ANNUAL REPORT...Drupa 2004 has indeed put Artwork Systems on a new level of customer acceptance. But, Digital printing gains more and more importance as print process and Artwork Systems

2004ANNUAL REPORT

2004

1 Letter to the Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2 Mission Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

3 Drupa 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

4 Software Innnovations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 5 Enfocus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 6 Shareholders’ Information & Investor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 • Corporate Governance (Boards of Directors, Management, Auditors)

• Nature and extent of the Trading Market

• Signifi cant Shareholders

• Dividends

• Current structure of Artwork Systems Group

Corporate Offi ces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

FINANCIAL STATEMENTS

1 Introduction to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 • Selected Summary Financial Data

• Management’s Discussion and Analysis of Financial Conditions and Results of Operations

2 Consolidated Financial Statements in accordance with U.S. GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 • Auditor’s Report

• Consolidated Balance Sheet

• Consolidated Income Statements

• Consolidated Statement of Shareholders’ Equity

• Consolidated Statement of Cash Flows

• Notes to the Financial Statements

3 Financial Statements in accordance with Belgian Accounting Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 • Statutory Accounts

• Report of the Board of Directors to the General Meeting

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

52

2 Consolidated Financial Statements • Auditor’s Report

• Consolidated Balance Sheet

• Consolidated

• Consolidated Statement of Shareholders’ Equity

• Consolidated Statement of Cash Flows

• Notes to the Financial Statements

3 Financial Statements• Statutory Accounts

• Report of the Board of Directors to the General Meeting

2004BEST YEAR EVER

Wow, it’s been quite a year! If you’ve been along for the ride

with Artwork Systems in 2004, you’re no doubt still wondering

if you should unbuckle your seat belt! Artwork Systems was

clearly strong in this Drupa year, progressing simultaneously

on several internal and external fronts. Buoyed by a strong

product offering and a strengthened worldwide economy

overall; we mapped-out an exciting 2004 fiscal year. Like the

built-in intelligence found in the computers of today’s most

sophisticated automobiles; our sales, marketing, operations,

and award-winning R&D teams worked together to keep

Artwork Systems on the right road.

As a result, in fiscal 2004 we further perfected our abilities to

anticipate trends, avoid bumps in the road and take advantage

of opportunities – keeping our customers riding comfortably

with the company they’ve come to rely on for the safest, cost-

effective, yet fastest journey to long-term profitability.

Our outward focus centered on the graphic arts industry’s

defining global event, Drupa. We’d been preparing for months;

and it was crucial that we feature the most advanced versions

of our best solutions for the hundreds of thousands of visitors

who visit this world trade showcase every four years.

We stepped up the pace on internal activities, as well: workflow

management and certification of the production process

showed themselves to be important considerations for graphic

arts industry professionals, and we were ready.

We expanded our pool of core competencies by embracing our

Enfocus subsidiary’s fundamental Certified PDF technology

as a key Artwork Systems differentiator for the long-term. We

had watched Certified PDF become a de facto standard for

reliable PDF file exchange the world-over, and begin impacting

the full design-through-output range of the workflow. The

time was right to start cross-pollinating Certified PDF with

our technologies, for the benefit of both companies and the

industry at-large.

Another increased focus was digital printing, which continues

to gain significant ground as a standard print process for

the future. Artwork Systems has proven that its workflows

flawlessly facilitate this emerging trend, and our collaboration

with HP-Indigo, announced in the early spring, serves as a

prime example of our capabilities in this arena.

It was an invigorating way to begin a season that would

culminate in Düsseldorf, and we shifted into a higher gear as

we began positioning our new PDF/JDF powerhouse workflow,

Odystar, to take center stage at Drupa.

Older, pieced-together technologies were falling by the

wayside. PDF contenders were trying to keep up, but they

fell victim to the inevitable drag resulting from continued

reliance on heavier, dated, expensive technologies. Odystar

was – and is – light and modern, a hybrid of the best Artwork

Systems workflow engineering and unique, Enfocus Certified

PDF know-how. Together with Artwork Systems’ current,

“best in class” versions of ArtPro and Nexus; Odystar answered

the Drupa 2004 call for flexible, easy workflow management

coupled with reliable processing and high-end functionality.

Over three thousand on-site demonstrations and more than

three million euros worth of orders later, we knew we had

surpassed even our own goals for the products, and the show.

The balance of the year followed suit. Artwork Systems had

further strengthened its position in the packaging industry;

and we began gaining traction with existing and new products

in the commercial and publishing categories.

Of note in this regard is another significant milestone reached

in 2004: a partnership with Kodak Polychrome Graphics. In

one of our most strategic moves in commercial print solution

integration and market reach to date, we believe this alliance

may result in over two million euros in orders during the

coming year.

LETTER TO OUR

SHAREHOLDERS

3

Some of us didn’t want the excitement to end, but we finally

reached the finish line and the rewards of this year’s journey...

the best fiscal year ever!

Now is the time to reflect and plan for the future. In 2004, we

made significant progress in achieving strategic goals for 2004,

as laid out in my letter to you at this time last year. They are:

• Extending our leadership in new markets including

publishing and commercial color.

• Continuing to strengthen our organization in development,

marketing, sales, training and customer support.

• Expanding our presence in the United States, in Europe and

in emerging markets where there are great opportunities.

• Being one of the most admired companies in our industry.

• Enhancing the value of our stock by managing costs

and risks and by continuing to increase earnings and

shareholder returns.

• Becoming the undisputed leader in professional pre-press

software for labels and packaging.

These goals, always in the context of our customer-first

mission, put us in the winner’s circle in 2004. In fiscal 2005

we will continue on the road to success by seeking to outdo

ourselves yet again – and we invite you to join us once more as

we pursue these same, proven, objectives.

But be warned: we’ve gotten pretty competitive at these speeds,

so don’t be surprised if we kick it up a notch – or two – in 2005 !

You may want to keep that seat belt fastened after all.

Sincerely,

Bart Denoo Guido Van der Schueren Peter Denoo

As a “Member of the Graphic Valley”, Artwork Systems is dedicated to its mission as an industry-leading, global,

pre-production software 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.

MISSION STATEMENT

ARTWORK SYSTEMS @ DRUPA 2004THE INDEPENDENTS

Drupa is the most important exhibition for the graphic arts

industry and is held every four years in Düsseldorf, Germany.

Drupa 2004 took place from May 6 until May 19. This edition

was definitely a success for Artwork Systems. There were

over 3000 visitors on the booth and over 2000 personalized

demonstrations were given. To top it all, there was over three

million euro order intake on the show floor. Although Drupa

is not typically an order intake exhibition, this splendid result

gives Artwork Systems an excellent outlook for strong business

in the next year.

The interest from the visitors was nicely balanced over the

existing and new products, which gives the company an

excellent product market mix to build a strong business on in

the next coming years.

At Drupa, it became equally clear that Artwork Systems has

further strengthened its position in the packaging industry

while the continued efforts to promote the existing and new

products in the commercial and publishing environments now

start to pay off. Over 20 new Odystar systems were sold on the

show floor, with main interest from countries like Germany,

France, and the United States.

Drupa 2004 has indeed put Artwork Systems on a new level

of customer acceptance. But, Digital printing gains more and

more importance as print process and Artwork Systems has

proven at the show that its workflows flawlessly facilitate this

emerging trend, the collaboration with HP-Indigo being the

example. During Drupa, the new connectivity was on display as

a working solution on the HP booth.

At Drupa, Artwork Systems and Kodak Polychrome Graphics

(KPG) announced a strategic partnership under which KPG will

distribute Artwork Systems’ Nexus product line in conjunction

with its own technology. Partnering with KPG helps Artwork

Systems fulfill its mission of providing the best quality solutions

for customers as independent software suppliers.

Enfocus was equally present at Drupa. With a great visibility

over 1000 visitors came to their booth, clearly illustrating the

importance of PDF as preferred format in the graphic arts

industry and beyond.

The general climate at Drupa showed an industry that is

moderately optimistic with a “back to reality” mentality. With

its results during the exhibition, Artwork Systems has proven to

be an important player. In fact, Artwork Systems is a beacon of

stability in a world full of change.

5

From top to bottom:

• Mark Samworth, VP of Technology (US Office), giving a

presentation about the lastest of Artwork Systems’ screening

technologies.

• Visitors get to see samples of actual printed designs,

demonstrating the benefits of our software.

• Mike Rottenborn, VP of Technical Marketing (US Office), during

a personalised demonstration.

• Mark De Mey, Product Specialist Flexocal (Belgian Office).

In 2004, a new edition of both ArtPro and Nexus continues to set the standard in the world of professional

packaging. Version 8 marks without doubt the most innovative upgrade yet to these highly professional prepress

suites from Artwork Systems.

SOFTWARE INNOVATIONS

BREAKING BOUNDARIES

GOODBYE FLATTENING!Supplying PDF software for labels and packaging environments

means more than simply supporting PDF as an input and output

format. Users expect full editability and control over the designs

they import from applications such as Adobe Illustrator CS or

Adobe Acrobat. Any object in a design should always retain its

original settings, such as blend modes, transparencies, glows

or shadows. ArtPro’s new Paint Style pallet can handle them all

with ease.

For the fi rst time in history, every element of a professional

prepress workfl ow is 100% compatible with all the diff erent

kinds and fl avours of PDF: being 1.3, 1.4 and 1.5. In the past, a

PDF containing transparent objects or blend modes had to be

‘fl attened’ to PDF 1.3 in order to deal with it in the workfl ow.

Unfortunately, the original settings of the design were lost in

the process, greatly reducing the possibility to manipulate or

change the contents of a fi le later on. ArtPro and Nexus 8.0

consider transparencies, blend modes and even PDF 1.5 layers

as their second nature.

In a true native PDF workflow, the PDF native RIP (which

uses no fl attening at all) of this 8.0 upgrade will turn out to

be indispensable. Without even considering possible time

penalties, fl attening greatly reduces editability, fl exibility and

reliability of the entire prepress process.

TRACEABILITY, CONSISTENCY, RELIABILITYPDF is here to stay. The format is changing the face of the entire

grapic arts industry. However, because of its huge popularity,

many applications can now read, write, open and sometimes

even edit PDF fi les. This forms a serious threat to fi le exchange

in packaging. What happened to a file since the designer

sent it over to the printer? Who is responsible for that tiny, yet

disastrous, little change in the layout? And are the fi les you

receive ready for print altogether or do they need extra work?

These are questions that face every operator in the world, every

day and again. This is why we have implemented Enfocus’

Certifi ed PDF technology also in ArtPro and Nexus 8.0. We want

our customers to work in confi dence with the PDF format.

4STAGE TRAPPING ArtPro and Nexus 8.0 include the new ‘4Stage’ trapping

technology. This highly modern trapper is similarly fully

compatible with every PDF 1.4/1.5 object in your designs. In

any situation, trapping results will remain editable. This wasn’t

always the case in the past.

JOB DEFINITION FORMATJDF is a technology, based on ‘job tickets’ to describe for

example how to handle a repetition or an imposition. ArtPro

and Nexus 8.0 both can generate, read and use JDF jobtickets.

Just drop a fi le on your workfl ow with JDF and Nexus turns it

into fully ripped proofs, plates or fi lms. Sit back and relax (or use

the extra time to get even more work done)!

ArtPro and Nexus (especially IMPORT and PROCESSOR) have

adopted many small wishes from our customers. These smaller

changes can however make a huge diff erence.

ArtPro and Nexus

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MAJOR LEAP FORWARDOdystar now presents a major leap forward in true system

scaleability, accomodating for any level of workload that has to

go through the system. On all Odystar configurations, the system

can be distributed over any number of hardware stations in a

fully flexible manner, drastically increasing system throughput at

no addditional cost. And for even more demanding production

environments, the Odystar Full Configuration can be equipped

with the MultiGateway Extension, allowing to effectively

duplicate all processing gateways (excluding RIP), meaning that

for a limited investment, the throughput of the system can be

doubled with fully automated load balancing.

WIth the runlist technology introduced in Odystar version 2.0,

one job can now consist of multiple documents, each being

processed independently but automatically collected when

required, such as for imposition purposes or for recreating one

PDF document e.g. to email for approval. This technology greatly

streamlines the automated production workflow as it allows to

setup an imposition job ticket prior to production, even if all the

different source documents are not yet available.

PDF 1.5 NATIVE RIPOdystar 2.0 now equally marks the availability of a true PDF

1.5 native RIP, migrating Artwork Systems’ unrivaled RIPping,

screening and proofing technologies into the Odystar product

line. This RIP is optionally available for all Odystar Configurations,

or can be made available as an Odystar RIP Workflow

configuration, offering next to the RIPping technology, the

ability to verify if incoming PDF files are Certified, JDF based

imposition and sophisticated trapping.

MORE GATEWAYSBased on valuable feedback from existing Odystar 1.0 users,

this new version equally features an impressive set of new

functionality. Depending on the configuration, several new

gateways have been made available, and even more new

gateways will become available in the near future. Additionally

operating Odystar 2.0 is even easier than before, through the

use of a new operator client which only lists the jobs submitted

by that specific operator, or through the ability to simply “print”

to any workflow, just as it would be any regular printer on the

network.

INTEGRATIONOdystar now features tight links into WebWay, Artwork Systems’

secure, cost-effective and internet based communication

platform between print buyer, marketing and production

plant or between departmens within one company. Inside a

user-friendly collaboration space, project managers can create,

view and discuss projects, jobs can be submitted to Odystar

workflows, or results from Odystar can be made available on

the internet through WebWay. Using WebWay, PDF files can be

viewed online and annotated, and projects can be approved.

Odystar 2.0 is clearly the leading workflow solution in the

industry, increasing productivity, reducing costs, and bringing

the automation of pre-press departments to levels previously

unseen. Its ease of use, support of industry standards like PDF

1.5 and JDF, integrated Certified PDF technology and broad and

complete suite of pre-press production tools make Odystar the

preferred workflow solution for commercial applications.

Odystar 2.0

With an unprecedented ease of use and a level of flexibility previously unseen in the industry, the Odystar 1.0

workflow offers an elaborate toolset to automate the typical production work in a pre-press environment.

With version 2.0 even more innovative technology for the Odystar workflow environment is made available for

existing and new users.

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ENFOCUS

In 2004 Enfocus Software maintained and reinforced its world-leading role as a developer of PDF workflow tools.

Enfocus’ engineering objective is centered on the automation of inter-company PDF quality control, reducing the

amount of “live” interaction between print and advertisement vendors and their customers to a strict minimum.

The growth of Enfocus has paralleled the widespread acceptance of PDF-based workflows in the print and

publishing markets over the past few years. The further adoption of Enfocus’ Certified PDF® technology has

proven to be a key driver in making these workflows even more reliable and has had a major impact on Enfocus’

continued success.

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ENFOCUS PDF WORKFLOW SUITEBuilding on the success of its Certified PDF workflow concept,

Enfocus has combined Instant PDF 3, PitStop Professional 6,

PitStop Server 3 and CertifiedPDF.net 2 into the Enfocus PDF

Workflow Suite. Launched at Drupa 2004, the PDF Workflow

Suite gives publishers and printers all the tools needed to set-

up, communicate and implement PDF quality specifications as

well as check and correct incoming PDF files.

INSTANT PDFAlso at Drupa 2004, Enfocus Software unveiled Instant PDF

3, the company’s next step in achieving total PDF quality

management for graphic arts file exchange. Enfocus Instant

PDF 3 moves flawless PDF creation upstream to the document

creator. It removes the uncertainty and technical complexity

from the PDF creation process by producing Certified PDF

files that comply with any print or ad vendors’ specifications.

It closely integrates with industry-leading page layout and PDF

tools Adobe InDesign, QuarkXPress and Adobe Acrobat as well

as the Apple Macintosh OS X operating system.

PITSTOP PROFESSIONAL AND PITSTOP SERVERThe vast majority of our PitStop Professional users purchased

the upgrade from PitStop Professional 6.0 to PitStop Professional

6.1 proving the loyalty of our Enfocus customer base

Enfocus’ geographical expansion is supported by the in

September 2004 announced release of PitStop Professional

6.1J. This release provides the Japanese market with the latest

product benefits and resources. It includes Mac OS X and PDF

1.5 compatibility, Pantone Colour Libraries, generic ICC profiles

and integration with CertifiedPDF.net.

This reach into the Asian market is further supported by the

first-ever Japanese language version of PitStop Server. The

Japanese version of PitStop Server is functionally identical to

the latest version of PitStop Server v3.1, featuring full PDF 1.5

compatibility.

CERTIFIEDPDF.NETEnfocus CertifiedPDF.net, has become the central

communications hub for creators, printers and publishers

seeking reliable, inter-company PDF file exchange and error-

free print production. New to CertifiedPDF.net 2 is automatic

synchronization of Enfocus PDF Queues with Instant PDF 3;

as well as integration functionality allowing CertifiedPDF.net

2 features and benefits to be incorporated into any website.

Printers and publishers can now set up their websites as single,

interactive sources of information about their companies and

its production processes.

OEMIn related news to the Japanese version of PitStop Professional

and PitStop Server, Enfocus Software also announced the release

of a Japanese-language version of PitStop Library, the engine

that is used by its OEM partners to integrate Enfocus editing,

preflight and Certified PDF technology in their workflows

solutions. Furthermore Enfocus announced a new partnership

with VIO. VIO provides managed services for the intelligent

distribution and collaborative management of advertising and

digital media.

At the beginning of the new fiscal year, Artwork Systems

announces strong progress in their ongoing integration with

Enfocus Software. The R & D departments from both companies

will be working more closely together on future product

development. This will enable both firms to better serve the key

business communities serving the graphic arts industry, as well

as the large enterprise market.

Enfocus Software has passed on its presidency of the Ghent

PDF Workgroup and is now part of the Executive Committee.

This close cooperation resulted in new 2004 specifications,

a baseline format for PDF Packaging and the set up of some

additional subcommittees such as the Office Document

Printing subcommittee and the Rip/Output subcommittee.

During the past year 10 new vendors have joined the Ghent

PDF Workgroup amongst others Artwork Systems.

SHAREHOLDERS’ INFORMATION AND INVESTOR RELATIONS

1. Board of Directors

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 authorized to take any action not expressly reserved to the

shareholders by law or by the Articles of Association.

BOARD OF DIRECTORS

Name Age Position

Guido Van der Schueren 52 Chairman of the Board

Peter Denoo (*) 44 President and CEO

Bart Denoo (until December 3, 2003 and from January 23, 2004) 40 Chief Software Architect

Hildegard Verhoeven (*)(from January 23, 2004) 35 Chief Financial Officer

Ratio Plus, represented by Hubert Ooghe (*) 58 Director

De Bist BVBA, represented by Guido Kestens 64 Director

Advisam NV, represented by Guy M. Warlop (*)(as of December 3, 2003) 66 Director

(*) Member of the Audit Committee and the Remuneration Committee.

Ratio Plus, represented by Mr. Hubert Ooghe, De Bist BVBA , represented by ir. Guido Kestens and Advisam NV represented by ir. Guy

M. Warlop, act as Independent Directors. The members of the Board of Directors can be reached at the Company’s address.

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

its subsidiaries since their incorporation or their acquisition. Mr. Guido Van der Schueren presently is Chairman of the Board. From

1982 to April 1992, Mr. Van der Schueren served in various positions, including Sales and Marketing Director, with DISC NV (now

Barco Graphics NV), a company that develops and markets pre-press systems. From 1974 to 1982, Mr. Van der Schueren was Sales

Manager ‘’Compugraphic’’ with Bonte NV, 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 NV and its subsidiaries

since their incorporation or their acquisition. Mr Peter Denoo presently is President and CEO. From 1983 to January 1992, Mr. Peter

Denoo served in various engineering positions, including R&D manager ‘’Digi’’ products, with DISC NV 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.

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

subsidiaries since their incorporation or their acquisition. Mr. Bart Denoo is presently Chief Software Architect. From 1987 to January

1992, Mr. Bart Denoo served in various engineering positions with DISC NV 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.

Hildegard Verhoeven has served as a director of Artwork Systems Group NV since January 23, 2004. Ms. Verhoeven joined

the Company in February 1998 as Financial Controller. Since January 2001, Ms. Verhoeven serves as Chief Financial Officer. 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 Brussel (Licenciaat Handels- en Financiële

Wetenschappen EHSAL).

Prof. dr. Hubert Ooghe has served as a director of Artwork Systems Group NV since October 17, 2001. Mr. Ooghe is a professor

(“Buitengewoon Hoogleraar”) at the Vlerick Leuven Gent Management School and at the Gent University, Belgium. Mr. Ooghe is

the author and co-author of many books and articles and is active as a director in several organizations and companies. Mr. Ooghe

received the degree of Doctor in applied economic sciences of the Gent University in 1972.

Ir. Guido Kestens has served as a director of Artwork Systems Group NV since July 08, 2003. He retired, following the rules of the

company, at the age of sixty as General Manager of retailer C&A Belgium-Luxemburg. His main position outside the Company is

the one of Chairman of SD WORX, market leader in payroll services and human resource consultancy. Guido Kestens is active as

Chairman of Red Cross-Flanders, of the KVIV (Koninklijke Vlaamse Ingenieurs Vereniging) and as board member of several companies

and organisations. He received the degree of Master of Science in metallurgical engineering from the Catholic University of Leuven,

a MBA of the IPO Management School and IMD Lausanne.

Ir. Guy M. Warlop has served as a director of Artwork Systems Group NV since December 3, 2003. Mr. Warlop holds an engineering

degree in Metallurgy and a MBA degree of INSEAD.He has been a CEO on European and Belgian level of companies covering

transportation, electrical protection equipment, consumer goods – detergents and food. Mr. Warlop is presently and has been a

board member of a series of companies and non profit organisations and he is the author of a book on the Zaventem airport.

TERMS OF OFFICE. The directors’ term of office will end immediately after the annual General Shareholders’ Meeting of January 2007.

REMUNERATION OF DIRECTORSDuring Financial Year 2004, the Company accrued an aggregate compensation of Euro 70,118 for its directors. In addition, the

managing directors have company cars at their disposal. No stock options, pension plan or other benefits were granted to the

managing directors.

During Financial Year 2004 an aggregate amount of Euro 852,047 was paid to the service companies PowerGraph NV, Ir. Peter

Denoo BVBA, Bart Denoo Engineering BVBA and G.M.F.A. BVBA for the commercial, financial and software development services of

Guido Van der Schueren, Peter Denoo, Bart Denoo and Hildegard Verhoeven.

2. Auditors

The Company’s auditors are Ernst & Young Bedrijfsrevisoren B.C.V, Moutstraat 54, B-9000 Gent, Belgium, represented by

Patrick Rottiers, Partner, who was appointed for a three year term at the extraordinary General Shareholders’ Meeting held on

January 24, 2003.

The consolidated and statutory financial statements of the Company up to September 30, 2004 have been audited by the statutory

auditor of the Company.

3. 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”.

As a result of the decision of the extraordinary shareholders’ meeting of Nasdaq Europe to discontinue its operations, the decision

has been taken to quote the shares of AWSG on Euronext. Since October 6, 2003 the shares of Artwork Systems Group NV are

traded on Euronext Brussels. The last trading day on Nasdaq Europe was November 7, 2003.

SHARE PRICES In Euro

FY 2004 Low High

First quarter 2004 (ended December 31, 2003) 4.40 7.75

Second quarter 2004 (ended March 31, 2004) 6.99 8.84

Third Quarter 2004 (ended June 30, 2004) 7.41 10.44

Fourth quarter 2004 (ended September 30, 2004) 8.75 11.50

FY 2003 Low High





FY 2002 Low High





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4. Significant shareholders

The following overview is based on the notification received by Artwork Systems Group NV on December 4, 2002.

Stichting Administratiekantoor Artwork Systems (hereafter “the Foundation”) holds an aggregate of 12,546,825 Shares, representing

73.59% of the Company’s Shares.

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 COMPANY’S SIGNIFICANT SHAREHOLDERS

Identity of the Shareholder Number of financial instruments held Percentageof financial Instruments held

Stichting Administratiekantoor Artwork Systems 12,546,825 73.59%

(1) Abacus Holding NV 236,767 1.39%

(2) Graphicus NV 87,333 0.51%

Total 12,870,925 75.50%

(1) As a result of the dissolution of Abacus Holding NV, its legal successors, Kroy Finance Corporation BVBA and Widmer Development Corporation Bvba each hold 50% of the financial instruments formerly held by Abacus Holding NV.

(2) As a result of the dissolution of Graphicus NV, its legal successor, Parana Management Corporation BVBA holds the financial instruments formerly held by Graphicus NV.

5. Dividends

The following table sets forth the dividends paid during the years ended September 30, 2004, 2003 and 2002.

During 2004 a “double” dividend was paid since no dividend was distributed during 2003.

DIVIDENDS PAIDYears ended September 30

Financial year Per share Total dividend

2004 0.50 8,524,325

2003 0 0

2002 0.22 3,749,196

6. Current Structure of Artwork Systems Group

Artwork Systems Group N.V. has twelve subsidiaries. It owns, directly or indirectly, all issued shares of Artwork Systems N.V. (the

“Belgian Subsidiary”), Artwork Systems Inc., Artwork Systems GmbH & Co. KG, Artwork Systems Beteiligungs-GmbH, Artwork

Systems Verwaltungs-GmbH, Artwork Systems Ltd, Artwork Systems SA, AWSG Limited, Enfocus NV, Enfocus Inc, Dimensional CAD/

CAM Systems Inc and DI Asia.

Artwork Systems Group NV

Artwork SystemsVerwaltungs Gmbh

Artwork SystemsGmbh & Co KG

AWSG LimitedArtwork Systems SA Artwork Systems LtdArtwork Systems IncArtwork Systems Beteiligungs GmbhArtwork Systems NV

Dimensional CAD/CAM Systems Inc

DI AsiaEnfocus Inc

Enfocus NV

17

ARTWORK SYSTEMS NV

Seat of company Handelsdokcenter, Stapelplein 70/300, Gent, B-9000 Gent, Belgium

Field of activity Development, sales and support of software for printing industry

Year of Incorporation 1992Share capital 74,368 EuroManaging Director(s) Guido Van der Schueren, Peter Denoo,

Bart Denoo and Hildegard VerhoevenOwnership percentage 100%Number of Employees 71

ARTWORK SYSTEMS INC.

Seat of company 1209 Orange Street, Wilmington, Delaware 19801, USA

Field of activity Sales and support of software for printing industry

Year of Incorporation 1996Share capital 50,000 USD (not paid up)Managing Director(s) Guido Van der Schueren, Peter Denoo

and Bart DenooOwnership percentage 100%Number of Employees 42

ARTWORK SYSTEMS GMBH & CO. KG

Seat of company Burkheimerstraße 3, 79111 Freiburg, Germany

Field of activity Sales and support of software for the printing industry

Year of Incorporation 1994Share Capital 51,129 EuroManaging Director(s) Guido Van der Schueren, Peter Denoo,

Christopher Graf and Peter GanzOwnership percentage 100%Number of Employees 21

AWSG LIMITED

Seat of company Wilton Park House, Wilton Place, Dublin 2

Field of activity Development and sales of software for printing industry

Year of Incorporation 1999Share Capital 3 EuroManaging Directors Peter Denoo and Guido Van der

SchuerenOwnership percentage 100%Number of Employees 7

DIMENSIONAL CAD/CAM SYSTEMS INC

Seat of company 16000 Ventura Blvd, Suite 910, Encino, CA 91436, USA

Field of activity Development, sales and support of software for the CAD market

Year of Incorporation 1993Share Capital 250,000 USD Managing Directors Peter Denoo and Guido Van der


ARTWORK SYSTEMS BETEILIGUNGS-GMBH

Seat of company Burkheimerstraße 3, 79111 Freiburg, Germany

Field of activity Holding companyYear of Incorporation 1998Share capital 51,129 Euro (+766,938 Euro

Kapitalrucklage)Managing Director(s) Guido Van der Schueren and Peter

DenooOwnership percentage(s) 100%Number of Employees none

ARTWORK SYSTEMS LTD.

Seat of company 100, New Bridge Street, London EC4 6JA

Field of activity Development, sales and support of software for printing industry

Year of Incorporation 1999Share Capital 1,000 GBPManaging Directors Peter Denoo and Guido Van der


ARTWORK SYSTEMS SA

Seat of company Paris Nord II, 47 Allée des Impressionistes, 93420 Villepinte, France

Field of activity Sales and support of software for printing industry

Year of Incorporation 1999Share Capital 851,626 EuroManaging Directors) Peter Denoo and Guido Van der


ENFOCUS SOFTWARE NV

Seat of company Antwerpsesteenweg 41-45, 9000 GentField of activity Development and sales of software

for the PDF marketYear of Incorporation 1993Share Capital 1,237,000 Euro Managing Directors Peter Denoo, Bart Denoo and Guido

Van der SchuerenOwnership percentage 100%Number of Employees 34

ENFOCUS SOFTWARE INC

Seat of company 3, Water Park Drive, Suite 210, San Mateo, CA 94403, USA

Field of activity Sales of software for the PDF marketYear of Incorporation 1998Share Capital 50,000 USD Managing Directors Peter Denoo, Bart Denoo and Guido

Van der SchuerenOwnership percentage 100%Number of Employees 7

DIMENSIONAL IMPRESSIONSResearch and Development 4 Sales and Marketing 4 Support 1 General and Administrative 3 12 staff

TOTAL WORLDWIDEResearch and Development 57 Sales and Marketing 74 Support 64 General and Administrative 32 227 staff

ARTWORK SYSTEMSResearch and Development 37 Sales and Marketing 54 Support 57 General and Administrative 26 174 staff

ENFOCUSResearch and Development 16 Sales and Marketing 16 Support 6 General and Administrative 3 41 staff

UNITED STATES

Artwork SystemsResearch and Development 1 Sales and Marketing 23 Support 13 General and Administrative 5 42 staff

EnfocusSales and Marketing 6Support 1 7 staff

Dimensional ImpressionsResearch and Development 2 Sales and Marketing 3 Support 1 General and Administrative 3 9 staff

MEXICOSales and Marketing 1 Support 1 2 staff

IRELANDResearch and Development 7 7 staff

UNITED KINGDOMResearch and Development 9 Sales and Marketing 3 Support 6 General and Administrative 3 21 staff

BRAZILSupport 1 1 staff

AUSTRALIASales and Marketing 1Support 1 2 staff

SINGAPORESupport 1 1 staff

JAPANDimensional ImpressionsResearch and Development 2 Sales and Marketing 1 3 staff

FRANCESales and Marketing 3 Support 6 General and Administrative 3 12 staff

GERMANYSales and Marketing 6 Support 11 General and Administrative 4 21 staff

BELGIUM

Artwork SystemsResearch and Development 20 Sales and Marketing 17 Support 17 General and Administrative 11 Total 65 staff

EnfocusResearch and Development 16 Sales and Marketing 10 Support 5 General and Administrative 3 34 staff

2004FINANCIAL STATEMENTS

1. Selected Summary Financial Data

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

of Artwork systems Group N.V.

YEARS ENDED SEPTEMBER 30

In Euro

2004 2003 2002

Net revenue 47,136,330 44,098,201 45,889,312

Cost of revenues 8,131,052 7,902,504 8,242,766

Gross margin 39,005,278 36,195,696 37,646,545

Operating expenses

Research and development 4,842,907 4,357,055 4,229,756

Sales and marketing 13,147,096 12,208,895 13,047,851

General and administrative 2,559,773 2,723,226 2,642,027

Depreciation 643,919 678,154 662,940

(*) Income from operations 17,811,583 16,228,367 17,063,972

Non-operating expenses 151,064 190,225 252,578

Non-operating income 0 0 252,062

Financial income (expense) -268,647 -1,049,975 -606,142

(*) Profit before income taxes 17,391,872 14,988,167 16,457,314

Provision for income taxes 4,741,116 4,603,425 4,976,048

Settlement of the tax claim 0 12,005,863 0

(*) Net income/(loss) 12,650,757 -1,621,121 11,481,266

(**) Amortization of goodwill 714,733 1,098,170 5,658,261

Net income/(loss) after goodwill 11,936,023 -2,719,291 5,823,005

(*) before amortization of goodwill and other intangibles from acquisitions(**) and other intangibles from acquisitions

YEARS ENDED SEPTEMBER 30In Euro

2004 2003 2002

Cash and cash equivalents 22,613,121 21,341,962 9,883,464

Accounts receivable 10,075,493 8,787,131 11,712,653

Goodwill 8,268,839 8,428,792 10,287,411


Shareholders’ equity 30,258,625 27,335,450 31,447,989

INTRODUCTION TO THE

CONSOLIDATED FINANCIAL STATEMENTS

Income Statement

Balance Sheet

23

2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations

The following discussion and analysis is based on the audited consolidated financial statements of Artwork Systems Group N.V. and

its subsidiaries (“the Group”) for the year ended September 30, 2004.

Definitions are as follows:

Artwork Systems Group NV and its subsidiaries: “The Group”

Artwork Systems Group NV: “The Company”

Artwork Systems subsidiaries: “Artwork Systems”

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

Systems’ most important products are:

ArtPro, the interactive editing program for high-end pre-press production with dedicated modules to further optimize the

program towards specific markets in packaging, labels, commercial color and publishing.

Nexus, the workflow management system for automated production, born from the integration of the former workflow

products ArtFlow, PageFlow and PackFlow.

WebWay, allows for internet based communication between print-buyers and production sites through standard internet

browsers.

Odystar, born from the synergy between Artwork Systems’ workflow technology and Enfocus’ PitStop and Certified PDF

technologies, is a highly automated pre-press workflow solution based on PDF 1.5.

Artwork Systems generally sells software only, except for the RIPs (Raster Image Processor) which are sometimes sold together with

the hardware they run on. Artwork Systems offers its customers an annual maintenance contract, that includes telephone support

and minor 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 Group 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, France, Brazil, Australia and some

countries in South-East Asia.

Enfocus develops software for the PDF market. PDF was developed by Adobe Inc. and continues to evolve into the standard

format in the digital printing and publishing market. The format is also an important standard for the Internet e-paper community.

Enfocus publishes the #1 PDF production tools for powerful, rapid and accurate flow of PDF documents in graphic arts, enterprise

(electronic paper) and internet markets.

Dimensional CAD/CAM Systems Inc., dba Dimensional Impressions, develops software for the CAD and enterprise software for the

corrugated and folding carton markets.

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

(France), Limerick (Ireland), San Mateo and Los Angeles (California, US). The Company’s headquarters are located in Belgium. Total

staff is 227.

2.1 FINANCIAL 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. 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 exchange rate during the period. Equity

is translated at historic exchange rates. Gains and losses resulting from these translations are reflected in “other comprehensive

income”, a component of shareholders’ equity in the balance sheets.

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

EXCHANGE RATES USD/EURrounded to 4 digits

Period Income Statement (average rate) Balance Sheet (end of period rate)

Financial Year 2004 1.2181 1.2409

Financial Year 2003 1.0839 1.1652

Financial Year 2002 0.9190 0.9860

Amounts not derived from the consolidated financial statements and included in this “Management’s Discussion and Analysis” are

translated at historic exchange rates.

2.2 RESULTS OF OPERATIONS

Key figures for the year, expressed as a percentage of net revenue, compare with last year’s figures as follows:

YEARS ENDED SEPTEMBER 30in percentages of net revenue

2004 2003 2002

Cost of Revenues 17.2% 17.9% 18.0%

Gross Margin 82.8% 82.1% 82.0%

Research and Development 10.3% 9.9% 9.2%

Sales and Marketing 27.9% 27.7% 28.4%

General and Administrative 5.4% 6.2% 5.8%

(*) Depreciation and Amortization 1.4% 1.5% 1.4%

(*) Operating Margin 37.8% 36.8% 37.2%

Non-operating expenses 0.3% 0.4% 0.6%

(*) After Tax Margin 26.8% -3.7% 25.0%

(*) before amortization of goodwill and other intangibles from acquisitions

25

The following table compares income statement data with last year:

YEARS ENDED SEPTEMBER 30, 2003 AND 2004

% increase

Revenue 6.9%

Revenue from products 6.3%

Revenue from services 8.6%

Cost of revenues 2.9%

Gross margin 7.7%

Research and development 11.2%

Sales and marketing 7.7%

General and administrative -6.0%

Depreciation and amortization 5.0%

(*) Income from operations 9.8%

Net income after amortization 538.9%

(*) before amortization of goodwill and other intangibles from acquisitions

2.3 NET REVENUES

The Group’s net revenue has increased by 6.9% from the year ended September 30, 2003 to the year ended September 30, 2004.

The decrease of the USD has a negative impact of 5% on net revenue.

Revenue from services consist of maintenance contracts and training. As the amount of seats installed increases, the revenue from

maintenance contracts grows and provides the Company with a source of recurring revenue.

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

YEARS ENDED SEPTEMBER 30in percentages of net revenue

2004 2003 2002

Europe 51% 48% 48%

Americas 43% 46% 45%

Asia 4% 4% 5%

Rest 2% 2% 2%

2.4 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. The cost of revenues can be significantly influenced by the number of computers sold together with the software.

For services the cost of revenues primarily consists of salaries and related costs for the product specialists that provide training and

telephone support.

The cost of revenues for Enfocus products consists of the costs packaging and royalties. The cost of revenues services consists of

salaries and related costs for the product specialists that provide support.

The cost of revenues for Dimensional Impressions consists of hardware and cutting tables. The cost of revenues services consists of

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

2.5 OPERATING EXPENSES

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

salaries, travel, participation in trade shows and bad debt provision. General and administrative expenses consist of compensation

and related expenses, and consulting and professional fees.

The increase in research & development expenses is related to the number of people employed for software development. The

expansion of its research & delevopment capacity is inspired by the Company’s commitment to continuously invest in new products

and maintaining and optimizing existing products.

The evolution in Sales & Marketing expenses is mainly related to the number of people employed, the provisions for bad debt and

Drupa (see below).

The collectibility of trade receivables is evaluated based on a combination of factors. When a certain customer is unable to meet its

financial obligations, such as bankruptcy or the deterioration of its financial position, a reserve for bad debt is recorded to reduce

the related receivable to the amount which is reasonably collectible.

Reserves for bad debt are recorded for other customers based on a variety of factors including the length of time the receivables

are past due and historical experience.

If circumstances related to specific customers change, the reserve is adjusted accordingly.

2.6 NON OPERATING INCOME AND EXPENSE

Non-operating expenses relate to the expenses incurred for legal and other fees related to the tax claim.

2.7 FINANCIAL INCOME AND EXPENSE

Interest income relates to interest and other income received on cash and cash equivalents.

Exchange gains/losses includes realized and unrealized exchange differences based on the translation of foreign currencies to the

Euro.

27

2.8 FOREIGN CURRENCY EXCHANGE RATE RISK

The Company is exposed to foreign currency exchange rate risk inherent in its business. The Company conducts its business

wordwide and transactions not denominated in Euro are sensitive to foreign currency exchange rate risks. The most important

foreign currency is the USD. For the USD the Company is a net receiver and therefore benefits from a strong USD.

2.9 TAX RATE

Since the company operates in countries with different tax rates, the average tax rate may vary from quarter to quarter and from

year to year depending on the relative importance in the profit of those different countries.

As of October 1, 2003, the Belgian entities in the Group benefit from the new and lower tax rate in Belgium (33.99% instead of

40.17%).

2.10 GOODWILL AND OTHER INTANGIBLES FROM ACQUISITIONS

Company Acquired as of Goodwill Amortization period

PCCCompetitor in the United States August 28, 1998 USD 10,347,792 none (*)

Enfocus Software Developer of PDF software technology April 25, 2000 Euro 10,548,417 none (*)

Dimensional CAD/CAMDeveloper of CAD/CAM technology December 6, 2001 USD 919,766 none

(*) Goodwill from the acquisitions of PCC and Enfocus has been amortized until September 30, 2002 and since October 1, 2002 tested for impairment annually or when events or circumstances occur that indicate that goodwill might be impaired.

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). Goodwill resulting

from the acquistion from PCC has increased with USD 2,410,835 at September 30, 1999 and at September 30, 2000 with USD 737,629

as a result of the earn-out mechanism.

The purchase agreement for Enfocus contains an earn-out mechanism based on the consolidated revenue from both Enfocus

Entities. In the third quarter of 2001, the final earn-out has been determined at Euro 3,075,865. This amount has been added to

goodwill in the balance sheet.

On December 6, 2001, the Company acquired all the shares of Dimensional CAD/CAM Systems Inc, dba Dimensional Impressions

for USD 2,000,000. This acquisition adds new software to the product line of the Company (a former “missing link”) and increases its

commitment to the packaging industry. The purchase price is a multiple of EBITDA at the time of the acquisition (5.3 times EBITDA)

and contains an earn-out mechanism based on EBITDA for the calendar years 2002 and 2003. The total earn-out will not exceed

2,000,000 USD.

For calendar years 2002 and 2003, the required EBITDA had not been achieved and as a consequence no earn-out was payable.

The purchase price also contained an adjustment mechanism stating that a portion of the purchase price, 100,000 USD, is repayable

by the sellers if the Company does not achieve a certain EBITDA for 2001. Under this mechanism 100,000 USD has been repaid by

the sellers in April 2002.

In accordance with FAS 141 and FAS 142, the goodwill for the above mentioned acquisitions is not being amortized but is reviewed

annually for impairment.

Independent valuations were obtained to determine the fair value of the net assets acquired and to allocate the purchase price.

The value of the intangibles acquired have been determined as follows:

Company Acquired as ofIntangibles

other than Goodwill Amortization period

Enfocus Software Developer of PDF software technology April 25, 2000 Euro 2,675,000 54 months

Dimensional CAD/CAMDeveloper of CAD/CAM technology December 6, 2001 USD 927,080 2 – 3 years

2.11 DRUPA

From May 6 till 19, 2004 the Company participated at Drupa, the world’s largest exhibition for the graphical market, which takes

place every four years at Düsseldorf, Germany. At the exhibition there was both a very strong interest in the existing products and

new products were introduced. Over 3,000 visitors were noted on the booth.

Over 1,000 visitors came to the Enfocus’ booth. This clearly demonstrates that the importance of PDF for the graphic arts industry

and beyond is growing.

The impact on Drupa on the sales and marketing expenses for the year amounts to 546.978 Euro. This includes the booth, marketing

expenses, printed matter and travel and lodging of employees.

2.12 LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2004, the Group had Euro 22,613,121 of cash and cash equivalents. These funds are invested in short-term bank

deposits. The Group had no debt towards its bank at September 30, 2004.

At September 24, 2004 the Group distributed a dividend of Euro 0.50 gross per share. Since the paying agent did not debit any

amounts before September 30, 2004, the total amount of the dividend of Euro 8,524,325 is recorded as a payable on the balance

sheet.

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

flow operations and short term borrowings.

2.13 RELATED PARTY RECEIVABLE

During the year ended September 30, 2003, the Company granted a loan of Euro 1,000,000 to Graphicus NV, a company of which

Guido Van der Schueren is a director, for a period of 18 months and at an interest rate of 4.35%.

The loan, including the accrued interest of Euro 66,544, has been repaid by the debtor at September 27, 2004.

29

2.14 TAX CLAIM

At September 14, 2004, the Court of Appeal of Ghent ratified the settlement dd. 19 December 2003 between Artwork Systems

Group NV and the Special Tax Inspection regarding the tax dispute concerning the acquisition of the shares in Artwork Systems NV.

Earlier the Court of First Instance had ruled in favor of the Belgian State. The parties,however, concluded a settlement, subject to

its ratification by the Court of Appeal of Ghent, whereby Artwork Systems Group NV would pay a total tax of Euro 12,005,863. As a

result of the ratification of the settlement by the Court of Appeal of Ghent, the taxdispute has ended definitely. The company has

withdrawn its appeal pending before the Council of State regarding the annulment of the opinion 126/17 of the Commission for

Accounting Standards.

The amount of Euro 12,005,863 has been paid at September 30, 2004.

2.15 RESEARCH & DEVELOPMENT EXPENSES

During the year ended September 30, 2004, Research & Development expenses of Euro 4,842,907 were included in operating

expenses.

2.16 CHANGES IN COMMON STOCK

No changes in common stock took place during the year ended September 30, 2004.

2.17 FEES TO AFFILIATED COMPANIES TO THE STATUTORY AUDITOR

During financial year 2004, The Company paid Euro 107,619 to companies that are affiliated to our statutory auditor.

CONSOLIDATED FINANCIAL STATEMENTSIN ACCORDANCE WITH U.S. GAAP

31

1. Independent Auditor’s Report

TO THE SHAREHOLDERS’ MEETING OF ARTWORK SYSTEMS GROUP NV

In accordance with legal and regulatory requirements, we are pleased to report to you on the performance of the audit mandate,

which you have entrusted to us.

We have audited the consolidated financial statements as of and for the year ended September 30, 2004, which have been prepared

under the responsibility of the board of directors and are prepared in accordance with accounting principles generally accepted in

the US and show a balance sheet total of 47.479.311,00 EUR and a consolidated profit for the year of 11.936.023,00 EUR. We have also

examined the consolidated directors’ report, for compliance with the Belgian Company Code.

Unqualified audit opinion on the consolidated financial statements

We conducted our audit in accordance with the standards of the “Institut des Reviseurs d’Entreprises/Instituut der Bedrijfsrevisoren”.

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.

In accordance with those standards, we considered the group’s administrative and accounting organisation, as well as its internal

control procedures. We have obtained explanations and information required for our audit. An audit includes examining, on a test

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

accounting principles used, the basis for consolidation and significant accounting estimates made by management, as well as

evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our

opinion.

In our opinion the consolidated financial statements give a true and fair view of the group’s assets, liabilities, consolidated financial

position as of September 30, 2004 and the consolidated results of its operations for the year then ended, in accordance with

accounting principles generally accepted in the United States of America.

Other certification and information

We supplement our report with the following certification (and information) which do not modify our audit opinion on the

consolidated financial statements:

• The consolidated directors’ report, referred to as Management’s discussion and analysis, contains the information required by

the Belgian Company Code and is consistent with the consolidated financial statements.

• As has been indicated, under a special derogation obtained form the Ministry of Economy, the consolidated financial statements

have been prepared in accordance with accounting principles generally accepted in the US and the regulations of the Seventh

Directive have been complied with.

Antwerp, December 2, 2004

Ernst & Young Reviseurs d’Entreprises SCC (B 160)

Statutory auditor, represented by Patrick Rottiers, Partner

2. Consolidated Balance Sheets


2004 2003 2002

Current Assets

Cash and Cash Equivalents 22,613,121 21,341,962 9,883,464

(*) Accounts Receivable 10,075,493 8,787,131 11,712,653

Value Added Taxes 398,897 276,947 216,266

Other Current Assets 791,562 634,822 469,716

Related party receivable 0 1,023,769 0

Inventory, net 488,824 808,240 1,331,961

Deferred Tax Asset, net 845,528 884,359 1,334,088

35,213,425 33,757,230 24,948,148

Property and Equipment, net 1,519,347 1,266,504 1,193,126

Prepaid License Costs 584,197 695,821 874,167

Intangible Assets, net 99,299 852,478 544,424

Goodwill, net 8,268,839 8,428,792 10,287,411

Non- current Deferred Tax Asset 1,794,203 2,173,878 2,460,401

Total Assets 47,479,311 47,174,703 40,307,676

Current Liabilities

Dividend Payable 8,524,325 0 0

Accounts Payable 1,064,593 1,020,204 1,253,313

Related Party Payable 91,756 77,885 77,220

Accrued Payroll and Related Taxes 1,316,843 1,112,684 944,987

Accrued License Fees 0 9,640 2,496

Accrued Fees and Other Expenses 1,444,280 1,337,197 1,637,694

Income Taxes Payable 606,955 667,328 1,499,083


Deferred Income 3,611,370 3,247,189 3,141,717

Deferred Tax Liability 542,508 323,984 119,944

Other Amounts Payable 18,056 37,279 183,233

17,220,686 19,839,253 8,859,687

Shareholders’ Equity

(**) Common Stock 6,871,544 6,871,544 6,871,544

Additional Paid-in Capital 548,545 548,545 548,545

Retained Earnings, restricted 993,994 888,303 802,825

Retained Earnings, unrestricted 31,009,318 19,178,986 25,732,950

Dividend Paid Out -8,524,325 0 -3,749,196

Other Accumulated Comprehensive Income -640,451 -151,929 1,241,320

30,258,625 27,335,450 31,447,988

Total Liabilities and Shareholders’ Equity 47,479,311 47,174,703 40,307,676

(*) net of allowance for uncollectible amounts of Euro 1,047,281, Euro 1,293,939 and Euro 2,128,819 at Sept 30, 2004, 2003 and 2002 respectively(**) no par value, 17,048,650, 17,048,650 and 17,048,650 shares authorized and outstanding at Sept 30, 2004, 2003 and 2002 respectively

Assets

Liabilities and Shareholders’

Equity

33

3. Consolidated Income Statements

YEARS ENDED SEPTEMBER 30In Euro, except per share data

2004 2003 2002

Net Revenue

Products 34,477,203 32,441,180 35,950,652

Services 12,659,127 11,657,021 9,938,660

47,136,330 44,098,201 45,889,312

Cost of Revenues

Products 3,652,683 3,515,679 3,963,759

Services 4,478,369 4,386,825 4,279,007

8,131,052 7,902,504 8,242,766

Gross Margin 39,005,278 36,195,696 37,646,546

Operating Expenses

Research and Development 4,842,907 4,357,055 4,229,756

Sales and Marketing 13,147,096 12,208,895 13,047,851

General and Administrative 2,559,773 2,723,226 2,642,027

Depreciation 643,919 678,154 662,940

Amortization 714,733 1,098,170 5,658,261

21,908,428 21,065,499 26,240,835

Income from Operations 17,096,850 15,130,197 11,405,711

Non-operating Expenses 151,064 190,225 252,578

Non-operating Income 0 0 252,062

Financial Income 434,494 180,202 100,943

Financial Expense 13,341 28,854 74,672

Net Exchange Gain/(loss) -689,800 -1,201,323 -632,413

Profit before Income Taxes 16,677,139 13,889,997 10,799,053

Provision for Income Taxes 4,741,116 4,603,425 4,976,048


Net Income 11,936,023 -2,719,291 5,823,005

Net Income excl Amortization 12,650,757 -1,621,121 11,481,266

Basic/diluted earnings per Share 0.70 -0.16 0.34

Basic/diluted earnings per Share, before amortization 0.74 -0.10 0.67

4. Consolidated Statements of Shareholders’ Equity

Common stock

shares

Common stock

amount

Additional paid

in capitalRetained earnings

Accumulated other

comprehensive income

Total shareholders’

equity

Balances, September 30, 2003 17,048,650 6,871,544 548,546 20,067,289 -151,929 27,335,450

Exercise of employee stock options 0 0 0 0 0 0

Employee stockholders plan net 0 0 0 0 0 0

Components of comprehensive income

Foreign currency translation 0 0 0 0 -488,522 -488,522

Net income/(loss) 0 0 0 11,936,023 0 11,936,023

Total comprehensive income 0 0 0 11,936,023 -488,522 11,936,023

Dividend paid out 0 0 0 -8,524,325 0 -8,524,325


Balances, September 30, 2002 17,048,650 6,871,544 548,546 22,786,579 1,241,320 31,447,989

Exercise of employee stock options 0 0 0 0 0 0

Employee stockholders plan net 0 0 0 0 0 0


Foreign currency translation 0 0 0 0 -1,393,249 -1,393,249

Net income/(loss) 0 0 0 -2,719,291 0 -2,719,291

Total comprehensive income 0 0 0 -2,719,291 -1,393,249 -4,112,540

Dividend paid out 0 0 0 0 0 0



Exercise of employee stock options 6,850 3,154 242 0 0 3,396

Employee stockholders plan net 0 0 13,224 0 0 13,224


Foreign currency translation 0 0 0 0 -1,175,950 -1,175,950

Net income/(loss) 0 0 0 5,823,005 0 5,823,005

Total comprehensive income 0 0 0 5,823,005 -1,175,950 4,647,055

Dividend paid out 0 0 0 -3,749,196 0 -3,749,196


2004

2003

2002

35

5. Consolidated Statements of Cash Flows

5.1 OPERATING ACTIVITIES


In Euro

2004 2003 2002

Net Income 11,936,023 -2,719,291 5,823,005

Adjustments to reconcile Net Income to Net Cash provided by Operating Activities

Deferred taxes 494,380 463,056 -908,842

Depreciation and Amortization 1,358,651 1,776,324 6,321,324

(Gain)/Loss on Sale of Equipment -19,681 -33,829 -21,105

Provision for Losses on Accounts Receivable 134,669 -125,021 1,217,858

Compensation Expense (ESOP) 0 0 13,224

Changes in Operating Assets and Liabilities

Accounts Receivable -1,664,907 2,146,175 3,204,769

Prepaid Taxes 297,998 -275,983 415,467

Prepaid license costs 98,228 -88,953 -462,980

Other intangibles 28,460 104,037 0

Value Added Taxes 43,996 -65,397 52,049

Other Current Assets -525,595 -684,331 -208,661

Inventory 252,888 177,213 -477,209

Accounts Payable 172,626 6,323 -640,785

Accrued Payroll and Related Taxes 206,057 181,496 -223,187

Accrued License Fees -9,640 7,144 -14,843

Accrued Fees and Other Expenses 146,774 -159,755 -228,670

Income Taxes Payable -360,812 -556,503 221,111

Settlement of the tax claim -12,005,863 12,005,863 0

Deferred Income 548,881 -791,316 -826,596

Other current liabilities 139,539 2,263,853 1,216,538

Net Cash provided by Operating Activities 1,272,672 13,631,105 14,472,467

5.2 INVESTING ACTIVITIES


In Euro

2004 2003 2002

Purchases of Property and Equipment -921,430 -830,026 -734,392

Proceeds from Sales of Equipment 32,867 68,718 76,682

Investment In Dimensional CAD/CAM Systems Inc 0 0 -2,028,041

Net Cash used in Investing Activities -888,563 -761,308 -2,685,751

Free operating cash flow 384,109 12,869,797 11,786,716

5.3 FINANCING ACTIVITIES


In Euro

2004 2003 2002

Exercise of stock options for cash 0 0 3,397

Dividend payment 0 0 -3,749,196

Short term debt from bank 0 0 -2,610,000

Related party Loan 1,023,769 -1,023,769 0

Net Cash used in and provided by Financing Activities 1,023,769 -1,023,769 -6,355,799

Effect of Exchange Rate Changes on Cash -136,719 -387,530 -106,991

Net Increase (Decrease) in Cash and Cash Equivalents 1,271,159 11,458,498 5,323,926

Cash and Cash Equivalents at Beginning of Period 21,341,962 9,883,464 4,559,537

Cash and Cash Equivalents at End of Period 22,613,121 21,341,962 9,883,463

Taxes Paid 3,193,841 5,139,251 4,417,938

Intrest paid 13,341 28,854 67,111

37

6. Notes to the Consolidated Financial Statements

6.1 ORGANIZATION & DESCRIPTION OF BUSINESS

Artwork Systems Group NV was incorporated on November 20, 1996 as a naamloze vennootschap, or limited liability Company,

under the laws of the Kingdom of Belgium to develop software for pre-press applications in the graphic arts industry. The

Company’s shares began trading publicly on NASDAQ Europe (formerly EASDAQ), December 9, 1996. As a result of the decision of

the extraordinary shareholders’ meeting of Nasdaq Europe to discontinue its operations, the decision has been taken to quote the

shares of AWSG on Euronext. Since October 6, 2003 the shares of Artwork Systems Group NV are traded on Euronext Brussels. The

last trading day on Nasdaq Europe was November 7, 2003.

The Company is 73.59% owned by Stichting Administratiekantoor Artwork Systems (the Foundation), a holding company

incorporated 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 and is not entitled to carry out any other activities.

6.2 ACQUISITIONS

Artwork Systems Group NV and its consolidated subsidiaries are hereafter referred to as ‘the Group’.

In June 2001, the FASB issued Statement of Financial Accounting Standards No. 141, “Business Combinations” and No. 142, “Goodwill

and Other Intangible Assets” (“FAS 141” and “FAS 142”, respectively). The Company adopted FAS 141 and FAS 142 on October 1, 2002

when its new fiscal year began.

In accordance with SFAS No. 141, the Company allocates the purchase price of our acquisitions to the tangible assets, liabilities and

intangible assets acquired, based on their estimated fair values. The excess purchase price over those fair values is recorded as

goodwill. In accordance with SFAS No. 142, goodwill and purchased intangible assets with indefinite useful lives acquired after June

30, 2001 are not amortized but will be reviewed at least annually for impairment. Purchased intangible assets with finite lives are

amortized on a straight-line basis over their respective estimated useful lives.

YEAR ENDED SEPTEMBER 30, 2004No acquisitions took place during the year ended September 30, 2004.

YEAR ENDED SEPTEMBER 30, 2003No acquisitions took place during the year ended September 30, 2003.

YEAR ENDED SEPTEMBER 30, 2002On December 6, 2001, Artwork Systems Inc acquired all the shares of Dimensional CAD/CAM Systems Inc, dba Dimensional

Impressions for USD 2,000,000 cash. The purchase price was based on a multiple of EBITDA (earnings before interest, taxes,

depreciation and amortization) at the time of the acquisition. This acquisition provides new software which complements the

existing product line of the Company and increases its commitment to the packaging industry.

This acquisition was accounted for by the purchase method of accounting and accordingly, the results of operations have been

included in the consolidated financial statements starting on the day of acquisition. The assets acquired and liabilities assumed as

part of the transaction were recorded at estimated fair values. Independent valuations were obtained to determine the fair value of

the net assets acquired and to allocate the purchase price. The estimated fair values of the assets acquired and liabilities assumed

at the acquisition date are as follows:

in Euro

Other current assets 125,958

Accounts receivable 913,144

Other intangibles 940,243

Fixed assets 143,738

Accounts payable (254,767)

Unearned revenues (472,619)

Net Assets Acquired 209,806

In accordance with SFAS 141 and SFAS 142, USD 919,766 (Euro 741,209) of excess purchase price over the fair value of the assets

acquired and liabilities assumed was allocated to goodwill. None of this amount will be deductible for tax purposes. The purchase

agreement contains an earn-out mechanism based on EBITDA for the calendar years 2002 and 2003. Under this agreement the total

earn-out cannot exceed 2,000,000 USD. The purchase agreement also contained an adjustment mechanism stating that a portion

of the purchase price, 100,000 USD, is repayable by the sellers if the Company does not achieve a certain EBITDA for 2001. Under this

mechanism 100,000 USD has been repaid by the sellers in April 2002. For calendar years 2002 and 2003, the required EBITDA had

not been achieved and as a consequence no earn-out was payable.

The following unaudited pro forma financial information presents a summary of the consolidated results of operations of the

Company as if the acquisition of Dimensional CAD/CAM Systems Inc had occurred at the beginning of the year ended September

30, 2001. This pro forma information is not necessarily indicative of the combined results of operations which would have actually

occurred had the transactions been consummated on that date or which may be obtained in the future.

YEARS ENDED SEPTEMBER 30Unaudited, in Euro, except per share data

2002 2001

Revenue 46,466,798 51,850,405

Net income 5,731,855 7,631,497

Earnings per share 0.34 0.45

YEAR ENDED SEPTEMBER 30, 2000On April 25, 2000, the Company acquired Enfocus Software, a leading software provider in the PDF market, for Euro 10,000,000. The

Company accounted for the acquisition under the purchase method of accounting and, accordingly, the results of the operations

of the acquired business have been included in the Company’s consolidated results since the date of acquisition. The excess

of purchase price over the estimated fair value of net liabilities acquired of approximately Euro 10,147,551 has been recorded as

goodwill and has been amortized using the straight line method over five years.

The purchase agreement for Enfocus contains an earn-out mechanism based on the consolidated revenue from both Enfocus

entities. On May 31, 2001 the earn-out has been determined at Euro 3,075,865. This amount has been accounted for as additional

purchase price and is being amortized over the remaining amortization period.

Independent valuations have been obtained and as a result Euro 2,675,000 has been identified as acquired intangible assets other

than goodwill. These intangibles are being amortized on a straight-line basis over 4.5 years.

39

YEAR ENDED SEPTEMBER 30, 1998Effective August 28, 1998 Artwork Systems Group NV acquired Professional Software Technologies Inc.(PST) and PCC International

Ltd., operating under the name Professional Computer Cooperation (PCC) for USD 8 million (Euro 6,446,934) in cash plus an earn-

out over the following two years based on EBITDA. PST and PCC International Ltd. were software developers and system integrators

for the packaging and commercial offset pre-press industries.

In accordance with the purchase agreement, the Company has paid USD 2,543,100 (Euro 2,049,400) and USD 737,629 (Euro 594,431),

respectively, representing additional purchase price based on the operating results of the years ended September 30, 1999 and

2000.

GOODWILLGoodwill results from the acquisition of PCC, Enfocus Software and Dimensional CAD/CAM Systems Inc.

Goodwill consist of the following:

SEPTEMBER 30In Euro

2004 2003 2002

Goodwill PCC 8,338,941 8,880,700 10,494,717

Goodwill Enfocus 10,548,417 10,548,417 13,223,417

Goodwill Dimensional Impressions 741,209 789,363 932,826

Total Goodwill 19,628,567 20,218,480 24,650,960

Less accumulated amortization -11,359,728 -11,789,688 -14,363,547

Balances at the end of the year 8,268,839 8,428,792 10,287,411

The changes in the carrying amount of goodwill from September 30, 2002 through September 30, 2004 are as follows:

SEPTEMBER 30In Euro

2004 2003 2002

Balances of the beginning of the year 8,428,792 10,287,411 14,777,033

Add: goodwill for current year transactions 0 0 932,826

Add: earn-out 0 0 0

Less: amortization of goodwill 0 0 -5,233,584

Less:impairment of goodwill 0 0 0

Adjustments of goodwill and other intangibles for previous year acquisitions 0 -1,382,083 0

Impact of foreign currency fluctuations -159,953 -476,536 -188,864

Balances at the end of the year 8,268,839 8,428,792 10,287,411

Net income excluding goodwill amortization expense for the years ended September 30, 2004, 2003 and 2002 is as follows:


2004 2003 2002

Reported net income/(loss) 11,936,023 -2,719,291 5,823,005

Goodwill amortization 0 0 5,233,584

Net income/(loss) excluding goodwill amortization 11,936,023 -2,719,291 11,056,589

Basic earnings/(loss) per share of common stock

Reported net income/(loss) 11,936,023 -2,719,291 5,823,005


Adjusted basic earnings/(loss) per share of common stock 0.70 -0.16 0.65

In November 2002 and January 2003, the Company performed the required annual impairment tests of goodwill, which resulted in

a finding that no impairment to goodwill existed. This test consisted of a comparison of the fair value of the company’s reporting

units with its respective carrying amount, including the goodwill. The fair value of the reporting units was determined based

on the income approach, which estimates the fair value based on the future discounted cash flows. Based on the analysis, the

Company determined that the fair value was in excess of the carrying amount of the reporting units.

In October 2004, the Company performed the required annual impairment tests of goodwill, which resulted in a finding that no

impairment to goodwill existed. This test consisted of a comparison of the fair value of the company’s reporting units with its

respective carrying amount, including the goodwill. The fair value of the reporting units was determined based on the income

approach, which estimates the fair value based on the future discounted cash flows. Based on the analysis, the Company determined

that the fair value was in excess of the carrying amount of the reporting units.

6.3 SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATIONThe accompanying consolidated financial statements have been prepared in accordance with accounting principles generally

accepted in the United States and therefore reflect adjustments 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., Artwork Systems SA, AWSG Ltd., Enfocus Software NV, Enfocus Software Inc and Dimensional CAD/CAM Systems Inc. Artwork

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

been eliminated in the consolidation.

CASH AND CASH EQUIVALENTSThe 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.

INVENTORYInventory primarily consists of finished goods and is stated at the lower of cost or market on a first-in, first-out basis. Management

performs periodic reviews of inventories and provides for obsolete items.

41

PROPERTY AND EQUIPMENTProperty and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight line method

and depreciated over the estimated useful lives of the assets. The cost of maintenance and repairs is charged against income as

incurred. Estimated useful lives for financial reporting purposes are as follows:

Computer equipment 3 years

Office equipment 3 – 5 years

Furniture 3 – 5 years

Automobiles 5 years

PURCHASED INTANGIBLE ASSETS Purchased intangible assets consist of identifiable assets acquired in business combinations in which the Group has entered. They

are amortized over their estimated useful lives as from their respective acquisition dates by the Company as follows:

Software technology 2 – 4.5 years

The amortization expense is recorded as an operating expense.

IMPAIRMENT OF LONG LIVED ASSETSIn October 2001, the FASB issued SFAS 144 “Accounting for the Impairment or Disposal of Long-Lived Assets”. SFAS 144 supersedes

SFAS 121 “Accounting for the impairment of Long-Lived assets and for Long-Lived Assets to be disposed of. SFAS 144 also supersedes

APB 30, for the disposal of a segment of the business.

The Company adopted SFAS 144 on October 1, 2002, when its new fiscal year began. The adoption of SFAS 144 did not have a

material impact on the Company’s financial position or results of operations.

INCOME TAXESIncome taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future

tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities

and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured

using enacted tax rates expected to apply to taxable income in future years in which those temporary differences are expected

to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the

period that includes the enactment date. A valuation allowance is recorded to reduce the deferred tax asset if it is more likely than

not that some portion of the asset will not be realized. Deferred taxes are not provided for the undistributed earnings of foreign

subsidiaries if those earnings have been permanently reinvested in foreign operations.

FAIR VALUE OF FINANCIAL INSTRUMENTSThe Company considers cash and cash equivalents, accounts receivable, accounts payable, certain accrued expenses and short

term debt to be financial instruments as defined by FASB Statement No. 107, Disclosures About Fair Value of Financial Instruments.

The carrying values of these assets and liabilities approximated their fair values as of September 30, 2004, 2003 and 2002, based on

the short-term maturities of these instruments.

FOREIGN CURRENCY TRANSLATIONThe reporting currency of the Company is the Euro. The financial statements of foreign subsidiaries with differing functional

currencies have been converted into Euro in accordance with FASB Statement No. 52, Foreign Currency Translation. All balance

sheet accounts have been translated using the exchange rates in effect at the balance sheet date. Equity accounts have been

translated at historical rates. Income statement amounts have been translated using the average exchange rate for the year. The

gains and losses resulting from the changes in exchange rates from year to year have been reported in other comprehensive

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

The component other comprehensive income included in equity consists of the following translation differences:

SEPTEMBER 30In Euro

2004 2003 2002

Intercompany -955,297 -483,710 846,550

Third parties 314,848 331,780 394,770

Total -640,451 -151,930 1,241,320

SOFTWARE DEVELOPMENT COSTSSoftware development costs are accounted for in accordance with FASB Statement No. 86, Accounting for the Costs of Computer

Software to Be Sold, Leased, or Otherwise Marketed (SFAS 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 Company has not capitalized any

software development costs, since such costs have not been significant.

REVENUE RECOGNITIONRevenue is recognized in accordance with the American Institute of Certified Public Accountants Statement of Position 97-2,

Software Revenue Recognition, as amended. Revenue from software sales is recognized upon delivery of the software and the

protection key, or, in the case where installation is required, upon completion of the installation, provided that the fee is fixed

and determinable, that there is evidence of an arrangement 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.

Revenues from sales to distributors are recorded net of discounts and in the same manner as all other software license, maintenance

and training.

The Group’s customers generally do not have the right to return products for credit or refund. Any potential sales returns are

covered by the Company’s allowance for sales returns and doubtful accounts.

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

net license revenues based upon the residual method after all license software product has been delivered and prescribed by the

statement of Position 98-9 “Modification of SOP 97-2 with Respect to certain Transactions”.

ALLOWANCE FOR DOUBTFUL ACCOUNTSWe make judgements as to our ability to collect outstanding receivables and provide allowances for the portion of receivables when

collection becomes doubtful. Provisions are made based upon a variety of factors including the length of time the receivables are

past due and historical experience.

If circumstances related to specific customers change, the reserve is adjusted accordingly.

SHIPPING AND HANDLINGShipping and handling costs are included in Costs of Revenues products, for all periods presented.

43

USE OF ESTIMATESThe preparation of financial statements in conformity with generally accepted accounting principles requires management to

make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying

notes. Actual results could differ from those estimates.

CONCENTRATION OF CREDIT RISKThe Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash equivalents and

trade receivables.

The Company maintains cash and cash equivalents with various major financial institutions. The Company limits the amount of

credit exposure with any institution.

The Company’s trade accounts receivables result primarily from its sales of software and hardware to end users, Original Equipment

Manufacturers (OEMs) and independent graphic arts distributors throughout the world. The Company does not require collateral

from its customers. The direct sales force offices are located in Gent (Belgium), Freiburg (Germany), Bristol (Pennsylvania, USA),

Redditch (United Kingdom), Paris (France), San Mateo (California, USA), Los Angeles (California, USA). Revenues generated by

independent dealers represent 47% of the Company’s revenue for the year ended September 30, 2004, direct sales 48% and OEMs

5%.

Concentrations of credit risk with respect to end user and OEM trade accounts receivable are limited due to the large number of

customers and their dispersion across many geographic areas. Concentrations of credit risk with respect to independent distributors

is mitigated by periodic evaluations of the relative credit standing of these entities. One major customer, an independent distributor,

represents approximately 12% of total net revenue for the year ended September 30, 2004 and approximately 11% and 13% of total

net revenue for the years ended September 2003 and 2002. The distributor mentioned represents 18%, 14% and 14% of the total

outstanding receivables for the years ended September 30, 2004, 2003 and 2002 respectively.

EARNINGS PER SHAREBasic and diluted earnings per share is calculated in accordance with FASB Statement No. 128, Earnings per Share. Basic earnings per

share excludes dilution and is computed by dividing net income by the weighted-average number of common shares outstanding

for the period. Diluted earnings per share reflects the potential dilution that could occur if outstanding options were exercised or

converted into common stock. The dilutive effect of outstanding options are reflected in dilutive earnings per share by application

of the treasury stock method. The following represents a reconciliation from basic earnings per share to diluted earnings per

share:


2004 2003 2002

Numerator

Net income/(loss) 11,936,023 -2,719,291 5,823,005

Denominator

Weighted average common shares outstanding 17,048,650 17,048,650 17,046,079

Dilutive stock options 0 0

Weighted average common shares outstanding - assuming dilution 17,048,650 17,048,650 17,046,079

Basic earnings/(loss) per share 0.70 -0.16 0.34

Diluted earnings/(loss) per share 0.70 -0.16 0.34

EMPLOYEE STOCK OPTIONSThe Company accounts for stock options granted to employees in accordance with the provisions of Accounting Principles Board

Statement No. 25, Accounting for Stock Issued to Employees (APB 25) because the Company believes the alternative fair value

accounting provided for under FASB Statement No. 123, Accounting for Stock-Based Compensation requires the use of option

valuation models that were not developed for use in valuing employee stock options. Under APB 25, compensation expense is

measured when the exercise price of the stock option is less than the market price of the underlying stock at the date of grant. Such

compensation expense is equal to the difference between the market price of the underlying stock price on the date of grant and

the exercise price of the stock option and is recognized over the vesting period of the respective stock option.

FASB Statement No. 123, Accounting for Stock Based Compensation (SFAS 123) requires the disclosure of pro forma net income

and earnings per share information computed as if the Company had accounted for its employee stock options under the fair

value method set forth in SFAS 123. The fair value for these options 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%, volatility factor of 65%, and a weighted

average expected option life of 2.5 and 2.9 years for 1999 and 1998, respectively. There were no stock options granted during the

year ended September 30, 2004, 2003 and 2002.

45

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

period. Because options vest over several years and additional grants are expected, the effects of these hypothetical calculations

are not likely to be representative of similar future calculations. The Company’s pro forma information as required by SFAS 123 and

SFAS 148 for the years ended September 30 is as follows:

YEARS ENDED SEPTEMBER 30In thousands of Euro, except for the net income and pro forma per share information

2004 2003 2002

Net income/(loss), as reported 11,936 -2,719 5,823

Add: Stock-based employee compensation expense included in reported net income 0 0 13

Deduct: Stock-based employee compensation expense determined under fair value method for all stock option grants (SFAS 123 expense) 0 23 27

Pro forma net income/(loss) 11,936 -2,696 5,863

Basic net earnings/(loss) per share, as reported 0.70 -0.16 0.34

Pro forma basic earnings/(loss) per share 0.70 -0.16 0.34

Diluted earnings/(loss) per share, as reported 0.70 -0.16 0.34

Pro forma diluted earnings/(loss) per share 0.70 -0.16 0.34

OTHER COMPREHENSIVE INCOMEComprehensive income includes net income and “other comprehensive income.” Other comprehensive income refers to changes

in net assets from transactions and other events, and circumstances other than transactions with stockholders. These changes are

recorded directly as a separate component of Shareholders’ Equity and excluded from net income. The only other comprehensive

income item for the Company relates to foreign currency translation adjustments pertaining to those subsidiaries not using the

Euro as their functional currency.

DERIVATIVE INSTRUMENTS AND HEDGINGThe Group complies with the Financial Accounting Statements Board Statement No.133, Accounting for Derivative Instruments

and Hedging Activities, as amended. Statement 133, as amended, requires that all derivatives be recognized as either assets or

liabilities at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge,

depending on the nature of the hedge, changes in the fair value of derivatives will either be off-set against the change in fair value

of the hedged assets, liabilities, or firm commitments through earnings or recognised in other comprehensive income until the

hedged item is recognised in earnings. The ineffective portion of a derivative’s change in fair value will be immediately recognised

in earnings. For the years ended September 30, 2004, 2003, and 2002 the Company did not have any hedging activity.

CHANGES IN PRESENTATIONCertain reclassifications have been made to prior years’ balances to conform with the 2004 presentation.

RECENT ACCOUNTING PRONOUNCEMENTS No new accounting pronouncements with a possible material impact on our financial position, results of operations or cash flows

have been issued during the reporting period.

6.4 CASH AND CASH EQUIVALENTS

Cash and cash equivalents are maintained on deposit with large financial institutions and they consist of the following:

SEPTEMBER 30In thousands Euro

2004 2003 2002

Bank Accounts 22,613 21,342 9,883

At September 30, 2004, 58% of such amounts were denominated in euro (2003: 56%, 2002: 70%), 41% in US dollars (2003: 42%, 2002:

27%) and 1% in GBP (2003:2%, 2002: 3%).

6.5 PREPAID LICENSE COSTS

In March 1997, the Company made a lump sum payment of USD 830,000 (Euro 718,433) to Scitex Corporation Ltd., in connection

with a license agreement. This amount is amortized using the straight-line method over 14 years, the estimated useful life of the

license.

On January 4, 2002 the Company has entered into an additional agreement with Creoscitex regarding an extension to the current

license agreement and has paid an additional amount of 500,000 USD (Euro 402,933). This amount is amortized over the remaining

life of the license agreement.

Prepaid license cost consists of the following:

SEPTEMBER 30In Euro

2004 2003 2002

Prepaid license costs 1,121,367 1,147,544 1,225,532

Accumulated amortization -537,170 -451,723 -351,365

Prepaid license costs, net 584,197 695,821 874,167

6.6 PROPERTY AND EQUIPMENT

Major classes of property and equipment consist of the following:

SEPTEMBER 30In Euro

2004 2003 2002

Computer equipment 2,417,069 2,310,795 2,327,323

Office equipment 422,235 425,770 327,649

Furniture 368,143 307,651 271,727

Automobiles 1,545,298 1,243,471 1,052,306

Total property and equipment 4,752,746 4,287,459 3,979,005

Accumulated depreciation 3,233,398 -3,021,185 -2,785,879

Property and equipment, net 1,519,347 1,266,504 1,193,126

47

6.7 BANK LOAN

In conjunction with the acquisition of Enfocus Software in April 2000, the Company entered into a three year line of credit for which

the total available borrowings decreased each year. At September 30, 2002 the available borrowings under the credit line were

Euro 3,300,000 and there were no outstanding borrowings under the line. The weighted average interest rates for the year ended

September 30, 2002 related to these short term facilities in Euro was 4.34%. For USD facilities the weighted average interest rate was

2.87% for the year ended September 30, 2002. During the year ended September 30, 2002 the Company incurred and charged to

interest expense, Euro 60,770.

During the years ended September 30, 2004 and 2003 no credit lines were needed.

6.8 RELATED PARTY TRANSACTIONS

MANAGEMENT SERVICES FEES AND DIRECTORS’ COMPENSATIONCertain commercial, financial and software development services are provided by the companies PowerGraph NV, Ir. Peter

Denoo BVBA, Bart Denoo Engineering BVBA and G.M.F.A. BVBA which are owned by Directors of the Company, Guido Van der

Schueren, Peter Denoo, Bart Denoo and Hildegard Verhoeven respectively. During the years ended September 30, 2004, 2003 and

2002, the Company paid these companies a total amount of Euro 852,047, Euro 769,253 and Euro 757,984, respectively.

The balances of accounts payable to these companies was Euro 97,756, Euro 77,885 and Euro 77,220 at September 30, 2004, 2003

and 2002 respectively.

During the years ended September 30, 2004, 2003 and 2002, the Company accrued an aggregate compensation of Euro 70,118,

Euro 51,805 and Euro 52,058 respectively for its directors. In addition, the managing directors have company cars at their disposal.

No stock options, pension plan or other benefits were granted to the managing directors.

LOANIn March 2003, the Company granted a loan of Euro 1,000,000 to Graphicus NV, a company of which Guido Van der Schueren is a

director, for a period of 18 months and at an interest rate of 4.35%. At September 30, 2003 the receivable amounted Euro 1,023,769,

ie the principal amount including the interest accrued.

The loan, including the accrued interest of Euro 66,544, has been repaid by the debtor at September 27, 2004.

6.9 OPTION PLAN

In December 1996, the Company adopted an employee stock option plan in order to provide long-term incentives and rewards

to the Company’s employees. Under the plan, the Company has issued 161,000 options, each incorporating the right to purchase

a share of the Company’s stock at net book value for options granted before the IPO, and, for options granted after the IPO, at the

average closing price of the Company’s shares over the previous 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 options, each incorporating the right to purchase a share of the Company’s stock at the value

determined at acquisition date.

In connection with the issuance of these options, the Company has recognized compensation expense in the consolidated income

statements resulting from the amortization of unearned compensation for the year ended September 30, 2002 of Euro 13,224. At

September 30, 2002, no unearned compensation expense remained unamortized.

Stock option transactions for the three years ended September 30, 2004 are summarized below:

2004, WEIGHTED AVERAGEEXERCISE PRICE



Options Price Options Price Options Price

Options outstandingbeginning of year 126,288 12.80 130,788 12.81 142,638 12.24

Options exercised 0 0 0 0 -6,850 0.50

Options forfeited -3,000 13.19 -4,500 13.19 -5,000 13.19

Options outstandingat end of year 123,288 12.79 126,288 12.80 130,788 12.81

Options exercisable at end of year 123,288 12.79 126,288 12.80 130,788 12.81

Information related to options outstanding at September 30, 2004 is summarized below:

SEPTEMBER, 30 2004

Stock options outstanding

Numberof shares

Weighted remaining contractual life

Average stockoptions exercisable

Euro 12.79 123,288 4.33 123,288

All options 123,288 4.33 123,288

6.10 INCOME TAXES

The provision for income taxes consists of the following:


2004 2003 2002

Current 4,466,969 16,517,985 5,724,253

Deferred 274,147 91,303 -748,205

Total 4,741,116 16,609,288 4,976,048

49

A reconciliation of income taxes computed at the average local statutory rate (27%, 30% and 33% for the years ended September

30, 2004, 2003 and 2002 respectively) to the provision for income taxes is as follows:

SEPTEMBER 30

In Euro

2004 2003 2002

Income taxes computed at the local statutory rate 4,469,473 4,166,999 3,563,687


Amortization of otherIntangible assets 191,549 329,451 140,143

Unearned Compensation expense 0 0 5,312

Disallowed expenses 67,280 80,168 70,378


Other items, net 12,814 26,807 61,273

Total 4,741,116 16,609,288 4,976,048

Deferred tax assets and liabilities are comprised of the following:

SEPTEMBER 30

In Euro

2004 2003 2002

Current

Receivable allowances 185,764 288,042 587,356

Interest expenses 157,938 156,338 192,681

Accrued expenses 119,346 159,549 224,731

Intragroup eliminations 114,064 144,480 238,717

Tax loss carry forward 162,479 0 0

Other items, net 105,938 135,950 90,603

Deferred tax assets 845,528 884,359 1,334,088

Translation differences -427,848 -199,760 20,242

Deferred revenue 73,420 63,043 50,591

Expensed prepaid license costs -188,080 -183,990 -181,235

Other items, net 0 -3,279 -9,541

Deferred tax liabilities 542,508 323,984 119,944

Net current deferred tax assets 303,021 560,375 1,214,144

Non-current

Goodwill amortization 1,794,203 2,173,878 2,460,401

Non-current deferred tax assets 1,794,203 2,173,878 2,460,401

6.11 COMMITMENTS

PANTONE LICENSEIn 1994, Artwork Systems NV entered into a license agreement with Pantone to use the Pantone Color System. The license fee

amounted to 1% of net sales of products integrating the licensed system with an annual minimum of USD 25,000 (Euro 23,065).

During the year ended September 30, 2004 the Company entered into a new agreement with Pantone. Starting June 1, 2004 the

license fee is a fixed amount of 50,000 USD per year. The new agreement covers all Artwork Systems’ products.

Effective October 1, 2003 Enfocus Software NV entered into a license agreement with Pantone to use the Pantone Color System.

The license fee is a fixed amount per year and amounts to 35,000 USD, 40,000 USD and 45,000 USD for the fiscal years 2004, 2005

and 2006 respectively.

During the years ended September 30, 2004, 2003 and 2002 the total license fee amounted of Euro 62,474, Euro 47,981 and Euro

51,782, respectively.

OPERATING LEASE OBLIGATIONSThe Company leases its facilities, cars and office equipment under operating lease agreements with varying expiry dates. As of

September 30, 2004 future minimum lease payments for the next four fiscal years are as follows:

In Euro

2005 460,238

2006 282,458

2007 170,389

2008 8,412

Rental expense for the years ending September 30 were as follows:

In Euro

2002 583,953

2003 604,155

2004 558,384

6.12 ADVERTISING COSTS

The Company expenses advertising expenses as incurred. Advertising expenses totaled Euro 729,613, Euro 815,439 and Euro 690,022

for the years ended September 30, 2004, 2003, and 2002, respectively.

6.13 CONTINGENCIES

The Company is involved in various legal proceedings arising in the normal course of business. Based on its current knowledge

and the advice of counsel, 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.

Artwork Systems Group NV has been named as subject of an investigation relating to the tax claim described below. Based on the

current information available, it is considered that this investigation will not have an impact on the Companies’ results or balance

sheet.

51

6.14 TAX CLAIM

At September 14, 2004, the Court of Appeal of Ghent ratified the settlement dd. 19 December 2003 between Artwork Systems

Group NV and the Special Tax Inspection regarding the tax dispute concerning the acquisition of the shares in Artwork Systems NV.

Earlier the Court of First Instance had ruled in favor of the Belgian State. The parties, however, concluded a settlement, subject to

its ratification by the Court of Appeal of Ghent, whereby Artwork Systems Group NV would pay a total tax of Euro 12,005,863. As a

result of the ratification of the settlement by the Court of Appeal of Ghent, the tax dispute has ended definitely. The company has

withdrawn its appeal pending before the Council of State regarding the annulment of the opinion 126/17 of the Commission for

Accounting Standards.

The amount of Euro 12,005,863 has been paid at September 30, 2004.

6.15 OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA

The Company has evaluated FASB Statement No. 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.

The following geographic area data includes net revenues based on customer location, and property and equipment based on

physical location.


2004 2003 2002

Net revenue

United States 19,688,072 19,644,577 19,573,302

Germany 6,221,496 5,790,483 6,495,464

United Kingdom 3,075,681 3,135,761 3,162,497

France 3,066,127 2,672,043 3,521,258

Rest of Europe 11,505,833 9,774,553 9,042,741

Rest of world 3,579,121 3,080,783 4,094,050

47,136,330 44,098,201 45,889,312

Property and Equipement

United States 278,065 177,094 183,391

Belgium 814,285 593,603 488,513

Germany 183,998 234,751 234,991

United Kingdom 125,138 92,922 153,753

France 100,929 142,512 111,895

Ireland 16,932 25,621 20,583

1,519,347 1,266,504 1,193,126

1. Balance Sheets

YEARS ENDED SEPTEMBER 30In thousands of Euro

2004 2003

Fixed assets 35,836 35,836

IV. Financial assets 35,836 35,836

A. Subsidiaries 35,836 35,836

1. Investments in subsidiaries 35,836 35,836

Current assets 9,337 6,068

VII. Amounts receivable within one year 526 6,013

A. Trade debtors 344 555

B. Other amounts receivable 182 5,458

IX. Cash at bank and in hand 8,676 16

X. Deferred charges and accrued income 135 39

Total Assets 45,173 41,904

Capital and reserves 12,325 29,580

I. Capital

A. Issued capital 7,851 7,851

II. Paid in capital 120 120

IV. Reserves

A. Legal reserve 785 785

V. Profit carried forward 3,569 20,824

Creditors 32,848 12,324

IX. Amounts payable within one year 32,810 12,308

C. Trade debts 258 302

1. Suppliers 258 302

E. Taxes, remuneration and social security 306 12,006

1. Taxes 306 12,006

F. Other amounts payable 32,246 0

X. Accrued charges and deferred income 38 16

Total Liabilities 45,173 41,904

FINANCIAL STATEMENTSIN ACCORDANCE WITH ACCOUNTING PRINCIPLES

GENERALLY ACCEPTED IN BELGIUM

Assets

Liabilities

53

2. Income statements

YEARS ENDED SEPTEMBER 30In thousands of Euro

2004 2003

I. Operating income 1,170 1,175

A. Turnover 884 893

D. Other operating income 286 282

II. Operating charges -1,434 -1,494

B. Services and other goods 1,434 1,494

III. Operating profit (loss) -264 -319

IV. Financial income 93 96

A. Income from financial fixed assets 0 0

B. Income from current assets 93 95

C. Other financial income 0 1

V. Financial charges -21 -2

A.Interest expense 10 2

C. Other financial expense 11 0

VI. Profit (loss) on ordinary activities before taxes -192 -225

VII. Extraordinary income 0 26,863

E. Other extraordinary income 0 26,863

IX. Profit (loss) for the period before taxes -191 12,008

X. Income taxes 14 12,008

A. Income taxes 0 0

C. Income taxes on previous years 14 12,008

XI. Profit for the period -206 14,630

XIII. Profit for the period available for appropriation -206 14,630

Appropriation account

A. Profit to be appropriated 20,618 20,824

1. Profit/(loss) for the period for appropriation -206 14,630

2. Profit brought forward 20,824 6,194

D. Result to carried forward

1. Profit to be carried forward 3,569 20,824

F. Dividends 17,049 0

3. Notes to the Financial Statements

IV. STATEMENT OF FINANCIAL FIXED ASSETS

1. SUBSIDIARIESNet book value at the end of the preceding period 35,836

Movements during the period

Additions 0

Reimbursements 0

Increase in value 0

Net book value at the end of the period 35,836

VIII. STATEMENT OF SHARE CAPITAL

A. Share capital

1. Share capital 7,851

2. Number of shares, ordinary shares, no par value 17,048,650

D. Options

Number of options 123,288

Maximum number of shares to be issued 123,288

G. Shareholders’ structure at the end of the last financial year, included in shareholders’ notifications received by the Company

Stichting Administratiekantoor Artwork Systems 73.59%

(1) Abacus Holding NV 1.39%

(2) Graphicus NV 0.51%

(1) As a result of the dissolution of Abacus Holding NV, its legal successors, Kroy Finance Corporation BVBA and Widmer Development Corporation Bvba each hold 50% of the financial instruments formerly held by Abacus Holding NV.

(2) As a result of the dissolution of Graphicus NV, its legal successor, Parana Management Corporation BVBA holds the financial instruments formerly held by Graphicus NV.

X. SHORT TERM DEBT

C. Amount payable for taxes, remuneration and social security

1. Income taxes

b. Income taxes, not due 306

XIII. FINANCIAL RESULTS

A. Other financial income

Exchange rate differences 0

Other 0

E. Other financial expense

Exchange rate differences 0

Bank charges 0

55

XV. INCOME TAXES

2. Income taxes on previous periods 14

a. Additional income taxes due or paid 14

XVI. OTHER TAXES AND TAXES BORNE BY THIRD PARTIES

A. The total amount of value added tax, turnover taxes and special taxes charged during the period

1. to the enterprise (deductible) 244

2. by the enterprise 252

B. Amounts withheld from third parties

2. Withholding taxes on dividends 306

XVIII. RELATIONSHIPS WITH AFFILIATED ENTERPRISES AND ENTERPRISES LINKED BY PARTICIPATING INTERESTS

AFFILIATED ENTERPRISES

1. Financial fixed assets

Investments in subsidiaries 35,836

2. Amounts receivable 449

within one year 449

2. Amounts receivable 15,513

within one year 15,513

7. Financial results

Income from current assets 93

Interest expense 9

4. Auditor’s Report

The statutory auditor has issued an unqualified opinion with respect to the statutory accounts of Artwork Systems Group NV

at September 30, 2004.

5. Report of the Board of Directors to the General Meeting

Annexed you will find the draft of the annual accounts for the financial year 2004, which ran from October 1, 2003 to September 30, 2004.

The company called on public savings in December 1996 and since then its shares were listed on Nasdaq Europe (formerly Easdaq).

As a result of the decision of the extraordinary general meeting of Nasdaq Europe to discontinue its activities, the shares of Artwork

Systems Group NV have been listed on the First Market of Euronext Brussels since October 6, 2003. The last day of quotation on

Nasdaq Europe was November 7, 2003.

The company develops software for pre-press and markets this software via offices in Belgium, the United States, Germany, the

United Kingdom and France. The company has no branches.

During the financial year the company received no dividends from its subsidiaries.

In addition to the holding of participating interests, the company is also active in developing software for pre-press. The marketing

of this software is entrusted, via a license agreement, to the subsidiary Artwork Systems NV. The company has no other activities in

the area of research and development.

For the financial year 2004 the company has a profit to be carried forward of 20,617,633.88 Euro. The Board of Directors proposes

the following: (i) to confirm the interim dividend of 8,524,325 Euro, paid September 24, 2004, (ii) to distribute a dividend of Euro

8,524,325 and (iii) to carry forward the balance of 3,568,983.88 Euro.

57

COSTS FOR RESEARCH & DEVELOPMENT

During the financial year the company spent 429,652 euro on Research & Development.

REPORT ON THE CAPITAL INCREASES

No capital increases took place during the financial year 2004.

SPECIAL ASSIGNMENTS OF THE STATUTORY AUDITOR

In accordance with the provisions of article 134 of the Company Law, the company reports that during the financial year 2004 it

gave its Statutory Auditor the following special assignments:

1. review of and assistance in connection with the consolidated annual accounts

for the financial year 2004 in accordance with US GAAP;

2. attendance at the audit committee meetings.

3. report in connection with the interim dividend.

The total compensation for special assignments was 24,700 Euro.

EXEMPTION FROM THE CONSOLIDATION REQUIREMENT UNDER BELGIAN LAW

On January 20, 2004 the company received, for a period of 2 financial years beginning with the financial year 2004, authorization

from the “Commissie voor het Bank-, Financie- en Assurantiewezen” on the basis of article 10, § 3, 2nd part of the law of August

2, 2002, concerning the control of the financial sector and the financial markets, to publish its consolidated accounts drawn up in

conformity with US GAAP.

The significant distinction between consolidated financial statements according to Belgian accounting standards and the

consolidated financial statements in accordance with US GAAP is the requalification of:

1. option plans; under US GAAP (APB 25), the difference between the market price on the date of attribution and the exercise

price must be booked as a cost.

2. revenue recognition; SOP97/2 is followed in the consolidated figures.

3. booking of acquisitions (purchase accounting); goodwill is expressed in the consolidated figures.

4. income tax (deferred tax assets); in the consolidated figures deferred taxes are booked on temporary differences.

5. capitalization of development costs for software: SFAS 86 is followed in the consolidated figures.

6. amortization of the license costs for Scitex: in the consolidated figures the Scitex License is amortized over 14 years.

IMPORTANT EVENTS

No importants events have occurred after year-end.

CONFLICTS OF INTEREST

In the following Board of Directors´ meetings, article 523 and/or article 524 of the Companies Law applied:

3 DECEMBER 2003The chairman opened the discussion about the conclusion of a settlement agreement between the company and the Belgian

State with respect to a dispute concerning the levy by the tax authorities of a corporate income tax on the company in the amount

of 2,343,094,326 BEF (EUR 58,083,791.13) (the “Settlement”).

4.1. Declaration by two directors concerning a possible conflict of interest as understood in article 523 of the Companies Code.

Before commencing discussion of the Settlement, Messrs Peter Denoo and Guido Van der Schueren announced that they might,

directly or indirectly, have a financial interest which is or could be in conflict with conclusion of the Settlement.

The existence of such a conflict of interest requires application of the specific procedure set forth in article 523 of the Companies

Code. Messrs Peter Denoo and Guido Van der Schueren thus asked that their declaration, as well as the grounds of justification

concerning the above-mentioned conflicting interest, be included in the minutes of the Board of Directors.

Messrs Peter Denoo and Guido Van der Schueren explained that they might, directly or indirectly, have a financial interest which is

in conflict with the interest of the company, given that the Settlement was negotiated together and will be signed together with

proposed settlements under the Personal Income Tax for assessments relating to connected facts. Given this factual connection,

it is thus possible that the Settlement entails a benefit vis-à-vis the involved directors who will conclude a personal income tax

settlement.

However, Peter Denoo and Guido Van der Schueren further explained that the tax authority was only ready to reach a possible

Settlement under the Corporate Income Tax if the disputes which had arisen under the Personal Income Tax, namely the tax on the

appreciations realized by natural persons, were resolved.

Further, the involved directors believe that the Settlement under the Corporate Income Tax does not generate any financial benefit

for them, given that the settlements under the Personal Income Tax provide that all assessed taxes be paid in full, in other words

that the involved directors abandon their lawsuit against the tax authority, and that their foreign companies be brought to Belgium

subject to payment of the registration fees owed on the move of the registered office to Belgium. The involved directors thus

believe that, with regard to the conclusion of the Settlement, they will receive absolutely no financial benefit; quite the contrary,

thanks to their willingness regarding the question of moving the registered office and the abandonment of their lawsuit, they are

making it possible for the company to arrive at the Settlement.

RESOLVED to inform the Statutory Auditor of the above-mentioned possible conflicting interests and of the application of the

procedure provided for in article 523 of the Companies Code.

4.2. Decision concerning the application of article 524 of the Companies Code.

For the reasons set forth under 4.1 above, the Board of Directors is of the opinion that the conclusion of the Settlement might

generate a direct or indirect financial advantage to Messrs Bart Denoo, Peter Denoo and Guido Van der Schueren, who are

shareholders who exert a decisive influence, or at least a significant influence, on the appointment of the company´s directors.

The Board of Directors thus resolves to apply the procedure provided for in article 524 of the Companies Code.

4.3. Appointment of three directors chosen because of their independence vis-à-vis the decision or considered transaction, assisted

therein by an expert chosen for the same reason, in order to prepare a report under article 524 of the Companies Code.

In accordance with the provisions of article 524 of the Companies Code, the Board of Directors unanimously

RESOLVED to assign the following three directors, chosen because of their independence vis-à-vis the considered decision, to

describe the financial consequences of the considered decision and to give a well-motivated evaluation thereof :

• Ratio Plus NV, represented by Hubert Ooghe

• De Bist BVBA, represented by Guido Kestens

• Advisam NV, represented by Guy Warlop

59

This description and this evaluation must demonstrate the importance of the considered decision for the company and the

shareholders as a whole, as well as the absence of any benefit in the nature of a preferred compensation which would be directly

or indirectly attributed to any particular shareholder.

RESOLVED that, under article 524 of the Companies Code, these directors will submit a report to the Board of Directors before the

Board of Directors deliberates and votes on the conclusion of the Settlement.

After deliberation, the three indicated directors agreed to carry out the assignment proposed by the Board of Directors.

In accordance with article 524 of the Companies Code, these three independent directors will appoint an expert, chosen for his

independence vis-à-vis the considered decision, who will assist them in preparing their report describing the considered decision´s

financial consequences for the company. The report of this expert will be submitted to the Board of Directors.

RESOLVED that the Board of Directors will pay the costs of the appointed expert.

RESOLVED to inform the Statutory Auditor of the above-mentioned possible conflicting interests and of the application of the

procedure provided for in article 524 of the Companies Code.

9 DECEMBER 2003The Board of Directors took cognizance of the report of the appointed expert Atty Luc Vanheeswijck, who read aloud the conclusion

of his report, to wit:

“To the extent that the Settlement is supposed to resolve a legal issue, it is not valid. The Court of Appeal of Ghent will have to

express itself in this case ex officio on this legal issue. The Court will only ratify the Settlement if it gives to the dispute a resolution

which is in compliance with the law. The fact that the company does not further elaborate its arguments might well have an

impact here, since in this way the resolution of this legal issue is left exclusively to the initiative of the Court.

Notwithstanding the opinions obtained by the Company, there is, considering the development in the case-law and the opinion

of the Commission for Accounting Standards no. 126/17, a real chance that this legal issue will be decided to the company´s

disadvantage.

Through the Settlement, however, the taxable basis in principle is limited to a maximum of 26,865,290 EUR by not valuing the

Artwork Systems N.V. shares as at 6 December 1996 on the basis of the introduction price of the Artwork Systems Group N.V.

shares, but on the basis of the value of the Artwork Systems N.V. shares determined in accordance with the discounted cash flow

method. The fact that this method is chosen over other possible methods is the object of the Settlement. The Company and the

shareholders as a whole thus have an interest in concluding the Settlement.

The group to which the Company belongs possesses sufficient funds to pay the amounts owed on the basis of the Settlement

without endangering the continuity of the Company or of the group to which it belongs.

On the basis of the communicated documents, it does not appear that any preferred compensation would accrue to a shareholder

of the Company. The Settlement being considered by the company can stand independent of the Settlements which are being

concluded by the directors/founders.”

Atty Luc Vanheeswijck gave further oral explanations of his report and answered the questions of the directors.

The Board of Directors then took cognizance of the report of the three independent directors, whose conclusion reads:

“The three independent directors find that the company in the past has received various tax and legal opinions on the above-

mentioned tax dispute, from which it appears that the appeal has a good chance of success. Notwithstanding these opinions, the

three independent directors find, on the basis of the expert´s report, that there also exists a real chance of losing.

The three independent directors are therefore of the opinion that the company and the shareholders as a whole have an interest in

concluding the proposed settlement, considering:

1. the commercial handicap deriving from the existence of the dispute;

2. the negative impact on the stock-market price should the tax dispute drag on into the future;

3. the disastrous financial impact which a final conviction to pay the full assessment would have on the company; and

4. the amount which would be owed under the settlement, namely only 20 % of the original tax levy in principal amount, is

acceptable and payable.

On the basis of the foregoing and on the basis of the conclusions of the expert´s report, the three independent directors are of the

opinion that concluding the Settlement is in the interest of the company and of the shareholders as a whole, and that thereby no

benefit in the nature of a preferred compensation is attributed directly or indirectly to any particular shareholder.”

The Board of Directors determined that from the reports it appears that the decision to conclude the Settlement is in the interest

of the company.

The Board of Directors commenced the discussion on the basis of these reports and agreed with the conclusions of these reports.

16 DECEMBER 2003• Resolved to approve the Settlement, given that this Settlement is in the interest of the company and the shareholders as a

whole;

• Determined that no benefit in the nature of a preferred compensation is attributed directly or indirectly to any particular

shareholder within the framework of the Settlement.

22 MARCH 2004Before the meeting began, Peter Denoo, Bart Denoo and Guido Van der Schueren said that there might be a conflict of interest

between themselves and the company.

The specific conflict of interest procedure laid down in Article 523 of the Companies Act therefore applied. Peter Denoo, Bart

Denoo and Guido Van der Schueren also asked that their declaration concerning the abovementioned conflict of interest, and the

legal grounds for this, be noted in the minutes of the board meeting.

Peter Denoo, Bart Denoo and Guido Van der Schueren explained that under property law their interests might be in direct or

indirect conflict with those of the company because both the company and the directors are under suspicion.

Peter Denoo, Bart Denoo and Guido Van der Schueren therefore did not take part in the discussion or decision-making.

It was decided to inform the auditor of the abovementioned possible conflict of interest and the application of the procedure laid

down in Article 523 of the Companies Act.

Discussion:

The document stated that Artwork Systems Group NV was under suspicion. This fact was not known until now.

An adjournment had already been obtained to ask for further investigation and to inspect the dossier until April 23, 2004.

Resolution: the board appointed Mr. Mertens to represent the company’s interests in this case.

15 APRIL 2004Before the meeting began, Peter Denoo, Bart Denoo and Guido Van der Schueren said that there might be a conflict of interest








61



Discussion:

The law that can place companies under suspicion dates from July 2, 1999. The matter that the company is being accused of

occurred before this law came into force, and no continued offence had been committed.

Resolution:

As the dossier is favorable for Artwork Systems Group NV, no additional investigations would be requested.

10 NOVEMBER 2004Before the meeting began, Peter Denoo, Bart Denoo and Guido Van der Schueren said that there might be a conflict of interest










Resolution: Mr. Mertens will send his draft pleading to the board beforehand.

DISCHARGE

The Board of Directors requests discharge from the general meeting for the directors and the Statutory Auditor who were in office

during the financial year.

Drawn up by the Board of Directors on December 21, 2004.

Artwork Systems Ltd.The Business Centre

Edward Street – Redditch,

Worcestershire B97 6HA

United Kingdom

Tel.: +44 1527 592550

Fax: +44 1527 592466

[email protected]

Artwork Systems GmbH & Co. KGBurkheimer Straße 3

D-79111 Freiburg

Germany

Tel.: +49 761 45 29 80

Fax: +49 761 45 29 822

[email protected]

Dimensional Impressions HQ16000 Ventura Blvd.

Suite 910

Encino, CA 91436

USA

Tel.: +1 818 379 7039

Fax: +1 818 379 7041

[email protected]

www.discore.com

Enfocus Software NVAntwerpsesteenweg 41–45

B-9000 Gent

Belgium

Tel.: +32 9 269 16 90

Fax: +32 9 269 16 91

[email protected]

www.enfocus.com

Artwork Systems Group NVStapelplein 70/300

B-9000 Gent

Belgium

Tel.: +32 9 265 84 11

Fax: +32 9 265 84 10

[email protected]

www.artwork-systems.com

Artwork Systems SAParis Nord II

47, Allée des Impressionnistes

BP 52335 Villepinte

F-95941 Roissy CDG Cedex

France

Tel.: +33 148 17 00 90

Fax: +33 149 38 09 78

[email protected]

Artwork Systems Inc.219A Rittenhouse Circle

Bristol, PA 19007

USA

Tel.: +1 215 826 4500

Fax: +1 215 826 4510

[email protected]

Enfocus Software Inc.3 Water Park Drive

Suite 210

San Mateo, CA 94403

USA

Tel.: +1 650 358 1210

Fax: +1 650 358 1211

[email protected]

www.enfocus.com

Documents

ANNUAL REPORT...Drupa 2004 has indeed put Artwork Systems on a new level of customer acceptance. But, Digital printing gains more and more importance as print process and Artwork Systems