amount of USD 1,152,011 (Euro 1,054,632) during Financial Year

1998.

During Financial Year 1999, the Company acquired a portion of the net assets of Elcede, a distributor of the

Company in France, for FRF 6.436.300 (Euro 981.206).

INFORMATION CONCERNING THE NATURE AND EXTENT OF THE TRADING MARKET

In December 1996, the Company completed an initial public offering, when a total of 16,978,000 shares of

the Company ("Shares") were admitted to EASDAQ under the symbol “AWSG”. The company’s shares are

quoted in Euro. The following table sets forth the high and low mid closing price for the fiscal periods indicated.

Period Low High

First Quarter 1999 (ended December 31, 1998) 9.97 14.90

Second Quarter 1999 (ended March 31, 1999) 12.90 18.35

Third Quarter 1999 (ended June 30, 1999) 14.44 19.15

Fourth Quarter 1999 (ended September 30, 1999) 13.85 15.98

4.

5.

50

dividends paid

CONTROL OF THE COMPANY

Stichting Administratiekantoor Artwork Systems (hereafter "the Foundation"), holds an aggregate of 12,546,825

Shares, representing 73.69% of the Company's Shares.

The Company has ensured, by including a provision in its articles of association, that any natural of legal per-

son who acquires or disposes of Shares of the Company, is obliged to notify the Company in accordance with

the provisions of the Belgian Act of March 2, 1989 (on the notification of a substantial interest in listed com-

panies and the regulation of public take-over bids), of the total number of Shares held by such person follow-

ing such acquisition or disposal, in all cases where the proportion of Shares held by such person following the

transaction exceeds or falls below the threshold of three percent, and subsequently of five percent of the total

share capital and any multiple thereof.

Beside the Foundation, the Company has not received any notification by shareholders owning at least three

percent of the Company's total share capital.

The Foundation was incorporated by Guido Van der Schueren, Peter Denoo and Bart Denoo (the "Founders")

under the laws of the Netherlands on November 21, 1996. The Foundation’s role is exclusively to function as

a vehicle for holding Shares of the Company. It is not entitled to carry out any commercial or financial activities

other than relating to the administration of Shares in the Company acquired by it.

The Foundation is controlled and duly represented by its board of directors which is composed of Guido Van

der Schueren, Peter Denoo and Bart Denoo. Each of the directors has been appointed upon incorporation of

the Foundation for an undetermined period of time. The decision to resign as a director of the Foundation and

to provide for replacement is taken by each of the existing directors separately. The beneficial holders have no

authority as to replacement of the existing directors or the appointment of additional directors. A change of

control over the Foundation through replacement of its directors and, therefore, a change of control over the

Company, is the exclusive authority of the Founders.

DIVIDENDS

Dividends paid

During the third quarter of 1998, the Company paid an interim dividend of Euro 0.15 gross per Share or Euro

2,528,871 in total.

In September 1999, an interim dividend of Euro 0.16 or Euro 2,724,424 in total has been paid.

6.

7.

51

taxation of dividendsTaxation of Dividends

For Belgian income tax purposes, the gross amount of all distributions made by the Company to its share-

holders (other than the repayment of paid-up capital carried out in accordance with Belgian Company Law) are

generally taxed as dividends. The gross amount paid by the Company to redeem the Shares owned by a

shareholder and the distributions made by the Company to its shareholders as a result of the Company’s com-

plete liquidation, are also taxed as dividends so far as the payment exceeds the fully paid-up capital of the

Company. In principle, however, no Belgian withholding tax is levied on such redemption and liquidation distri-

butions.

In general, a Belgian withholding tax of (currently) 25% is levied on dividends. The 25% rate can be reduced

to 15% for dividends from shares ("VVPR shares") provided (1) that they have been publicly issued after

January 1, 1994 or (2) if they have been privately issued after January 1, 1994, that they represent share cap-

ital contributed in cash and that they are, from the date of issue, registered or given in open custody in Belgium

to a credit institution, to a stockbroker company or to a savings bank submitted to the supervision of the CBF

in Belgium (Article 269, paragraph 3,b° of the Income Tax Code ("ITC")).

For private investors who are tax resident in Belgium and for Belgian legal entities subject to the "rechtsperso-

nenbelasting / impôt des personnes morales", the Belgian withholding tax constitutes, in general, the final tax

in Belgium on their dividend income.

For Belgian resident companies and for companies with their tax residence outside Belgium holding the Shares

through a permanent establishment or fixed base in Belgium, the gross dividend income must be added to

their taxable income, which is, in principle, taxed at the income tax rate of (currently) 40.17% (under certain

conditions, reduced rates apply). For this purpose, the gross dividend income includes the actually levied div-

idend withholding tax. If such a company holds an equity participation of at least 5% or with an acquisition

value of at least BEF 50,000,000 at the time of the dividend distribution, 95% of the gross dividend received

can in principle be deducted from the taxable income ("participation exemption"). The participation exemption

also applies, even if the quantitative criteria are not fulfilled, if the corporate investor is identified as a credit insti-

tution mentioned in Article 56, §1 of the Belgian Income Tax Code (1992), as an insurance company men-

tioned in Article 56, §2, 2°, h of the Belgian Income Tax Code (1992), as a stockbroker company mentioned

in Article 47 of the Law of April 6, 1995 or as an investment company as defined in Article 2, §2, 6° of the

Belgian Income Tax Code (1992).

Belgian resident companies and companies with their tax residence outside Belgium holding the Shares

through a permanent establishment or a fixed base in Belgium are, under certain conditions, entitled to credit

the dividend withholding tax against their corporate income tax liability and to claim the reimbursement of the

withholding tax that exceeds this liability.

52

board members and senior executives

A non-resident shareholder who does not hold the Shares through a permanent establishment or fixed base

in Belgium, will not be subject to any Belgian income tax other than the dividend withholding tax, which con-

stitutes the final Belgian income tax. Belgian tax law provides for certain exemptions from withholding tax on

Belgian source dividends distributed to non-resident investors. No Belgian withholding tax is due on dividends

attributed to a non-resident investor identified as a "non-resident saver" not carrying on a business profit-mak-

ing activity and exempt from income tax in his country of residence. If no exemption applies, the Belgian with-

holding tax may be reduced for non-Belgian investors pursuant to double taxation treaties concluded by

Belgium and their State of residence. Under the Belgium-Germany income tax treaty, the withholding tax rate

on dividends can be reduced to 15%.

AUDITORS

The Company's auditors are Ernst & Young Bedrijfsrevisoren B.C.V, Residentie "Lieven Bauwens",

Martelaarslaan 53-55, B-9000 Gent, Belgium, represented by Marc Cosaert, Partner, who was appointed for

a three year term at the extraordinary General Shareholders' Meeting held on November 20, 1996.

The above financial statements of the Company have up to September 30, 1999 been audited by the statu-

tory auditor of the Company.

BOARD MEMBERS, SENIOR EXECUTIVES AND KEY PERSONNEL

Board Members and Senior Executives

In accordance with Belgian Company Law and the Articles of Association of the Company, the Company is

administered by its Board of Directors, which is granted the broadest powers. The Board is authorised to take

any action not expressly reserved to the shareholders by law or by the Articles of Association.

The members of the Company's Board of Directors are as follows:

Name Age Position

Guido Van der Schueren 47 Founding Partner and Managing Director

Peter Denoo (1)(2)* 39 Founding Partner and Managing Director

Bart Denoo * 35 Founding Partner and Managing Director

Mark Ecker (1)(2) 40 Director (acting for the account of BBZ N.V.)

Johan Volckaerts (1)(2) 47 Director

(1) Member of the Audit Committee.

(2) Member of the Remuneration Committee.

* Peter Denoo and Bart Denoo are brothers.

Mr. Marc Ecker and Mr. Johan Volckaerts act as Independent Directors, in accordance with the EASDAQ Rule

Book.

The members of the Board of Directors can be reached at the Company's address.

8.

9.

53

Guido Van der Schueren, a co-founder of the Company, has served as a Managing Director of Artwork

Systems Group N.V. and its subsidiaries since their incorporation or their acquisition. Mr. Van der Schueren is

in charge of Sales and Marketing. From 1982 to April 1992, Mr. Van der Schueren served in various positions,

including Sales and Marketing Director, with DISC N.V. (now Barco Graphics N.V.), a company that develops

and markets pre-press systems. From 1974 to 1982, Mr. Van der Schueren was Sales Manager

"Compugraphic" with Bonte N.V., a distributor of graphic arts equipment. Mr. Van der Schueren received

degrees in Graphic Arts, Education and Marketing.

Ir. Peter Denoo, a co-founder of the Company, has served as a Managing Director of Artwork Systems Group

N.V. and its subsidiaries since their incorporation or their acquisition. Mr. Peter Denoo is in charge of Finance

and Administration. From 1983 to January 1992, Mr. Peter Denoo served in various engineering positions,

including R&D manager "Digi" products, with DISC N.V. Mr. Peter Denoo received a degree in Electrical

Engineering ("Burgerlijk Ingenieur Electrotechniek richting Zwakstroom RUG") and a degree in Computer

Science ("Licentiaat Informatica RUG") from the State University of Gent.

Ir. Bart Denoo, a co-founder of the Company, has served as a Managing Director of Artwork Systems Group

N.V. and several subsidiaries since their incorporation or their acquisition. Mr. Bart Denoo is in charge of

Research and Development. From 1987 to January 1992, Mr. Bart Denoo served in various engineering posi-

tions with DISC N.V. Mr. Bart Denoo received a degree in Electrical Engineering ("Burgerlijk Ingenieur

Electrotechniek richting Zwakstroom RUG") and a degree in Computer Science ("Licentiaat Informatica RUG")

from the State University of Gent.

Mark Ecker has served as a director of Artwork Systems Group N.V. since its incorporation in November 1996

Mr. Ecker's main position outside the Company is the one of managing director of Capital & Finance N.V., a

privately held company engaged in corporate finance advisory work and asset management. From 1992 to

1996, Mr. Ecker was a managing director of Lessius N.V., a privately held company engaged in corporate

finance advisory work and managing a development capital fund. From 1987 to 1992, Mr. Ecker was a part-

ner of the law firm Loeff Claeys Verbeke. From 1980 to 1987, Mr. Ecker was associate at the law firm Braun

Claeys Evrard Sorel, and from 1983 to 1984 at the New York law firm White & Case. Mr. Ecker obtained

degrees in Law, Economics and Philosophy at the Catholic University of Leuven. Mr. Ecker also serves as a

director of Theuma Deurenindustrie N.V., a manufacturer of interior doors with sales in excess of BEF 1.5 bil-

lion (Euro 37 million), and as a director of Carpet-Land N.V., a retailer of floor covering and interior decoration

products with sales in excess of BEF 6.8 billion (Euro 168 million).

Johan Volckaerts has served as a director of Artwork Systems Group N.V. since April 1, 1999. Mr. Volckaerts'

main position outside the Company is the one of chairman and CEO of Global Graphics N.V., a company

developing equipment for flexographic printing, listed on EASDAQ. Mr. Volckaerts is also President Europe of

Andlinger, a privately held venture capital fund. From 1978 to 1986, Mr. Volckaerts has served in various finan-

cial management positions with ITT Corporation. Prior to that, he spent 4 years at KPMG. Mr. Volckaerts also

serves as President of Allibert SA and as Chairman of Hobon Plastics and was Chairman of Ipso International

N.V. from 1990 to 1996.

54

terms of office

key personnel

Term of Office

The directors' term of office will end immediately after the annual General Shareholders' Meeting of January

2001.

The commercial, financial and software development services of Guido Van der Schueren, Peter Denoo and

Bart Denoo are provided through three service companies, i.e. Powergraph N.V., Ingenieursbureau Peter

Denoo B.V.B.A. and Bart Denoo Engineering B.V.B.A. respectively. The agreements between the Company

and these service companies provide that they cannot be terminated before December 2001.

Key Personnel

Certain key employees of the Company who are not also directors, are as follows:

Name Age Position

Petra Tant 32 Product Manager Labels & Packaging

Patrick Coussement 34 Development Engineer

Jan Ruysschaert 41 Sales Manager Northern Europe

Rudy Claerman 46 Development Engineer

Filip Carrein 35 Product Manager Commercial Color

Dirk Peerlinck 36 Development Engineer

Hildegard Verhoeven 30 Financial Controller

Luc Buttiens 53 International Sales Manager

at the German Subsidiary:

Peter Ganz 50 Managing Director

Christopher Graf 32 Managing Director

at the French subsidiary

Olivier Moeyersoms 35 Managing Director

at the US Subsidiary:

Dennis Mehta 48 President and CEO

Daniel Lacey 41 Vice President of Sales and Channel Marketing

Mark Samworth 37 Vice President of Technology

Jack Allegrezza 33 Vice President of Development

Michael Rottenborn 32 Vice President of Customer Service

55

Petra Tant joined the Company in April 1993 as Product Specialist and serves as Product Manager Labels &

Packaging since August 1997. From 1990 to 1993, Ms. Tant served as Pre-Press Production Manager for

Imprimerie Bultez S.A., a print shop specialized in forms, labels and pharmaceutical packaging. From 1989 to

1990, Ms. Tant was Instructor with Barco Graphics NV. Ms. Tant received a degree in Graphic Arts Production

Management from the Higher Institute for Graphic Education of Gent ("Graduaat Grafische Bedrijfsleiding

HIGRO").

Patrick Coussement has served the Company as Software Development Engineer since May 1993. Before,

Mr. Coussement co-founded Computron, a company that assembles and sells personal computer hard- and

software, and served as its Managing Director from 1991 to 1993. From 1989 to 1991, Mr. Coussement

served as R&D Engineer with DISC NV. Mr. Coussement received a degree in Computer Science from the

State University of Gent ("Licentiaat Informatica RUG").

Jan Ruysschaert joined the Company in August 1994 as Sales Manager Benelux. From 1991 to 1994, Mr.

Ruysschaert was Sales Manager with PPC NV, a pre-press shop. From 1979 to 1991, Mr. Ruysschaert served

in various positions with DISC NV, including Customer Support Coordinator, Sales Manager Add-ons, Area

Sales Manager Northern Europe and Product Manager Forms and Labels. Mr. Ruysschaert received a degree

in Graphic Arts.

Ir. Rudy Claerman joined the Company in September 1994 as Software Development Engineer. From 1981 to

1994, Mr Claerman served in various engineering positions with DISC NV, including R&D Project Manager.

From 1978 to 1981, Mr Claerman was a development engineer with the International Telecommunications

Research Center of Wang Laboraties Inc., an office automation company. Mr. Claerman received a degree in

Civil Engineering for Architecture from the State University of Gent ("Burgerlijk Ingenieur Architect RUG").

Filip Carrein joined the Company in August 1996 as Marketing Researcher and serves as Product Manager

Commercial Color since August 1997. From 1995 to 1996, Mr. Carrein was a systems integration consultant

with CompuVision NV, a personal computer supplier. From 1993 to 1995, Mr. Carrein served as Technical

Director with Publiwest NV, a publishing and printing company. From 1991 to 1993, Mr. Carrein was Director

Europe "Alias Eclipse" with Alias France SA, the French division of Alias Research Inc, a design and pre-press

software developer. From 1987 to 1991, Mr. Carrein served in various positions with Barco Creative Systems

NV (now Barco Graphics NV), including Sales Account Manager Scandinavia and U.K., Sales Manager Pacific

Rim and Product Manager "Creator". Mr. Carrein obtained a degree in Electronics from the Catholic Academy

of Engineering of Ostend ("Industrieel Ingenieur Electronica KIH").

Ir. Dirk Peerlinck joined the company in January 1997 as Software Development Engineer. From 1986 to 1997,

Mr. Peerlinck served in various engineering positions with

DISC NV, including R&D project manager and software quality assurance manager. Mr. Peerlinck received a

degree in Electrical Engineering from the State University of Gent ("Burgerlijk Ingenieur Elektrotechniek richting

Zwakstroom RUG").

56

Hildegard Verhoeven joined the Company in February 1998 as Financial Controller. From 1993 to 1998, Ms.

Verhoeven served as an auditor with KPMG Bedrijfsrevisoren, an international accounting firm. Ms. Verhoeven

received a degree in Commercial and Financial Sciences from the St. Aloysius College of Brussels ("Licenciaat

Handels- en Financiële Wetenschappen EHSAL").

Luc Buttiens has served the Company since June 1998 as International Sales Manager. From 1985 to 1998,

Mr. Buttiens was Marketing Manager and International Sales Manager at DISC NV. From 1981 to 1985, he was

with Scitex, a manufacturer of pre-press systems. Before that, Luc Buttiens, had various management posi-

tions in the editing and printing industry and was Production Manager at Van Hees/Vlessing NV (VVL/BBDO) a

marketing and communication company. Mr. Buttiens received a degree in Graphic Arts Production

Management from the Higher Institute of Graphic Education of Gent (HIGRO).

Christopher Graf is a managing director for Artwork Systems GmbH & Co. KG. Mr. Graf is in charge of demon-

strations, support and training. Christopher Graf is co-founder of PIC GmbH, which was acquired by the

Company in 1998. Before he founded PIC, Mr. Graf was partner and manager at Easy Gmbh, a system inte-

grator specialized in computer graphics and printing.

Peter Ganz is managing director of Artwork Systems GmbH & Co. KG in Germany. Mr. Ganz is responsible for

Sales and Marketing. Mr. Ganz is co-founder of PIC GmbH. Before joining PIC, Mr. Ganz was managing direc-

tor Germany with DISC NV.. Mr. Ganz received a degree in Economic Science ( "Diplom-Wirtschaftingenieur")

at the HDM, Stuttgart (High School for printing and media).

Olivier Moeyersoms is managing director of Artwork Systems SA. He joined the Company in May 1999. From

1992 till 1999, Mr. Moeyersoms was sales and marketing responsible of Elcede France, the former distributor

of the Company.

Before joining Elcede, Mr. Moeyersoms was sales manager for France with Barco Graphics. Mr. Moeyersoms

received a degree in Economic Science from the "Université Catholique de Louvain-La-Neuve".

Dennis Mehta is the President and CEO of Artwork Systems Inc. Mr. Mehta is in charge of the US operations

of Artwork Systems. Mr. Mehta is the founder of PCC, which was acquired by Artwork Systems in 1998. Prior

to founding PCC in 1980, Mr. Mehta served in various management and engineering positions with Control

Data, NCR and Digital Equipment Company. Mr. Mehta received a Masters Degree in Electrical Engineering

and in Business Administration from Boston University.

Daniel Lacey is the Vice President of Sales and Channel Marketing of Artwork Systems Inc. Mr. Lacey was

regional sales manager with Gerber Systems, a manufacturer of platesetters. Before, Mr. Lacey was employed

by DuPont Printing and Publishing, in roles ranging from dealer distribution to sales and product management.

Mr. Lacey has a Bachelors Degree from the University of Delaware.

57

Mark Samworth is the Vice President of Technology of Artwork Systems Inc. Before Artwork Systems, Mr.

Samworth was with DuPont in flexographic plates and electronic imaging. Mr. Samworth holds three patents

in the area of digital imaging technology and has three more patents pending. Mr. Samworth received a

Bachelors Degree in Printing Science from Rochester Institute of Technology and a Masters in Business

Administration from the University of Delaware.

Jack Allegrezza is Vice President of Development of Artwork Systems Inc. Since 1990, Mr. Allegrezza has

directed and developed PCC's prepress RIP and workflow technology. Mr. Allegrezza gained a comprehen-

sive programming experience with Adobe, Crosfield and DuPont.

Michael Rottenborn is Vice President of Customer Service for Artwork Systems Inc. Before he has served as

a Vice President of Product Marketing, where he was responsible for the introduction of PCC's commercial off-

set products. From 1989 to 1996, Mr. Rottenborn was employed by DuPont Printing and Publishing in various

roles including electronic design, software development, technical marketing, and product management for the

Crosfield product line. Prior to 1989 Mr. Rottenborn was with IBM Corporation and Litton Industries. Mr.

Rottenborn holds a Master's Degree in Computer Science from Villanova University and a Bachelor of Science

degree in Electrical Engineering from Virginia Polytechnic Institute and State University.

EXECUTIVE REMUNERATION

During Financial Year 1999, the Company accrued an aggregate compensation of Euro 57,057.64 for its

directors. In addition, the managing directors have company cars at their disposal. No bonuses, stock options,

pension plan or other benefits were granted to the managing directors.

During Financial Year 1999 an aggregate amount of Euro 455,851 was paid to the service companies men-

tioned above for the commercial, financial and software development services of Guido Van der Schueren,

Peter Denoo and Bart Denoo.

CERTAIN TRANSACTIONS

In December 1996 the Company acquired Artwork Systems N.V., the Belgian operating company, from Guido

Van der Schueren, Peter Denoo and Bart Denoo for Euro 7,155,992, its net book value on September 30,

1996.

Effective January 1, 1997 the Company acquired Artwork Systems North America LLC, its US distributor, for

USD 53,283.02 (Euro 42,086), its net book value on December 31, 1996. Guido Van der Schueren, Peter

Denoo and Bart Denoo indirectly owned 75% of Artwork Systems North America LLC.

Both transactions were part of the restructuring of the Company in preparation of its initial public offering on

EASDAQ. Through this restructuring, all then existing Artwork Systems' operations were merged under one

holding company, Artwork Systems Group N.V.

10.

11.

58

59

buildingbridges, closing gaps

exploring the boundaries of sales and marketingEXPLORING THE BOUNDARIES OF SALES AND MARKETING

The past year was indeed the best year in Artwork Systems' history. Results were out-

standing, and our products were at the top of their categories. Artwork Systems is commit-

ted to continue to follow this path and further strengthen the leading position of the compa-

ny in the future.

When we look at the future of prepress and printing, it becomes clear that streamlined work-

flows spanning the entire production cycle from design to print, combined with a high level

of flexibility and a seamless communication between print-buyers and production plants will

be the main focus of the years to come.

Artwork Systems will be setting the trend for the next generation of workflow systems at

Drupa 2000, the biggest exhibition on printing and prepress, with the launch of Nexus, born

from the integration of the companies leading vector and raster technologies.

The Nexus workflow management system runs on open platforms and employs industry

standard formats. It is fully customizable for each customer's unique production flows. With

Nexus, automating workflow at the production plant no longer means adapting processes

to the limitations of a system.

Nexus is conceived in such a way that the software can be adapted to each customer's

expectations. The communication between print-buyer and production plant will furthermore

be facilitated by making use of the undeniable strengths of the internet.

Nexus WebWay makes use of an automatic email notification systems to alert customers

when their feedback is expected, e.g. to view files over the web, to give approval, or to send

annotations. It even allows the customer to actively participate in the production process,

simply by using their standard internet browser.

This new step in the history of Artwork Systems will go further than just offering software for

the prepress market. It will offer full control over the entire production cycle with a maximum

level of flexibility and customer feedback.

Artwork Systems Group n.v.

Stapelplein 70/300B-9000 GentBelgium

Tel.:+32 9 265 84 11Fax:+32 9 265 84 10info@artwork-systems.comwww.artwork-systems.com

Artwork Systems Ltd.

The Business CentreEdward Street - Redditch,Worcestershire B97 6HRUnited Kingdom

Tel.:+44 1527-592550Fax:+44 1527-592466uk_office@artwork-systems.com

Artwork Systems GermanyGmbH & Co.

KG Burkheimer Straße 3D-79111 Freiburg Germany

Tel.: +49 761 45 29 80Fax: +49 761 452 98 22info@artwork-systems.de

Artwork Systems SA

Paris Nord II47, Allée des ImpressionnistesBP 50335 Villepinte95941 Roissy CDG CedexFrance

Tel.:+33 148 1700 90Fax:+33 149 3809 78

PCC Artwork Systems

219A Rittenhouse CircleBristol, PA 19007USA

Tel.:+1 215 826 4500Fax:+1 215 826 4510pcc@pro.comwww.pro.com