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                                           full power
Annual Report 2003
     Brain Force Software AG
 Brain Force Software share performance


The market initially reacted with scepticism to the takeover of Brain Force Financial
Solutions AG. However, positive third quarter results together with the successful turn-
around of our new subsidiary enabled us to lock into the trend for the industry. Brain
Force Software stock is now showing clear recovery potential (see also page 32).



DAX




                                 May




                                                       Aug




                                                                              Nov
                                                              Sep




                                                                                     Dec
         Feb



                 Mar




                                         Jun
  Jan




                           Apr




                                                                     Oct
                                                Jul
                                                                                3,985.16 4,000


                                                                                           3,750



                                                                                           3,500


                                                                                           3,250



                                                                                           3,000


                                       TREND
                                                                                           2,750



                                                                                           2,500

                2,202.96


TecDAX
                                 May




                                                       Aug




                                                                              Nov
                                                              Sep




                                                                                     Dec
         Feb



                 Mar




                                         Jun
  Jan




                           Apr




                                                                     Oct
                                                Jul




                                                                                           550
                                                                           577.48

                                                                                           500




                                                                                           450




                                                                                           400

                                               TREND

                                                                                           350



                  309.55
                                                                                           300



BFC - Brain Force Software
                                 May




                                                       Aug




                                                                              Nov
                                                              Sep




                                                                                     Dec
         Feb



                 Mar




                                         Jun
  Jan




                           Apr




                                                                     Oct
                                                Jul




                                                                                           5.0
                        4.80

                                                                                           4.5



                                                                                           4.0
                                       TREND


                                                                                           3.5



                                                                                           3.0



                                                                                           2.5

                                               2.33                                        euro


  Share in NSE Software rises to 77.05%
  Disclosure of Q3 results with turnaround of Brain Force Financial Solutions AG
                   Brain Force Software AG – at a glance

                   Ratios by segment 2003




                                     Professional   Communication        Financial     Unallocated            Total
                                        Services        Networks         Solutions
                                            EUR              EUR             EUR              EUR             EUR


Segment net sales (consolidated)   48,905,766.73    4,557,605.43     6,635,733.94             0.00   60,099,106.10
Segment operating result            1,403,384.86     -593,828.20       626,591.68    -1,254,307.35     181,840.99
Financial result                                                                                       -157,132.02
Share of profit of associates                                          402,016.44                      402,016.44
Profit before taxes                                                                                    426,725.41
Income taxes                                                                                         -2,378,726.55
Net loss for the period                                                                              -1,952,001.14
Segment assets                     19,599,924.71    3,719,774.41     6,770,451.19     1,360,101.26   31,450,251.57
Segment liabilities                14,182,607.00      760,738.28     2,981,187.39      825,473.45    18,750,006.12
Segment investments                  407,269.13       411,582.75     4,380,671.03             0.00    5,199,522.91
Segment writedowns                  1,544,681.31      604,145.52       675,402.49             0.00    2,824,229.32


Earnings per share EUR -0.52




Geographical segments 2003                                                  Sales         Segment         Segment
                                                                                            assets     investments
                                                                             EUR              EUR             EUR



Austria                                                             12,151,662.44     4,131,714.22     136,126.21
Germany                                                             31,090,084.25    14,720,610.30   4,688,323.46
Italy                                                               15,517,507.66    11,463,724.59     248,069.79
Other regions                                                        1,339,851.75     1,134,202.46     127,003.45
Total                                                               60,099,106.10    31,450,251.57   5,199,522.91
we make IT
   Brain Force is the power that makes our
   visions reality. We all know people who use
   their energy to make things happen. People
   who do not give up. People who always go one
   step further to realize their ideas.
   Being creative is about turning these ideas into
   action. You don’t need to be weird & wonderful
   or famous to work for Brain Force. Most of our
   crew are just ordinary heroes, warts and all.
   People like you and me. But they do have one
   thing in common: they put their hearts, their
   knowledge, and their energy into making your
   goals and your dreams come true.




work!
    ich gestalte IT




    Richard Ringbauer manages part of the Professional Services segment in Vienna. Over the past business year, he and his team have focused on
    Application Management Services and have taken over payroll systems management for our partner, a software producer operating worldwide. It is
    fascinating to see how his homogenous team works in perfect harmony, mastering even the peak times in the payroll cycle with ease, as a matter of
    course. But he’s even prouder of the team’s ability to maintain the same high quality standards over the years.




6
gli rendo IT




Stefania Donnabella is Director of Brain Force Software S.p.A. Italia. She was one of the founding members of the former TEMA Studio di
Informatica in 1986. The year 2003 was positive, despite the difficult climate. Her teams have worked very successfully on their projects. These
include designing a sales force system for Office Depot and implementing Microsoft CRM at Olivetti Tecnost.




                                                                                                                                                   7
    ich gestalte IT




    Hubert R. Fabian is now into his ninth year with Brain Force Software in Germany, mastering a variety of challenges, including setting up an expert
    database to meet ever-changing market demands (Y2K, EURO) and establishing a Competence Center. This also entailed successfully managing
    projects in-house as well as out-tasking. To round off his profile, he is now sales manager in charge of the banking, insurance, retail and tourism
    segment.




8
I make IT




Simon Roach is head of product development for the Communication Networks segment and General Manager of Brain Force Software GmbH,
Germany. He has been in the IT profession for 19 years, 10 of which have been with Brain Force Software GmbH and one of its predecessors,
GMRS GmbH. Over this period, he has developed a successful range of revolutionary tech-products and solutions together with his team of inter-
national network specialists. These applications are now used by telephone companies, internet providers and other firms all round the world.




                                                                                                                                                9
 ich gestalte IT




 Peter Renninger has now worked for Brain Force Financial Solutions, formerly NSE Software AG, for seven and a half years. He has been involved
 in construction finance projects right from the outset. Today he is Solution Manager in charge of FINAS construction finance. Over the past year he
 has worked with the development team to extend significantly the functional scope of our construction finance product. The demands of our cus-
 tomers have already spurred him to new heights. Today he is proud of a product that will generate further sales for Brain Force Software in 2004.




10
starám se, aby IT fungovala




  v
Jiri Stach is CEO of SBT s.a. in Prague. Within the Brain Force Group, his team is the connection to our new markets in Central and Eastern
Europe. The firm’s Rebecca Software, a product for retail banking and mortgage-backed loans, is doing very well on the Czech and Slovak markets.
This was introduced successfully last year at HVB Bank in the Czech Republic. His well-qualified team, capable of reacting flexibly to customer
requirements, was a critical success factor here.




                                                                                                                                                  11
      Table of Contents




014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   IFRS Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                               13
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140
142
143
      Auditor’s Report
      Glossary
      Important dates                       HIGHLIGHTS 2003://

      JANUARY                      FEBRUARY                      MARCH                       APRIL                           MAY                         JUNE




January 21: German
Federal Chancellor
Schröder declares that
Germany will vote              February 1: The US            March 20: The USA laun-                                     May 2: Six weeks after       June 11: An international
against the Iraq war on        Space Shuttle Columbia        ches missile attacks on                                     the start of the Iraq war,   research team in Ethiopia
the UN Security Council.       burns up on re-entry into     targets in and around                                       President Bush announ-       discovers the oldest
Despite heavy protest          the earth’s atmosphere        Baghdad. At the same                                        ces the end of major         remains of modern man
from its European allies,      above the State of Texas      time, the DAX and the       April 14: The electronics       combat action. The           ever to be found. The
the USA steps up its           with seven astronauts on      DOW hit record lows of      group Grundig, steeped          United States lays out its   three skull bones are bet-
campaign against               board, caused by a hole       2,202.96 and 7,524.06       in tradition, files for bank-   plans for the occupied       ween 154,000 and
Baghdad.                       in the shuttle’s left wing.   respectively.               ruptcy.                         territory.                   160,000 years old.




January 31: Eon takes          February 27: Star archi-      March 27: The film direc-   April 16: The 15 EU             May 21: More than 2,600      June 12: Four German
over Ruhrgas. The group        tect Daniel Liebeskind        tor Caroline Link from      member states sign              people die in the worst      soldiers are killed in the
becomes the biggest            from Berlin wins the inter-   Munich wins an oscar for    accession agreements            earthquake (6.8 on the       Afghan capital and 29
energy supplier in             national competition to       the best foreign language   for ten new members:            Richter scale) to hit        injured, some severely, in
Europe.                        build the new World           film for "Nirgendwo in      Estonia, Latvia,                Algeria in two decades.      the worst attack ever on
                               Trade Center (WTC) in         Afrika”.                    Lithuania, Poland, the          More than 10,000 people      Federal German forces
Brain Force Software is        New York.                                                 Czech Republic,                 are injured.                 abroad.
admitted to the Prime                                        Brain Force Software’s      Slovakia, Hungary,
Standard                       Brain Force Software dis-     order intake for CeBIT      Slovenia, Malta and             Brain Force Software AG      TEMA launches its
                               closes its 2002 figures.      reaches EUR 850,000.        Cyprus.                         raises its capital stock     GEVEND-solution for the
                               Net sales: EUR 58.97                                                                      from EUR 3.78 million to     calculation and adminis-
                               million. EBIT: EUR 0.06                                   Brain Force Software            EUR 4.21 million.            tration of sales bonuses.
                               million.                                                  acquires a 54.05% share
                                                                                         in NSE Software AG.                                          The Supervisory Board of
                                                                                                                                                      NSE Software AG ap-
                                                                                                                                                      points Helmut Fleisch-
                                                                                                                                                      mann as CEO.




14
     JULY                         AUGUST                           SEPTEMBER                   OCTOBER                      NOVEMBER                       DECEMBER




                              August 8: The tempera-                                                                    November 25: The EU
                              ture hits 40.3ºC in Perl-                                                                 Finance Ministers’ stability
July 21: Trade Union          Nennig in Saarland,                                         October 7: Arnold             pact is plunged into crisis
boss Klaus Zwickel            Germany. It is the hottest    September 11: The             Schwarzenegger announ-        when the deficit proceed-
resigns after a week-long     summer on record since        Swedish Foreign Minister      ces his Republican candi-     ings against Germany and
battle for leadership at IG   1861 in Europe and since      Anne Lindh is stabbed         dacy for the Californian      France are dropped. The        December 13: The Iraqi
Metall. He is succeeded       1901 in Germany.              and fatally wounded by an     governorship. 48.7% of        “culprits” are obliged to      Ex-President Saddam
by Jürgen Peters on           Drinking water is scare in    unknown assailant whilst      the electorate vote for       economise without the          Hussein is caught south
August 31.                    some regions.                 shopping.                     “Arnie” shortly afterwards.   threat of sanctions.           of his hometown of Tikrit.




July 27: US cyclist Lance     August 14: A massive          September 29: A power         October 16: Thousands         November 28: For the           December 26: A devasta-
Armstrong wins the Tour       power cut brings the entire   cut paralyses most of Italy   celebrate the Pope’s 25th     first time since its intro-    ting earthquake in Iran
de France for the fifth       North East coast of the       for hours. More than 57       Anniversary on St. Peter’s    duction, the euro climbs       claims more than 30,000
consecutive time. Jan         USA and large parts of        million people are affec-     Square in Rome.               to $ 1.20, even touching       lives. The quake measu-
Ullrich comes second.         Canada to a standstill.       ted.                                                        $ 1.24 towards the end         ring 6.3 on the Richter
                                                                                          Brain Force Software          of December.                   scale takes people by sur-
The share in NSE              Brain Force Software          NSE Software is renamed       receives ISO 9000:2000                                       prise at night.
Software AG rises to          publishes its figures for     Brain Force Financial         certification during an       The Italian subsidiary
77.05% following the          the 2nd quarter. Net sales:   Solutions AG.                 audit on October 15,          TEMA is renamed Brain          Brain Force Software
takeover bid.                 14.79 million, EBIT: -0.15                                  2003.                         Force Software S.p.A.          gains a foothold in the
                              million                                                                                                                  American market with an
                                                                                          TEMA develops the first       Brain Force Software AG        OEM contract with Kemp
                                                                                          Microsoft CRM project in      publishes its figures for      Technologies.
                                                                                          Italy.                        the 3rd quarter. Net sales:
                                                                                                                        EUR 15.47 million, EBIT
                                                                                                                        0.12 million.




                                                                                                                                                                            15
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140
142
143
      Auditor’s Report
      Glossary
      Important dates                       FOREWORD://
                                            Foreword by the Board of Management

                                            Our plans for 2003 were ambitious to say the least: embarking on a growth strategy, against the
                                            trend, in a difficult economic climate, and still realising a positive group result. That was the plan.
                                            Our goal was to be ahead of the competition when the recovery kicked in.
                                                We stuck to the plan and even managed to surpass our own expectations. The figures speak
                                            for themselves! So much is certain: the past business year has been a highly successful one –
                                            we’ve trebled last year’s EBIT, and we’ve done so not by cutting costs amidst falling sales like
                                            many other players. We have even managed to win additional market share in key strategic
                                            areas, generating moderate net sales growth for the whole group.
                                                We have drawn up a blueprint for our strategic goals. Now it’s up to us to prove that we have
                                            what it takes to establish the lead in our core markets in the medium term. We can only achieve
                                            the growth through further takeovers. We have acquired the expertise and established the requi-
                                            red structures through years of experience in this field, as the most recent examples illustrate:




16
    Shortly after extending the range of solutions supplied by our Communication Networks seg-
ment through our takeover of beusen Solutions GmbH, we scored another major strategic coup
in the second quarter of the past business year. Our takeover of NSE Software AG listed in
Frankfurt gave us market access to the solutions business in the banking, finance and insurance
sectors. Both acquisitions have been successfully integrated into our group structure.
    We had to reposition our Professional Services segment due to the worldwide slump in the IT
industry. This segment now serves as strategic partner to our customers providing value added
services in areas such as Application Management, Out-tasking, Outsourcing, Security and
ERP/CRM. Over the past business year we have laid the foundations for future success by com-
pleting a variety of attractive reference projects.
    After a successful year in 2003 we are now intending to grow not just further, but faster as
well, substantially increasing profitability at the same time.




Helmut Fleischmann        Wolfgang Lippert        Günter Pridt               Gunter Reißmann
Chief Executive Officer   Chief Finance Officer   Chief Operations Officer   Chief Technical Officer




                                                                                                       17
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates

                                            BOARD                OF         MANAGEMENT://




                                            “WE ARE     GAINING A FOOTHOLD IN NEW, KEY FUTURE MARKETS…”

                                            Helmut Fleischmann
                                            Chief Executive Officer Brain Force Software AG




                                            “WEHAVE UNDERGONE THOROUGH RESTRUCTURING AND ARE
                                            NOW FIT FOR THE FUTURE...”

                                            Günter Pridt
                                            Chief Operations Officer Brain Force Software AG




                                            “WE WILL KEEP       BRAIN FORCE SOFTWARE           RIGHT ON
                                            TRACK…”

                                            Wolfgang Lippert
                                            Chief Finance Officer Brain Force Software AG




                                            “WE WILL CONTINUE TO EXTEND OUR PRODUCT AND SERVICE
                                            PORTFOLIO…”

                                            Gunter Reißmann
                                            Chief Technical Officer Brain Force Software AG




18
19 17
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




20
“WE ARE           GAINING A
FOOTHOLD IN NEW,
KEY FUTURE MARKETS…”




“We will continue to optimise our business model.

The year 2003 saw our firm continue to evolve

strategically into an IT-group with an international

and sector-specific range. The successful esta-

blishment of the Communication Networks and

Financial Solutions segments together with the

Professional Services segment’s repositioning,

clearly focusing on value added services, were

crucial steps in our development, and were also

key reasons behind our decision to increase autho-

rised capital at the beginning of the 2004 financial

year to enable us to achieve further growth.”

                              Helmut Fleischmann (CEO)




                                                         21
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




22
“WE     HAVE UNDERGONE
THOROUGH RESTRUCTUR-
ING AND ARE NOW FIT FOR
THE FUTURE...”




“The year 2003 was characterised by a precarious

economic climate. Nevertheless, we managed to

strengthen our position further by cutting costs and

by responding effectively to customer needs. The

continuation of our acquisition strategy over the

past year has further enhanced the range and

scope of Brain Force Software.”

                                    Günter Pridt (COO)




                                                         23
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




24
“WE WILL KEEP BRAIN
FORCE SOFTWARE RIGHT
ON TRACK…”




“One of the key events of the past year was our

takeover of NSE Software AG, whose Supervisory

Board I have served on since June. The inte-

gration of beusen Solutions GmbH after the

merger at the beginning of 2003 was an important

milestone. On the quality management front the

group successfully achieved ISO 9000;2000

certification in the course of a major recertification

audit.”

                                 Wolfgang Lippert (CFO)




                                                          25
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




26
“WE      WILL CONTINUE TO
EXTEND OUR PRODUCT AND
SERVICE PORTFOLIO…”




“The main challenge I was faced with in 2003 was

the integration of beusen Solutions into the CN

segment. This primarily entailed defining the pro-

duct strategy required and implementing effective

quality management in software development. In

addition, we have further improved the technical

parameters within the group by defining a uniform

IT-structure.”

                               Gunter Reißmann (CTO)




                                                       27
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140
142
143
      Auditor’s Report
      Glossary
      Important dates                       BFS TODAY//:



                                                                                  Cambridge
                                                                                              Amsterdam                Berlin


                                                                                                  Cologne
                                                                                                                           Prague
                                                                                                          Frankfurt


                                                                                                                                    Bratislava
                                                                                                                  Munich
                                                                                                                                Vienna
                                                                                                     Zurich


                                                                                                          Milan




                                                                                                                       Rome
                                                                Madrid




                                            Brain Force Software today

                                            Markets
                                            As in previous years we have constantly striven to make inroads into our target markets inter-
                                            nationally in 2003. We have added Financial Solutions to our Professional Services and Commu-
                                            nication Networks segments, significantly strengthening our product portfolio in the insurance
                                            and banking sectors, which are of key strategic importance to us.




28
                    We have continued to make inroads into our target markets internationally in 2003.
                    We have significantly strengthened our product portfolio with the new segment
                    Financial Solutions, giving us a key strategic edge in the financial services sector.




                    Comparison of net sales and employees by country


                    Germany
 Annual net sales                                                                               EUR 31.09 million
No. of employees                                                                        394

                    Italy
 Annual net sales                                            EUR 15.52 million
No. of employees                                                       295

                    Austria
 Annual net sales                                     EUR 12.15 million
No. of employees                              144

                    Other regions
 Annual net sales       EUR 1.34 million
No. of employees        22




                        Germany now accounts for the largest share of Brain Force Software consolidated net sales,
                    generated by all three segments – Professional Services, Financial Solutions and Communication
                    Networks. Italy is the second largest market, with sales generated primarily by Professional Ser-
                    vices, followed by Austria focusing on Professional Services. Our locations in Switzerland, the
                    Czech Republic, Slovakia, Spain, the Netherlands and the UK make up "Other regions”. New major
                    orders were secured recently in Switzerland in the Communication Networks segment. Net sales in
                    the Czech Republic and Slovakia were realised in the Financial Solutions segment by product-rela-
                    ted services. We are now prepared for the next phase of our European market expansion via our
                    distribution points in Spain, the Netherlands and the UK. Brain Force Software AG, based in
                    Vienna, now has six subsidiaries.




                                                                                                                        29
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            Group Structure of Brain Force Software AG

                                            Brain Force Software GmbH Germany
                               Shares                                                    100 %


                                            Brain Force Software S.p.A. Italy
                               Shares                                                    100 %


                                            BFS Brain Force Software AG Switzerland
                               Shares                                                    100 %
                                                                                                  Brain Force
                                            Brain Force Software B.V. Netherlands                 Software AG
                               Shares                                                    100 %


                                            Brain Force Software Ltd. United Kingdom
                               Shares                                                    100 %


                                            Brain Force Financial Solutions AG Germany
                               Shares                                                    77.05%


                                            SBT a.s. Praha Czech Republic
                               Shares                                    85 %


                                            SBT s.r.o. Bratislava Slovakia
                               Shares                                    100 %


                                            SFP GmbH Germany
                               Shares                                    49 %




30
We have made significant progress on our one-brand strategy. This involved changing the name of
NSE Software AG to Brain Force Financial Solutions AG and TEMA Studio di Informatica S.p.A. to
Brain Force Software S.p.A.




Group Structure
A 54.05% share in NSE Software AG was acquired as of April 30, 2003. The share held by Brain
Force Software rose to 77.05% after the takeover bid in July 2003. NSE Software AG was re-
named Brain Force Financial Solutions AG by resolution at the General Meeting on August 25.
TEMA Studio di Informatica S.p.A. was renamed Brain Force Software S.p.A. as of November
19, 2003.
    This helped us achieve important milestones regarding the one-brand strategy in 2003. With
the exception of our subsidiaries in Prague and Bratislava and the subsidiary jointly held with the
BHW Group, SFP GmbH, Brain Force Software now serves its international customers with one
brand.




                                                                                                      31
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            Share performance

                                            The start of 2003 saw the Brain Force share continue to recover from EUR 2.20 in October 2002
                                            to EUR 4.80 in April 2003. This positive trend was interrupted by the announcement of the NSE
                                            Software AG takeover.
                                                The market was clearly sceptical as to our ability to turn around the highly leveraged firm
                                            quickly. Brain Force Software’s management, on the other hand, was convinced that the take-
                                            over presented an opportunity with great future potential at a reasonable price. This was con-
                                            firmed by our 3rd quarter results, which included the new acquisition’s first positive contribution
                                            to profit. The cumulative segment operating result for the period is EUR 626 thousand, as can
                                            be seen in the segment reporting in this report.




                                            Market capitalisation
                                                                     May




                                                                                       Aug




                                                                                                         Nov
                                                                                             Sep




                                                                                                               Dec
                                                   Feb



                                                         Mar




                                                                           Jun
                                             Jan




                                                               Apr




                                                                                                   Oct
                                                                                 Jul




                                                                                                                     22,500


                                                                                                                     20,000


                                                                                                                     17,500

                                                                                                                     15,000


                                                                                                                     12,500


                                                                                                                     10,000


                                                                                                                     7,500

                                                                                                                     5,000


                                                                                                                     2,500




32
Our share performance is showing an upward trend after the short dip precipitated
by the takeover of NSE Software AG. Analysts and financial journals are increas-
ingly recommending a stock purchase.




    The share price has been on the up since November, closing the year at EUR 3.50. Since
November, recommendations from analysts and financial journals to buy Brain Force Software
stock have been on the increase, too. Recommendations have come from such prominent jour-
nals as Focus Money.
    Key criteria for monitoring share performance by analysts and fund managers are a market
capitalization of over EUR 20 million and a free float share exceeding 50%. We reached our
second goal with our latest capital increase, pushing up the free float share from 36.71% at the
beginning of the year to 50.34% at the end of the past year. We briefly passed the EUR 20 mil-
lion market capitalisation mark in November, but dipped below it again towards the end of the
year. We aim to fulfil both criteria through further capital measures in 2004.
    The increased interest in Brain Force Software stock is clearly illustrated by the development
of monthly trading volume. We are convinced that we have set the stage for positive share per-
formance in the coming year.

Trading volume
                         May




                                           Aug




                                                             Nov
                                                 Sep




                                                                   Dec
       Feb



             Mar




                               Jun
 Jan




                   Apr




                                                       Oct
                                     Jul




                                                                         800,000


                                                                         700,000


                                                                         600,000


                                                                         500,000


                                                                         400,000


                                                                         300,000


                                                                         200,000


                                                                         100,000




                                                                                                     33
34
SEGMENTS://




   Professional Services://




 Communication Networks://




    Financial Solutions://




                              35
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140
142
143
      Auditor’s Report
      Glossary
      Important dates                       SEGMENTS//:
                                            Segments

                                            International, stable, and geared to the future – these three attributes characterised Brain Force
                                            Software at the end of the 2003 business year. We have reached key milestones of our strategy
                                            2005. The figures in this report well illustrate that. A glance at our structure proves that Brain
                                            Force Software AG has made significant progress in its evolution from an IT service provider to
                                            an international, product-focused IT group since its flotation in 1999.
                                                Brain Force Software now has more than 13 branches in eight countries. We have added a
                                            new segment since last year. We have added products with great future potential to our portfolio.
                                            The group, which has existed for over twenty years, now has three segments since its takeover
                                            of beusen Solutions GmbH and NSE Software AG.

                                               Professional Services
                                               Communication Networks
                                               Financial Solutions




36
                           We will strengthen our market position by repositioning ourselves as a provider of
                           comprehensive solutions, increasingly implementing the group´s own standard products
                           and by building on our relationships with partners.




                           Outlook
                           Developments in 2003 proved us right. A number of small and very small firms sprung up in
                           response to cost pressure, redundancies and outsourcing, and have shrunk margins for simple
                           services. By repositioning ourselves as a provider of comprehensive solutions, we have dis-
                           tanced ourselves from these suppliers, giving our customers real added value for which the
                           customer is prepared to pay. We are increasingly implementing the group’s own standard pro-
                           ducts at our customers, and we will continue to build on our successful product partnerships
                           in future.




                           Net sales by segment


                                                    EUR 6.63 million


                                        EUR 4.56 million


     Financial Solutions
Communication Networks



                                                                                        EUR 48.91 million




                                                                                                                          37
                                                 Professional Services://




Professional Services encompasses two service segments: Business Solution Services (BSS – design and development of
application systems) and Technology Integration Services (TIS – perfecting the interplay of all components: server, storage
and network). Understanding the specific requirements and processes in different business sectors is one of the critical
success factors in IT projects. Component-based systems applying object-based technologies are the answer. There’s more
to IT infrastructure than just hardware and software. Infrastructure is the foundation for a company’s mission critical appli-
cations. We assist in the planning, the appropriate solution design and operation of heterogeneous IT systems that are
constantly growing.




38
The team in Milan has carried out most of the
Microsoft Navision installations in Italy, develo-
ping a number of flexible tools tailored to custo-
mer requirements in the process.




                                                     The Sales Team MUC 1 managed by Hubert
                                                     Fabian has successfully enlarged its activities in
                                                     the banking sector.




                                                     Together with his team, Richard Ringbauer is
                                                     responsible for the most important outsourcing
                                                     project RZ-Lohn.




                                                                                                          39
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            Professional Services segment

                                            This segment continues to be the backbone of the group, generating the highest net sales and
                                            securing stability, even when our markets are anything but stable. The segment’s core markets
                                            are Germany, Italy and Austria. We have branches in Munich, Cologne and Frankfurt in
                                            Germany, Rome and Milan in Italy, Vienna (Austria) and Zurich (Switzerland).
                                                The term Professional Services stands for professional, tailored services across the whole
                                            spectrum of information technology. The professional services segment is divided into two stra-
                                            tegic units:
                                                Business Solution Services (BSS)
                                                Technology Integration Services (TIS)
                                                Whereas TIS combines highly specialised know-how in relation to server, storage and net-
                                            work, with BSS we offer our customers sector and solution-specific competencies. The trend is
                                            shifting more and more from individual services to out-tasking and outsourcing. Our teams’
                                            responsibilities range from consultancy, implementation and continuing development right up to
                                            ongoing support in operating applications.
                                                Both units are organised in Service Centers (SC) and Competence Units (CU). Customers
                                            are given sector-specific advice by our service centers, which work together with our consultants
                                            on solutions tailored exactly to customers’ needs.
                                                This structure enables us to be both a specialist, on the one hand, and a flexible solutions
                                            provider, on the other. SC and CU are international and have been implemented at all our bran-
                                            ches. This ensures that our customers are given the best possible service at local level whilst
                                            gaining access to Brain Force Software’s international competence network at the same time.

                                            Business Solution Services
                                            The Business Solution Services unit focuses on the design and development of application
                                            systems, and on the integration and adaptation of the group’s own solutions and partner stan-
                                            dard solutions. The spectrum of this business segment ranges from consultancy and support at
                                            all stages of the "life cycle” from IT solutions to the turnkey handover of applications.
                                                 Fierce competition on the market requires flexible, modern software systems, which in turn
                                            requires that our staff understand the specific demands of individual industries and sectors. With
                                            branches at home and abroad, we ensure that customers are given local assistance right where
                                            they need it.




40
The segment Professional Services continues to be the backbone of the group,
generating the highest net sales and securing stability, even when our markets
are anything but stable.




   BSS Service Centers combine consultancy and programming services tailored to sector
needs. Our Competence Units CU Application Management Services, CU Groupware Solutions,
CU Data Warehouse, CU Enterprise Resource Planning and CU CRM Customer Relationship
Management provide our solutions expertise.

Technology Integration Services
Technology integration services specialises in perfecting the interplay of all three components,
server, storage and network, to guarantee the smooth operation of IT systems. There’s more to
IT infrastructure than just hardware and software. Infrastructure is the foundation for a company’s
mission critical applications.
    Operations, extensions and support of IT systems based at several locations can be very
costly. There is substantial potential for savings in this area. We assist in the planning, the
appropriate solution design and operation of heterogeneous IT systems that are constantly
growing. TIS applications generally tend to be sector-independent, typical examples being
the roll-out of new operating systems, network management or security services.
    With our infrastructure & systems management, connectivity & network management and
outsourcing service centers, we have geared our structure towards our customers’ needs. In
addition, we pool our solutions know-how in our competence units CU Security Management
and CU Storage Solutions.

Developments at our international locations
The results published in this annual report illustrate that both strategic units BSS and TIS have
scored successes with numerous projects in spite of difficult market conditions for the whole of
the professional services segment and customers’ reluctance to commit to investments. This
success comes from our reliability and expertise we have proven time and again on numerous
projects.




                                                                                                      41
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            Austria
                                            The market situation is Austria is characterised by a sharp decline in capital expenditure and a
                                            fall in prices and margins. This is particularly true in the host and mainframe business, whereas
                                            expertise in new technologies is in demand. Brain Force Software can respond to these
                                            demands with its specialists in the applications field. Its position in the security field has been
                                            strengthened by an enterprise partnership with Symantec.
                                                 The trend in Austria is moving towards outsourcing and out-tasking. The RZ-Lohn project
                                            with a well-known hardware and software producer is one such example. This is a key strategic
                                            contract in application management outsourcing, where Brain Force Software provides advice to
                                            and handles payroll for 30,000 employees. Our staff in Vienna have also taken over application
                                            management of the company’s flexitime system.
                                                 We have proven our expertise in the mobile phone/telecommunications field. In the past year,
                                            we have extended a data-warehousing project with a major mobile phone provider.
                                                 Other success stories demonstrate how we are implementing our strategic goal of becoming
                                            a provider of solutions:




42
Our RZ-Lohn project for a well-known producer of hardware and software confirms
the trend towards outsourcing and out-tasking in Austria. Other success stories
demonstrate how we are implementing our strategic goal to become a solutions
provider.




   We are assisting one customer in developing and implementing a complex billing system of
   UMTS-based services.
   After successfully completing a price structuring project for a major Austrian fixed network
   provider, Brain Force Software staff are still employed in managing the billing application and
   in a number of subsequent projects.
   In the public sector and services segment, the team has played a significant role in
   developing a workflow system to document and administer medical treatment processes.
   Supporting the rail safety technology market leader in developing a European Train Control
   System is another major project in which we are involved.
   The year 2003 was characterised by consolidation at Brain Force Software Austria. However,
demand has picked up considerably since the middle of the year. We are therefore expecting
order intake to improve in 2004, and are optimistic about the introduction of products from our
CN segment.
   Peter Fleischmann, General Manager for Austria: “2004 is the year of the customer. After a
number of boom years, we have to fight for every customer.”




                                                                                                     43
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            Success Story Payroll System Management

                                            Professional Services
                                            We continue to make inroads into the field of high-quality solutions on the Austrian market. In the
                                            field of Application Management Services, we are working together with a global software pro-
                                            ducer. As part of this partnership, we took over management of payroll systems as of April 1,
                                            2003. Our team serves 1,600 customers with more than 32,000 employees within this project.

                                               Our highly motivated payroll team is responsible for implementing all local requirements
                                            under Austrian law. Through ongoing adaptations and development our team ensures that the
                                            customers’ qualitative and quantitative demands are met quickly and effectively.
                                               We serve our customers from three different locations:
                                               Our command headquarters for programming technology are housed in Vienna. Any changes
                                               to existing programmes are made in Vienna.
                                               Our team in Linz is responsible for all reporting issues, particularly for customer-specific
                                               reports.
                                               Graz is in charge of data collection and for testing any changes.
                                               All our branches offer a payroll advice hotline manned by highly qualified staff, which custo-
                                            mers use frequently.




Team PS Austria




44
   Our customers welcome our constant endeavours to optimise and upgrade our
   product in line with the latest technological possibilities.




      Richard Ringbauer, Manager of Professional Services at Brain Force Software Austria says
  of his payroll team: "Our team works like clockwork, dealing routinely with all customer require-
  ments with ease. In the last few years, the tax authorities haven’t raised a single objection to any
  of the payroll work we have done. The team’s expertise and the consistent quality of our results
  make us very confident about the future.”
      Despite our success up to now, we cannot afford to sit on our laurels. Only by continuing to
  develop and innovate can we consolidate and improve our market position in payroll services.
  This also requires embarking on new forms of cooperation with our customers.
      Continuing to develop our project commercially and in terms of content is an ongoing process
  that requires our working closely with customers. Our customers welcome our constant endea-
  vours to optimise and upgrade our product in line with the latest technological possibilities.




Payroll System Management




                                                                                                         45
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            Germany
                                            In Germany, as in Austria, we are evolving from an IT service provider to a solutions provider.
                                            We have managed to give our customers real value added in the last few years by taking over
                                            overall project responsibility, risk, project management and operations, strengthening our market
                                            position in the process
                                                The brake on investments in infrastructure seems to be easing. We can see this from the
                                            substantial rise in incoming orders in the second half of the year. As investments in applications
                                            typically come with a time lag, we are expecting further growth in future.
                                                Our Frankfurt site suffered a decline in orders as a consequence of the bank crisis. However,
                                            this decline was offset by growth at other locations. Nevertheless, our Frankfurt team gained a
                                            foothold in the international market with its product, Phoenix. With this project, Brain Force Soft-
                                            ware is responsible for developing a new software for inputting, managing and sorting data for a
                                            variety of applications.
                                                Brain Force Software staff in Munich have a great success story to report. We are respon-
                                            sible for the implementation, development and day-to-day running of a risk management appli-
                                            cation for the trading systems of a major German bank – in spite of heavy competition. More
                                            than 20 Brain Force staff are employed at the bank. In addition to running our help desk they
                                            provide first level support for host, NT, self service and mailing systems.




46
The economy drive we initiated in 2002 has taken full effect in 2003 and has
produced positive results, combined with our sales successes.




     In Cologne, Brain Force Software built on its success in the previous year. The team has its
highest headcount since its inception in 1999 and is making a major contribution to the software
development for a new generation of mobile phones for a global player. Its strategic partnership
with SUN in the rehosting business has also produced results. Transnational cooperation
between the teams in Austria and Germany on a project with an Austrian steel group is par-
ticularly noteworthy.
     Our teams’ ability to react flexibly to changing market demands is particularly important. We
understand how to convert trends that initially appear disadvantageous into business potential.
For example, there is a growing trend for major customers to relocate IT services to low-wage
countries. We are compensating for this trend by providing professional core teams for projects
in these very countries. Our team played an important role in India in software scripting and in
integrating local personnel.
     Martin Friedrich, general manager of Brain Force Software GmbH: “The economy drive we
initiated in 2002 has taken full effect in 2003 and has produced positive results, combined with
our sales successes.”




                                                                                                     47
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            Value Added Services 2004

                                            Sales Team 1 Munich
                                            In 2003, we focused on value added services. We have made the jump from providing occasio-
                                            nal services to being a real problem solver for our customers. We took over strategically impor-
                                            tant fields such as systems integration and third level support for a risk management system that
                                            supports the front office trading system. We accompany the ongoing development and mainten-
                                            ance of the applications and interfaces used in the trading room and have been given responsi-
                                            bility for nationwide first level support for a major bank.




Team MUC 1




48
Quote from a top manager from the banking sector: “The Brain Force team is not
only a center of competence, they are a center of excellence.”




    We are confronted with new challenges almost daily here. Our wide spectrum of know-how,
our network and the excellent knowledge of our consultants enable us to master these chal-
lenges. We are pleased to quote a top manager from the banking sector: “The Brain Force team
is not only a center of competence, they are a center of excellence.”
    This statement is a real incentive to maintain and add depth to these high standards. We are
all pulling together to do so, once again, in 2004.




                             Risk Management




                                                                                                   49
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            Italy
                                            The impact of the difficult economic climate on business in Italy may have been minimal in 2002,
                                            but it was certainly felt at the beginning of 2003. Despite these difficult conditions, the manage-
                                            ment managed to make a positive contribution to the consolidated result. With the second best
                                            result of all the countries where Brain Force is based, the Italian market is an important pillar for
                                            the group.
                                                 2003 saw the continuing integration of the Italian subsidiary into the Brain Force Software
                                            Group, which played a major part in the organisational structuring of the TIS and BSS units by
                                            contributing its expertise in the integration business. The company’s name change to Brain
                                            Force Software S.p.A. is another clear sign of increasing integration.
                                                 By focusing on technologies such as network communication and network management,
                                            Brain Force Software has a real opportunity to successfully launch products from this segment in
                                            Italy. Initial reactions from customers are very promising.
                                                 The strategic partnership with Microsoft has a special significance in Italy. This gives the
                                            Italian subsidiary a further focal point with its Competence Unit Enterprise Business Solutions
                                            (EBS). Its ERP products Microsoft Navision and Microsoft CRM are aimed particularly at mid-
                                            sized companies.




50
With the second best result of all the countries where Brain Force is based, the
Italian market is an important pillar for the group.




     Brain Force Software belongs to the Navigroup in Italy, which consists of eight large Navision
distribution partners. Navision has now been taken over by Microsoft, and for this reason other
Microsoft products are also distributed. Brain Force Software has been successful with its in-
volvement in the international association IAMCP – International Association of Microsoft
Certified Partners. Stefania Donabella, Director of Brain Force Software S.p.A. recently became
president of the group and represents the company’s interests there.
     In 2003 we have realised the following major projects in Italy:
     Brain Force Software won the first Microsoft CRM project on the Italian market.
     In the BSS field, a central e-procurement system was developed for an international food
     group to support the customer’s international procurement process.
     Special mention should be given to a strategic project with a long-term utilities customer in
     the TIS field. Here, gas readings are taken from thousands of peripheral appliances mounted
     at various points on gas pipes. The data are then forwarded to the central billing system.
     We do not expect to see a recovery in 2004, but we do believe that the market has reached
its lowest point and will pick up in the medium term.
     The Director of Brain Force Software S.p.A., Stefania Donnabella: “2003 was characterised
by falling prices, stable wage rates and declining margins. However, we are in a good position to
generate a positive contribution next year.”




                                                                                                      51
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            Italian Business

                                            Last year we embarked on a number of successful projects. The following two projects are sym-
                                            bolic of our team’s success in 2003:

                                            OFFICE DEPOT Sales Network
                                            In 2002 Office Depot, one of the world’s leading suppliers of office material, required a compre-
                                            hensive solution for its nationwide sales teams in 60 sales offices. The company chose us to be
                                            its partner in this situation. It was our capacity to cover the needs of the entire sales force with
                                            our Gevend solution – ranging from administration of contracts to computation of payments due,
                                            from the complete integration of internal systems to the implementation of statutory requirements
                                            – that was decisive in winning the contract.
                                                Gevend is a complete, convenient solution that handles the calculation of commission for
                                            sales representatives and commercial agents. The product enables due payments to be calcu-
                                            lated regularly, based on parameters such as fixed salary, bonus, commission and goods on
                                            consignment and has numerous qualitative and quantitative configuration possibilities. This can
                                            also be used by complex organisations that employ various sales units with different types of
                                            contracts.




Office Depot




52
OLIVETTI TECNOST Customer Service
Olivetti Tecnost, a segment of the Telecom Italia Group, is engaged in the solutions business.
The company specialises in banking and retail applications and in computer-aided automatic
game and lottery systems.
    Olivetti Tecnost has four production sites, three research and development centers and more
than 2,600 employees worldwide. Olivetti sells products directly and via intermediaries in over 70
countries in Europe, Latin America and the Far East. The company is also active in the USA with
its Royal brand.
    Olivetti needed to redesign its application-supported technical helpdesk and reseller proces-
ses whilst increasing efficiency at the same time. Brain Force Software met this demand using
Microsoft’s CRM solution. We integrated the application into the company’s existing software
systems in an individual project. Moreover, we responded to short-term requirements during the
project and implemented them into Olivetti’s system landscape.




                                    Olivetti Tecnost




                                                                                                     53
                                               Communication Networks://




The markets for telecommunication services in Europe are currently growing faster than in other parts of the world.
Nowhere are developments progressing more rapidly than in this sector. New buzzwords such as mobile business and
mobile commerce are spearheading developments. Whether fixed network or mobile, we provide the software, systems
and applications for almost the entire telecommunications spectrum.




54
The Communication Networks development
teams in Berlin and Munich have specialised in
product development for the private and public
sector.




                                                 Our CN team in our Munich test lab.




                                                 Intelligent networks provide the architecture to
                                                 control telecommunication services. We develop
                                                 software and systems to implement, operate and
                                                 maintain value-added services.




                                                                                                    55
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            Communication Networks segment

                                            The quality and professionalism of IT and telecom operations management determine the perfor-
                                            mance and success of company-wide data-processing and telecommunications concepts. Data
                                            centers, telecom systems, company-wide networks can only be administered and controlled
                                            safely and effectively if the right solutions, methods and suitable software systems are in place.
                                            Brain Force Software designs software, systems and applications for the entire spectrum of net-
                                            work management and telecommunications. We see this as one of the most promising markets
                                            of the future.
                                                Brain Force Software used its acquisition of beusen Solutions GmbH in 2003 to extend and
                                            improve its product range. We have worked intensively on so-called road-maps – development
                                            plans – for each of the products.
                                                We have undertaken further activities to enable and support distribution outside the German-
                                            speaking world, to achieve hardware platform independence, to design web-enabled products
                                            and to integrate more of the latest technological developments such as VoIP into our products.
                                            In addition, we have implemented consistent quality assurance and have improved the efficiency
                                            of release management.

                                            Products

                                            Cable network management beusenKNV
                                            beusenKNV is a state-of-the-art, high-performance, modular software system that enables tele-
                                            com and IT network structures to be administered simply and represented graphically. It helps to
                                            harness, centralise and secure knowledge from employees’ minds for the company. beusenKNV
                                            comes with a long list of additional services that complement the product and respond to custo-
                                            mers’ wishes. These include documenting physical relocations and network planning functionali-
                                            ties for facility management. Over 150 installations at telecom providers, energy utilities, munici-
                                            pal utilities, major industrial customers and public authorities – the facts speak for themselves.
                                                 The continuing development of beusenKNV is in response to the technical advances of the
                                            platforms ORACLE Version 9 and MS Windows XP. One important step was to extend and cen-
                                            tralise network planning facilities in a network planning tool. The network interface visualisation
                                            application has enhanced the functionality of the graphics.




56
We have undertaken further activities to enable and support distribution outside
the German-speaking world, to achieve hardware platform independence, to
design web-enabled products and to integrate more of the latest technological
developments such as VoIP into our products.




PBX-Management INKAS-SQL
The integrated control and billing system for commercial telecom systems manages the complete
telecommunications network. INKAS-SQL covers the entire spectrum of telecom systems admini-
stration from recording and billing charges, information systems, logging of disruptions, alarm
signalling and order management to monitoring use and capacity utilisation. The billing system
covers the whole process from tracking accounts to issuing invoices. INKAS’ unique feature is its
capacity to administer heterogeneous networks, i.e. different types of telecom systems. We focus
on systems such as Siemens, Ericsson and Alcatel. We are currently supporting these manufac-
turers’ releases.
    The integration of new technologies such as VoIP systems and the corresponding charging
structures will grow in importance in the next few years. We will accompany our customers in
this process by developing our own innovative solutions – not only concerning the migration of
traditional PBX systems to VoIP systems, but also for pure VoIP systems. Current examples are
the integration of the CISCO call manager into INKAS-SQL and the integration of Siemens
HiPath telecom systems. This strengthens INKAS competitive advantage, namely its capacity to
manage heterogeneous telecom systems.

Billing & Accounting beusenBAS
The billing & accounting solution beusenBAS ensures that communication services are billed
and controlled efficiently. The modular system is suitable for classical carriers and providers as
well as for large corporate network providers. The complete billing & accounting workflow can be
called up, starting with data access via multi-stage processing to the transfer of accounting data
to third systems or print jobs. An optional customer care module rounds off the solution.
    The development of beusenBAS focuses on collecting billing data for IP technology as well.
This strengthens the solution’s capacity to bill internet traffic. Like our other products, beusen-
BAS offers numerous application-specific solutions.

B-100 Load Balancer and Content Switch
The B-100 is an IP load balancer / content switch, which allocates client inquiries intelligently
using various methods to individual servers in one server farm. This ensures its high-availability
and protects the system from disruptions. By permanently monitoring the accessibility and stabili-
ty of each server, the B-100 can react to failures as quickly as possible. Other features combine
to make the solution a content switch.




                                                                                                      57
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                                 As with our other products, customers’ wishes have been integrated into the product’s deve-
                                            lopment. The B-100 product line consists of the B-100 IP load balancer hardware appliances and
                                            the B-100 IP load balancer operating system (OS). This allows the customer to continue using
                                            existing hardware.
                                                 Another point to be mentioned is the integration of Secure Sockets Layer (SLL) and the
                                            extended security-functionality this provides. Demand has picked up for this, as issues of solida-
                                            rity and security are becoming a priority once again.

                                            Intelligent networks (IN)
                                            Intelligent networks provide the architecture to control telecommunication services. We develop
                                            software and systems to implement, operate and maintain value-added services (VPN, Prepaid-
                                            Service, Hot Billing) in this key area, specially designed for Siemens software and systems.

                                            Challenges over the past year
                                            The process of internationalisation in the CN field in 2003 was particularly characterised by the
                                            fact that the OEM partnership with the New York technology firm Kemp Technologies Inc. ena-
                                            bled us to get a foothold in the lucrative US market. Brain Force’s B-100 technology is used in
                                            the American partner’s network appliance. Two major orders for the beusenKNV cable manage-
                                            ment system were completed in Switzerland, strengthening our market position there.




58
The process of internationalisation in the CN field in 2003 was particularly charac-
terised by the fact that the OEM partnership with the New York technology firm
Kemp Technologies Inc. provided access to the interactive US market.




We are proud of many years of cooperation with our customers:
    Brain Force Software has managed the KNV system for the Oldenburger Energy Group
    EWE AG for several years and is continuing to develop the system.
    For years we have worked successfully with Brain Force Software’s billing-accounting
    solution at the telecommunications company LeuCom GmbH at its chemical site in Leuna.
    The entire spectrum of beusenBAS is used to market the telecommunications services
    offered at this site.
    Another key reference project is a large public authority in Bavaria, where the entire Internet
    traffic is managed via Virus Gateways that are balanced by B-100 Brain Force Software.
    It is clear that our customers are consolidating their investments and attach great value to
the security of their systems. Our incoming orders, which stretch far into 2004, illustrate that our
cable network management beusenKNV and IN solutions are responding to this need.

Outlook
Our task in the next few years will be to turn the investments we have made into a positive ope-
rating result and to establish ourselves on the market as a leading provider of special solutions.
    The critical success factors will be:
    Continuing to standardise our products. The consequence of this is that licence fees will
    account for a higher share of revenue from projects. The economies of scale will boost our
    profit margins considerably in future.
    The international network of the Brain Force Software Group gives us ideal access to cus-
    tomer potential in Europe. We have already put this to good use in Switzerland, and positive
    signs are also coming from Austria and Italy.




                                                                                                       59
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            CN-Development Teams in Munich and Berlin

                                            Our communications network segment has development teams in Munich and Berlin. Our pro-
                                            ducts are all technology based, focusing on a variety of areas:

                                            Call Processing renders services to public and commercial telecommunications networks inclu-
                                            ding VoIP technology. The Intelligent Networks team within CN was particularly successful in
                                            2003, because it managed to develop, adapt and implement services for no less than 25 tele-
                                            communications companies in 19 countries around the world.

                                            Internet Traffic Management is part of the B-100 product family. It includes content switching,
                                            SSL acceleration and load balancing for IP-based networks. Developed at our Munich site, B-
                                            100 now has gained access to the US market. We concluded an OEM contract with a partner
                                            firm based in New York in 2003.




CN Team Munich & Berlin




60
The merging of traditional telecommunications and IP networks is setting the
trend in billing/accounting and telecom systems management.




Cable Management: The CN product KNV embodies the wealth of knowledge and the collective
experience of a whole decade of cable management and documentation technology. This critical
application is currently being used by 150 telecom companies, power systems and production
companies and by many other firms using wide-scale technology in Europe. 2003 was a fantastic
year for the KNV project team, which managed to realise over 60 customer projects.

Accounting, Billing and Management are important issues both for traditional and for IP-based
telecommunications systems. As traditional telephony has really begun to merge with IP networks
in 2003, CN is supporting the trend by integrating the Cisco Call Manager into the INKAS/BAS
product line. For this purpose, Brain Force has entered into partnership with Cisco Systems.




Voice-over-IP Technology




                                                                                                  61
                                                  Financial Solutions://




The Financial Solutions segment offers FINAS (Financial Information and Sales Support System) solutions to financial servi-
ces providers. The FINAS application enables companies to optimise their business processes right along the value-added
chain, particularly at the point-of-sale. The solution provides, among other aspects, CRM functions for banks and insurance
companies. FINAS combines classical and new distribution channels and is the basis for all customer-focused business
models offering financial products via electronic and/or conventional channels.




62
                                                        We pursue a philosophy of consultancy and imple-
                                                        mentation at all phases of the product and develop
                                                        comprehensive solutions together with our custo-
                                                        mers, based on their corporate objectives and stra-
                                                        tegies.




The Renninger team, which specialises in con-
struction financing, supports financial institutions’
customer service employees in preparing financing
packages for the acquisition and utilisation of real
estate.




                                                                                                              63
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            Financial Solutions segment

                                            Brain Force Financial Solutions AG covers almost all branches of financial services firms with its
                                            innovative solutions and products. Based on the standardised, modular software components of
                                            the FINAS product family, individual solutions are combined in software packages tailored to
                                            requirements. Such components include financial planning, post-employment benefits and con-
                                            struction financing. A central component of this modular system is FINAS CRM. The individual
                                            components are scalable, web-enabled and support all distribution channels and sales proces-
                                            ses of the financial service provider: acquisition, analysis, consultancy and sales.

                                            FINAS Products
                                            With Brain Force Financial Solutions, FINAS and related services come from one partner. We
                                            advise our customers in introducing the optimal solution, make individual adaptations to FINAS
                                            products, take over statutory and technical maintenance and create individual applications. The
                                            following products and analysis applications are part of the FINAS product portfolio:

                                            Customer Relationship Management
                                            FINAS CRM ensures that customer data flows through all distribution channels company-wide
                                            and is managed centrally. From the branch and agency via mobile sales force to call center, all
                                            authorised employees have access to the relevant central data they need to give customers the
                                            right advice and to target them directly.

                                            Construction Finance
                                            Construction finance software supports financial institutions’ customer service staff in drawing up
                                            financing packages for the acquisition and use of real estate. The software can make both quick
                                            calculations, and detailed offers tailored to the customer.




64
We advise our customers in introducing the optimal solution, make individual
adaptations to FINAS products, take over statutory and technical maintenance
and create individual applications.




Private pension provision
FINAS Vorsorge is a comprehensive, tailored package of solutions for private pension provision
and future security. The standard application comprises all the main pension provision compo-
nents with specific help and service functions, such as annuity calculators or subsidies.

Company pension schemes
Customer service staff or agents are given full support in the analysis phase. The customers’
personal needs are assessed on the basis of data and characteristics, and individual proposals
made using scoring, decision trees or target group tables. “FINAS Betriebliche Altersvorsorge”
supports the entire advisory process and covers all implementation channels.

Financial Planning
“FINAS Finanzplanung” supports customer service staff in the issues of design, strategy and
implementation of investments. This component analyses the customer’s current financial situa-
tion regarding attitude to risk, current portfolio and disposable income. Specific recommendations
are derived from these responses.

Further analysis applications and product sales modules covering the whole spectrum of financi-
al services products supplement these components. Various basic applications such as compu-
tation modules, configuration and administration tools round off the FINAS package.

Challenges over the past year
The takeover of NSE Software AG in May 2003 was an important milestone in Brain Force
Software AG’s evolution to an international IT group with sector-specific services and solutions.
    Helmut Fleischmann took over as CEO in June. The name change to Brain Force Financial
Solutions AG was passed by resolution at the Shareholders’ Meeting in August 2003 and is part
of the company’s integration into the Brain Force Software Group.




                                                                                                     65
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                                Brain Force Financial Solutions AG managed the turnaround in the third quarter, thus making
                                            a positive contribution to overall results. The group’s radical restructuring, almost fully completed
                                            in 2003, made this possible. The final steps will be taken in the first half of 2004.
                                                Last year we charted the following successes in the financial services sector:
                                                Various FINAS consultancy applications in various distribution channels are in use at
                                                Gothaer, such as in the field of company pensions or reinvestment management. In addition,
                                                we are developing new applications on the basis of a migration platform to combine various
                                                technological generations.
                                                BHW Bausparkasse ordered FINAS web Baufinanzierung in autumn 2003.
                                                Inter Versicherung, the large German comprehensive insurer and user of FINAS Classic for
                                                many years invested in the latest version of the user interface with the look and feel of an
                                                Internet application for its insurance agents.

                                            Outlook
                                            We are expecting a renewed readiness for substantial investment from the finance and insu-
                                            rance sectors. This will enable us to strengthen our market position in a recovering market. In
                                            standard development, we intend to concentrate further on analysis applications such as CRM,
                                            construction finance, pension provision and financial planning as this is where the customer has
                                            real value added. In the coming year, we will focus on greater standardisation and functional




66
Brain Force Financial Solutions AG managed the turnaround in the third quarter,
thus making a positive contribution to overall results.




extension. This includes the continuing development of the fields administration, configuration
and customising and enables us to increase significantly comfort and flexibility for the user and
to enable FINAS products to be adapted cost-effectively.

SBT Praha a.s.
Brain Force Financial Solutions has an 85% share in the Czech company SBT Praha a.s. The
subsidiary is one of the few local software firms to focus specifically on solutions and consul-
tancy for banks and financial institutions on the Czech market.
    Its flagship product is Rebecca, a system to support the entire mortgage-backed loan pro-
cess. In the financial services sector, SBT extended its own product portfolio in 2003 by its pur-
chased product series Jupiter. This is an asset management solution for equity and bond funds.
PARIS is a modular system to guide and communicate company processes. Further services
such as consultancy, systems integration, order processing, and service are offered in addition
to SBT’s own products.
    SBT has 20 employees with specialised know-how in the financial services sector. SBT
Bratislava s.r.o. was founded in 1999 to give optimal support to its customers in Slovakia.
    The company has managed to position itself very well despite fierce competition from foreign
firms in the past few years. SBT is the link to the emerging markets of Central and Eastern
Europe within the Brain Force Group.




                                                                                                     67
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            FS Development Team Munich

                                            Brain Force Financial Solutions’ standard development team has continued to improve the sales
                                            opportunities for its web-based construction finance tool over the past year. We carried out com-
                                            prehensive quality assurance measures in the first half of the year, which added maturity to the
                                            application.
                                                With Brain Force Software’s arrival in mid-year, we shifted focus back to extending the
                                            product’s functionality, to turn the construction finance tool into a high-performance standard
                                            product.
                                                We are offering our customers a comprehensive approach to financing with FINAS construc-
                                            tion finance. The application supports the entire business process from acquisition to product
                                            sales.




FS Team Munich




68
The standard development team of Brain Force Financial Solutions focuses its
activities on achieving product maturity and ensuring the distribution capacity
of web-based construction finance.




    We can no longer imagine business without the Internet as a distribution channel. However,
an initial consultancy on the Internet places different demands on software than a complex finan-
cing calculation. FINAS web construction finance means that consultancy services can be provi-
ded accessing the same data basis irrespective of distribution channel. FINAS’ multi-client capa-
city has the required flexibility.
    It is not only ourselves, but also our customers who want to provide consultancy services in
line with customer needs – the integrated needs analysis guides the consultant and supports
him/her in selling individual products.
    Developments over the past year were accompanied by sales success: in autumn 2003, the
BHW Group decided to use FINAS web construction finance.




                 web Baufinanzierung




                                                                                                    69
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            Rebecca in Prague

                                            Financial Solutions in the Czech Republic
                                            SBT Prague is one of the few local software firms to specialise in solutions and consultancy for
                                            bank and financial institutions in the Czech Republic. Its flagship product is Rebecca, a tool for
                                            retail banking, which supports the whole process of advising on and processing mortgage-
                                            backed loans.
                                                Over the last year, we successfully implemented an information system for mortgage-backed
                                            loans for the HVB Bank in the Czech Republic. The system was implemented in the areas of
                                            securities, credit management and in process support for loan provision. We have responded to
                                            customer demands in the course of the project, integrated these requirements into our software
                                            and have advised customers on implementing specific processes.




FS Team in Prague




70
SBT Prague is focusing primarily on the Rebecca product in the Czech Republic,
a tool for retail banking, which supports the entire process of advising and pro-
cessing mortgage-backed loans. The HVB Bank in the Czech Republic introduced
the product last year.




With Rebecca, the customer gains a product responding to the legal requirements of each
respective country, the disclosure requirements of the national bank and the users’ information
needs. The software includes open interfaces for integration into existing systems. At HVB Bank
in the Czech Republic, we have realised an interface to another information system.
    We have demonstrated our performance and the quality of our products in 2003. Against this
background we are very optimistic about the future.




                                            Retail Banking




                                                                                                  71
72
STRATEGIC   DIRECTION://




                           73
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140
142
143
      Auditor’s Report
      Glossary
      Important dates                       STRATEGY://
                                            Strategic direction

                                            The last few years have shown that Brain Force Software AG has not just managed to survive
                                            in a difficult economic environment, but has seized all available opportunities for growth. The
                                            company has continued to grow profitably over the past year.
                                                 Up until 1999, growth in the company was organic. With the financial opportunities available
                                            to us since going public five years ago, we have managed to accelerate this growth substant-
                                            ially by pursuing an acquisition strategy. This includes the acquisition of MMI Consulting in
                                            Switzerland in 1999, the acquisition of TEMA Studio di Informatica in Italy in 2000 and GMRS.
                                            The takeover of beusen Solutions GmbH and the investment in NSE Software AG round off the
                                            portfolio of Brain Force Software AG. This history clearly illustrates that the management of
                                            Brain Force Software is capable of managing the integration such major acquisitions require,
                                            creating value added for our shareholders.
                                                 We have formulated our goals on the way to becoming a supplier of comprehensive, sector-
                                            specific solutions in our 2005 strategy paper. Our highly successful Professional Service seg-
                                            ment continues to be the foundation for our expansion as far as market knowledge, access to
                                            customers and financial strength are concerned. These success factors are complemented by
                                            investments in our own sector-specific products and services, which enable us to generate
                                            higher economies of scale and increasing margins.




74
                                          The management of Brain Force Software has delivered proof of its capability
                                          to integrate new acquisitions and to generate value added for its shareholders
                                          at the same time.




Brain Force Software – Products and Services


                   Professional Services                                        Communication Networks                                       Financial Solutions
Business Solutions Services      Technology Integr. Services



 Consulting                       Infrastructure & Systems        beusenKNV -                Intelligent Networks       FINAS CRM                       FINAS Risiko + Vorsorge
                                  Management                      Kabel Management System


 Programming Services             Connectivity & Network          INKAS-SQL -                B-100 Load Balancer        FINAS Baufinanzierung           FINAS Finanzplanung
                                  Management                      PBX-Management


 Application Management           Outsourcing Services            beusenBAS -                                           FINAS bAV betriebliche
 Services                                                         Billing und Accounting                                Altersvorsorge



Application Management Serv.     Security Management

Groupware Solutions              Storage Solutions

Data Warehouse & Business
Intelligence

ERP-Enterprise Resource
Planning

CRM Customer Relationship
Management




Breakdown of markets by sector

 Telecommunication              Public sector                   Industry and Retail          Transport                  Banking and Finance             Insurance



 Sector-specific products       Infrastructure solutions        Infrastructure solutions     Infrastructure solutions   Sector-specific products        Sector-specific products
 Infrastructure solutions       Specialised services            Specialised services         Specialised services       Infrastructure solutions        Infrastructure solutions
 Specialised services                                                                                                   Specialised services            Specialised services




Key

 Service Center                Products                        Competencies/Applications




                                                                                                                                                                                   75
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                                With our solutions, we aim to lead the market in sectors we have selected as strategically
                                            important for their growth potential. Acquisition targets should therefore already have a leading
                                            position in their respective sectors, as new product developments would be too time-consuming
                                            and cost-intensive for us, given the aggressive growth strategy we are pursuing.
                                                The competitive environment is changing with the range of solutions on offer. Brain Force
                                            Software is competing with a mixture of major multinational IT providers, on the one hand, and
                                            with regionally based niche players, on the other. Our lower cost structure and greater flexibility
                                            give us a competitive edge over the bigger players. The advantages we have over smaller com-
                                            petitors are our wealth of experience and know-how, and our size and product portfolio, which
                                            enable us to realise major projects on our own. We can thus guarantee our customers real value
                                            added.
                                                The number one priority of our expansion policy is to strengthen our presence in the regions
                                            and sectors in which we already operate. This will substantially improve potential target custo-
                                            mers’ perception of Brain Force Software and will enable us to consolidate our position as a lea-
                                            ding, innovative and reliable business partner.
                                                In addition to its functionality and high level of acceptance among customers, the size of the
                                            target market is a crucial factor in a product’s success. The international reach of our network is
                                            therefore critical for a sector-specific player such as Brain Force Software. Our focus on geogra-
                                            phical markets is geared towards the volume of IT expenditure in the respective countries.
                                                Our motivation for evolving from an IT services provider to an internationally operating, sec-
                                            tor-specific supplier of comprehensive solutions is our desire to achieve greater stability and
                                            sustainability. The past has proven that our positioning will enable us to pursue our 2005 growth
                                            strategy irrespective of the economic difficulties individual sectors or countries may be encoun-
                                            tering.
                                                We are convinced that this strategy is the right one. Our objective in pursuing it is to secure
                                            sustainable share price gains for the shareholders of Brain Force Software.




76
    With our solutions, we aim to lead the market in sectors we have selected as stra-
    tegically important because of their growth potential. The number one priority of
    our expansion policy is to strengthen our presence in the regions and sectors in
    which we already operate.




                                                                                Finland


                                Norway



                                                     Sweden




The United Kingdom



                          The Netherla
                                                  Germany

                                                      The Czech Republic


                                                                 Slovakia
            France            Switzerland              Austria



                                                   Italy




                  Spain


                   Core countries
            Market entry prepared
                  Target markets




                                                                                          77
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140
142
143
      Auditor’s Report
      Glossary
      Important dates                       SUPERVISORY BOARD://
                                            Report of the Supervisory Board

                                            In performing its duties as stipulated by law and in the company’s memorandum and articles, the
                                            Supervisory Board held twelve meetings during the course of 2003.
                                                The Board of Management regularly informed the Supervisory Board, orally and in writing,
                                            about the operating activities and situation of the company and its associates.
                                                The financial statements of BRAIN FORCE SOFTWARE AG including the management
                                            report, and the consolidated financial statements including the management report at December
                                            31, 2003, compiled in accordance with International Financial Reporting Standards (IFRS), were
                                            audited by PwC INTER-TREUHAND GmbH, Wirtschaftsprüfungs- und Steuerberatungsgesell-
                                            schaft, Vienna, certified public accountants, auditors and tax consultants, duly appointed in
                                            accordance with § 270 HGB.
                                                The audit confirmed that the accounting, the financial statements and the consolidated finan-
                                            cial statements are in accordance with the statutory requirements, and that the provisions of the
                                            company memorandum and articles have been observed. The audit’s findings did not highlight
                                            any discrepancies, and the auditor therefore issued an unqualified opinion. The management
                                            report is in accordance with the financial statements and the consolidated financial statements.




78
    The Supervisory Board has approved the 2003 financial statements and the management
report. It agrees with the proposal of the Board of Management to carry forward the balance
sheet profit of EUR 0. The financial statements have thus been approved in accordance with
§ 125 AktG (Companies Act). The Supervisory Board has also approved the consolidated finan-
cial statements and the consolidated management report.



Vienna, March 19, 2004

The Supervisory Board




Roman Gregorig
Supervisory Board Chairman




                                                                                              79
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140
142
143
      Auditor’s Report
      Glossary
      Important dates                       MANAGEMENT REPORT://
                                            Group Management Report

                                            Economic climate
                                            The world economic climate in the first quarter of 2003 was extremely precarious due to political
                                            instability in the Near East and particularly because of the increasingly likelihood of war in Iraq.
                                            Political differences between Germany and the USA with regard to solving the Iraq conflict were
                                            starting to impact on the German economy. Major German firms feared repercussions in the
                                            form of declining exports to the USA and reacted once again by delaying capital expenditure.
                                                Leading economic institutes shared most economists’ predictions of slow growth in the first
                                            quarter and a considerable recovery in the second half of the year. In April the EU Commission
                                            had to revise its growth forecast down from 1.8 to 1.0 percent, an indication that the recovery
                                            was substantially slower than had been expected. Pedro Solbes, Currency Commissioner, sub-
                                            sequently confirmed this trend by estimating growth for the whole year at 0.7 percent, effectively
                                            conceding that April’s revision was already outdated.
                                                However, the end of the Iraq war saw the euro zone finally begin to achieve the long-awaited
                                            growth. The world’s economy had been hit by an unprecedented spate of negative shocks in the
                                            previous three years: rising oil prices, falling equity markets, the slump in investment and the
                                            Iraq war. The impact of these negative influences lessened distinctively towards the middle of
                                            the year.
                                                After the onset of the slowdown in the world’s economy, augurs heralded the beginning of a
                                            recovery on two occasions, both to no avail. The terror attack on the USA in autumn 2001
                                            marked a preliminary end to such hopes, and yet another stock market slump in summer 2002
                                            put an abrupt end to optimistic recovery forecasts. Confidence was regained in the second half
                                            of 2003, and this time, the markets seemed to have got it right. Various factors indicated that the
                                            economy was heading out of stagnation by late autumn 2003.
                                                Over the past three years, international corporations worked successfully at cleaning up their
                                            financial statements to clear the aftermath of the burst stock market bubble. These firms reduced
                                            their capital expenditure so radically that new investment in the short term, if only on necessary
                                            replacements, seemed inevitable.
                                                Private consumption stabilised after the initial hysteria caused by euro-induced price hikes.
                                            A slight drop in inflation in autumn strengthened purchasing power, stimulating demand. The risk
                                            of deflation in the fourth quarter was minimal.
                                                The Ifo business climate index rose for the sixth consecutive time in October. The institute’s
                                            rule of thumb is that three consecutive rises in the index indicate a trend change. The most
                                            recent increase suggests that the positive trend could turn into a longer-term recovery.




80
Business developments
The new positioning of Brain Force Software as part of its 2005 strategy, clearly focusing on the
solutions business, was the Management Board’s 2002 response to the persistently weak econo-
mic climate. The business segments established in 2002 quickly demonstrated their potential to
perform at the beginning of the year, scoring several successes, particularly in the solutions busi-
ness.
    The Professional Services segment fared extremely well in the outsourcing business. How-
ever, the new orders did not affect revenue in the first quarter, as this time was spent mainly on
preparation and handover.
    BSS – Business Solution Services – maintained momentum from its success in the latter half
of 2002 with its AMS Service Unit – Application Management Services – winning two key out-
sourcing contracts. Brain Force Software in Austria won a long-term major contract for payroll
services from a leading IT group. Brain Force Software GmbH in Germany was awarded a pilot
project with a German automobile group as part of its rehosting partnership with SUN Microsys-
tems.
    TIS – Technology Integration Services – won a major order for outsourcing services from a
large German bank to provide extensive call centre services.
    The Communication Networks segment spent the first quarter primarily occupied with the
integration of beusen Solutions GmbH in Germany, which it had taken over in October 2002.
beusen Solutions GmbH merged with Brain Force Software GmbH in Germany as of January 1,
2003. Management and organisational structures were redefined and two units established –
Product Development Center (PDC) and Solution Distribution Center (SDC).
    The Solution Distribution Center SDC won a major contract from a German energy group for
integration, adaption and extension work on beusenKNV in March 2003. Integration work began
on the introduction of the telecom systems management solution INKAS for a Swiss canton.
    The Product Development Center PDC embarked on internationally applicable versions of
beusenKNV and beusenBAS, and work began on integrating the CISCO Call Manager into
INKAS.
    Signs of an upturn in business were clearly apparent in the second quarter at all Brain Force
companies. This began to be reflected in net sales and results at some companies, such as
Brain Force Software GmbH in Germany. Those group companies whose figures for net sales
and results had yet to reflect the positive trend nevertheless had a substantial increase in orders.




                                                                                                       81
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                                 With its takeover of 77.05 percent in NSE Software AG, Brain Force Software passed an-
                                            other important milestone in implementing its 2005 strategy. NSE Software AG extended the
                                            group’s range of solutions in the strategically important financial services sector. With effect from
                                            April 30, 2003, Brain Force Software AG exercised an option to acquire 6,323,800 shares in
                                            NSE Software AG, based in Munich, corresponding to 54.05% of voting capital, and submitted a
                                            bid to the remaining shareholders in accordance with German takeover law.
                                                 In the second quarter of the year, NSE Software AG found itself in the final phase of a long
                                            downsizing and cost-cutting process. This entailed substantial redundancies, the reduction of
                                            office space and the introduction of short time. The cuts were already bringing results in the
                                            second half of 2003, but the total effect of the measures will really show in 2004, giving a boost
                                            to NSE Software AG’s results.
                                                 The Professional Services segment of Brain Force Software continued to strengthen its mar-
                                            ket position in the outsourcing business in the second quarter, winning key orders in Austria and
                                            Germany. The contract with a large German bank relating to trading systems is worth particular
                                            mention here. Further success stories have come from the SUN Rehosting business, where an
                                            order was secured from an Austrian steel group.
                                                 The Communications Networks segment generated significant new orders for all product
                                            lines in the second quarter. The security department supplied a security management system to
                                            a German pharmaceuticals firm. The high availability variant of the B-100 network appliance was
                                            sold several times in the Netherlands and in Switzerland, and existing business relations with
                                            IBM in Switzerland were strengthened through the use of the cable management system
                                            beusenKNV.
                                                 The upturn apparent in the second quarter continued into the second half of the year, as was
                                            reflected in the consolidated and individual financial statements of the third quarter.
                                                 The recovery of the market was clearest in Germany in the Professional Services segment.
                                            The greatest gain was made in services for banks and insurance in Munich. The order volume
                                            relating to the trading systems of a large bank increased and additional contracts were secured
                                            in security, reengineering and out-tasking. The public sector and administration service unit suc-
                                            ceeded in doubling order volume in Munich. While the market in Frankfurt continued to stagnate,
                                            our Cologne branch managed to achieve further growth in the Technology unit, building on its
                                            existing relationship with Siemens.
                                                 The Enterprise Business Solutions (EBS) segment in Italy managed to grow in the second
                                            half of the year after several weak quarters, winning new orders for Microsoft’s ERP NAVISION
                                            system. A project for an international pump manufacturer is worthy of particular mention here.
                                            Our own software modules that extend the scope of NAVISION were crucial in winning this
                                            order. This project also entailed implementing NAVISION at the client’s foreign subsidiaries.




82
In addition to success in the ERP business, points were scored in the CRM business, too, with
several orders being secured for Microsoft’s new CRM solution.
     In the second half of the year, the Austrian company continued to strengthen its outsourcing
services, which had clearly focused on payroll systems in the first half, winning additional con-
tracts.
     In the third quarter, the Communication Networks segment continued to work determinedly
on US market entry. Negotiations concerning an OEM partnership with the New York tech firm
Kemp Technologies Inc. were completed in December and contracts signed. This partnership
involves the use of B-100 technology developed by Brain Force Software in the American part-
ner’s network appliance.
     The cable network management system beusenKNV strengthened its market position in the
second half of the year, winning two major orders in Switzerland.
     NSE Software AG was renamed Brain Force Financial Solutions AG in August 2003. After a
difficult first half of the year and heavy losses in the prior year, this company went back into the
black in the third quarter. Substantial downsizing and consistent cost cutting brought about the
turnaround. The order from the BHW financial group to supply web-based construction finance
software in August 2003 contributed significantly to this segment’s positive results.

Orders
At December 31, 2003, the Brain Force Software Group had orders worth EUR 12.42 million.
This volume of signed orders is our most conservative estimate of the order situation. It is very
common in our line of business for projects with large customers to be embarked on not after the
lengthy process of formal negotiations, but at short notice on the basis of informal announce-
ments, thanks to many years of good cooperation. This volume of business is not included in the
value of orders stated above.
    Germany accounts for the lion’s share of orders, at EUR 6.70 million, followed by Austria with
EUR 4.23 million. Orders in Italy amount to EUR 0.91 million, clearly below last year’s figure, as
many orders which had already been agreed on orally were not signed until after the balance
sheet date. The total order volume of the group at EUR 12.42 million is therefore 11.45 percent
lower year-on-year.

Net sales and earnings
The Brain Force Software Group realised net sales of EUR 60.10 million in 2003, exceeding the
figure for the previous year by 1.9 percent. After jumping by 8.16 percent in the second quarter,
consolidated net sales continued to grow steadily by 4.59 and 4.51 percent in the 3rd and 4th
quarters respectively.




                                                                                                       83
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            Net sales by quarter

                                Q1/03                         EUR 13.67 million
                                Q2/03                         EUR 14.79 million
                                Q3/03                         EUR 15.47 million
                                Q4/03                         EUR 16.17 million
                                 2003                                                                           EUR 60.10 million

                                                Brain Force Software GmbH in Germany raised its net sales by 6.22 percent to EUR 24.78
                                            million year-on-year. Brain Force Financial Solutions AG generated net sales volume of EUR
                                            6.31 million between May and December 2003. Net sales in Germany account for EUR 31.09
                                            million or 51.73 percent of the consolidated total.
                                                Brain Force Software S.p.A. in Italy contributed EUR 15.52 million or 25.82 percent to con-
                                            solidated net sales. This is a decline of 4.81 percent on the previous year, particularly due to the
                                            weak first half. Net sales in the fourth quarter, at EUR 4.18 million, however, were 8.95 percent
                                            up on the previous year’s figure.
                                                The Austrian company contributed 20.22 percent with net sales of EUR 12.15 million to con-
                                            solidated net sales. The remaining countries made up EUR 1.34 million.

                                            Net sales by country

                                                                                  2.23%

                                                                                                         51.73%

                           Germany                                 20.22%
                                  Italy
                              Austria
                      Other regions




                                                                               25.82%



                                                After two years of negative EBITDA development, the turning point was reached in 2003.
                                            Group EBITDA at EUR 3.01 million was 57.84 percent up on the previous year. This develop-
                                            ment can also be seen in group EBIT. EBIT for 2003 amounted to EUR 182 thousand, which is
                                            almost treble the previous year’s figure. Although EBIT was negative at EUR -690 thousand in
                                            the first half of the year, an excellent EBIT of EUR 872 thousand in the second half secured the
                                            turnaround.




84
                   EBIT by quarter

          Q1/03                                    EUR -0.19 million
          Q2/03                                    EUR -0.50 million
          Q3/03                                       EUR 0.12 million
          Q4/03                                                                          EUR 0.75 million
           2003                                         EUR 0.18 million



                       The Professional Services segment generated net sales of EUR 48.91 million, contributing
                   81.38 percent to consolidated net sales. This segment accounted for 95.36 percent of consolida-
                   ted net sales in the previous year. Business Solutions (BSS) accounted for EUR 27.33 million, or
                   55.88 percent of the segment total. Technology Integration Services (TIS) contributed EUR 21.58
                   million or 44.12 percent to net sales for the segment. Professional Services generated an opera-
                   ting result of EUR 1.40 million.

                   Relation of net sales of the Professional Services segment to operating result

      Net sales                                                            EUR 48.91 million
Operating result      EUR 1.40 million


                       The Communication Networks segment increased its net sales by 66.74 percent on the pre-
                   vious year, contributing 7.58 percent or EUR 4.56 million to consolidated net sales. The opera-
                   ting result of this segment improved by 17.75 percent on the previous year, but was adversely
                   affected by one-off expenses incurred in integrating beusen Solutions GmbH, and by capital
                   expenditure on product lines. This resulted in a negative operating result of EUR 594 thousand
                   in this segment.

                   Relation net sales to operating result Communication Networks segment


      Net sales         EUR 4.56 million
Operating result    EUR -0.59 million



                      The Financial Solutions segment contributed EUR 6.63 million to consolidated net sales,
                   accounting for 11.04 percent. Brain Force Financial Solutions AG, formerly NSE Software AG,
                   and its investments are primarily responsible for this segment. Brain Force Financial Solutions
                   AG has been fully consolidated since May 2003. This segment generated an operating result of
                   EUR 626 thousand.




                                                                                                                      85
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            Relation net sales to operating result Financial Solutions segment


                        Net sales                 EUR 6.63 million
                 Operating result             EUR 0.62 million

                                                Group costs not included in the results of the three segments were reduced by 4.29 percent
                                            on the previous year to EUR 1.25 million.

                                            Research and Development
                                            The research and development activities of the Brain Force Software Group are grouped to-
                                            gether in the CN – Communication Networks – and FS – Financial Solutions – segments.

                                            Product and process innovations
                                            The hardware-platform-independent B-100 appliance operating system increases the scope of
                                            possibilities for Brain Force Software’s load balancer product line, because it can be installed on
                                            various hardware platforms within a very short space of time. This brings considerable cost
                                            savings for the user, as there is no need to replace existing hardware. Another advantage is that
                                            it enables us to respond better to individual user requirements than when using a load balancer
                                            with its own hardware. The hardware platforms supported by the B-100 appliance OS are tested
                                            and certified by Brain Force Software.
                                                 Sun Microsystems LX50 server is the first hardware platform to be certified for the B-100 IP
                                            load balancer appliance OS. The SUN LX50 server and the appliance OS together enable instal-
                                            lation of a top-grade, high-performance layer 4 IP load balancer and a top-grade, high-perfor-
                                            mance layer 4-7 content switch. This is a very simple, cost-effective method of gaining access to
                                            server farms with high availability. The introduction of the latest 2.2 software release of the B-100
                                            line includes many new, exciting features in the layer 7 area. These increase the scope of the
                                            B-100 IP load balancer/content switch for web-shops and web applications.
                                                 In the first half of 2003, intensive work was carried out on "road maps” for the KNV and
                                            INKAS products, which have complemented the product range of the group since the acquisition
                                            of beusen Solutions GmbH. Our distribution, development and product management depart-
                                            ments worked together on this, focusing on the following areas:
                                                 The international market launch of products outside the German-speaking world at the
                                                 end of 2003
                                                 Achieving hardware platform independence for products
                                                 Designing WEB-enabled products
                                                 Considering technological developments such as
                                                 VoIP for telecom systems management
                                                 IP billing
                                                 IT cable management
                                                 and placing greater emphasis on product features




86
   Establishing consistent quality assurance for development processes
   Standardising release management
   Introducing standardised production processes for release generation and product
   installation

    The first results of these efforts could be seen in the second quarter. For example, integration
of the new generation of the Siemens telecom systems "high-path” into INKAS-SQL was comple-
ted and integration of the Cisco Call Manager initiated. This will strengthen INKAS’ unique ability
to administer heterogeneous telecom systems.
    We responded to our customers’ desire to offer WEB-enabled functions for all products with
an XML-based solution. This gives us an additional opportunity to sell all our products as ASP
solutions.
    The Communication Networks segment reached its development plan targets in the second
half of the year, achieving the following:

Cable Management (KNV)
   Development and extension of visualisation components for simplified graphic processing
   and documentation of network interfaces
   Extension of network planning functionality in relation to the reservation of existing cables,
   capacity planning and automatic cable path search

B-100
   Integration SSL acceleration connected with the extension of persistence and balancing
   methods for SSL connections
   Secure web interface for administration and configuration of the server load balancer B-100

INKAS
   Integration of Cisco Call Manager into the INKAS PBX management system

   The FS – Financial Solutions – segment adjusted its development plans in the light of its
economy drive, focusing on the following areas in the third quarter:
   Continuing development of web CRM, web Vorsorge (pension provision) and web
   Baufinanzierung (construction finance) solutions.
   Integration of these solutions via interfaces to facilitate uninterrupted marketing and
   distribution processes – from the definition of the acquisition to the individual offer
   First version of web Öffentliche Mittel (Public Funds)
   Quality assurance particularly regarding stability, operations and maintainability
   Standardisation of all applications in terms of optical appearance and handling
   A marketable version of web Baufinanzierung is planned for the end of 2003




                                                                                                       87
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            Net worth and capital structure
                                            Net worth and capital structure is characterised by an increase of 12.66 percent in the balance
                                            sheet total to EUR 31.45 million (previous year: EUR 27.92 million). This increase is mainly due
                                            to the change in the consolidated group. Year-on-year comparison of balance sheet items is
                                            therefore of limited use in some cases.
                                                Non-current assets rose to EUR 10.94 million (previous year: EUR 9.23 million). This is partly
                                            due an acquisition-induced rise of EUR 2.55 million in intangible assets to EUR 3.51 million (pre-
                                            vious year: EUR 0.96 million) and to the consequent addition of financial assets recorded at
                                            equity. Deferred tax assets amounting to EUR 0.68 million (previous year: EUR 1.87 million)
                                            mainly relate to tax losses from prior periods probably to be realised on the basis of medium-
                                            term results planning and calculated at applicable domestic tax rates.
                                                Current assets rose by EUR 1.82 million to EUR 20.51 million (previous year: EUR 18.69 mil-
                                            lion). Trade receivables remained fairly constant at EUR 14.78 million (previous year: EUR 14.76
                                            million); cash and cash equivalents rose 71.02 percent to EUR 4.34 million (previous year: EUR
                                            2.54 million).
                                                Share capital increased to 4,834,789 bearer shares. Share capital thus rose year-on-year
                                            due to two capital increases in kind to EUR 1,049,646. Group reserves increased by EUR 1.04
                                            million to EUR 5.45 million (previous year: EUR 4.41 million). The share attributable to minority
                                            interests in Brain Force Financial Solutions AG and its investments amounted to EUR 0.69 mil-
                                            lion at December 31, 2003.
                                                Non-current liabilities rose to EUR 2.37 million (previous year: EUR 1.95 million), with provi-
                                            sions for post-employment benefits rising by EUR 0.30 million to EUR 1.89 million; other long-
                                            term provisions amount to EUR 62 thousand (previous year: EUR 0).
                                                Current liabilities rose by EUR 1.46 million to EUR 16.38 million (previous year: EUR 14.92
                                            million). Within this item, current financial liabilities were reduced by EUR 0.48 million to EUR
                                            2.90 million (previous year: EUR 3.38 million). Other current liabilities amount to EUR 7.63 mil-
                                            lion (previous year: EUR 6.35 million). The increase is primarily attributable to the rise in employ-
                                            ment benefits – holiday entitlements not taken and overtime – resulting from the rise in employ-
                                            ees, and due to the resultant rise in social security and payroll-related tax contributions. Other
                                            current liabilities also contain a rise in EUR 0.38 million in deferred income from maintenance
                                            and servicing costs. Other current provisions include the capitalised costs of restructuring Brain
                                            Force Financial Solutions AG.

                                            Financial position
                                            At the balance sheet date, December 31, 2003, shareholders’ equity amounted to EUR 12.70
                                            million (previous year: EUR 11.05 million), of which EUR 0.69 million belong to minority interests.
                                                Equity has thus increased by EUR 1.65 million, leading to a substantial improvement of 40.38
                                            percent in the equity ratio (previous year: 39.60 percent). The rise in working capital to EUR 4.13
                                            million (previous year: EUR 3.77 million) and the resulting working capital ratio of 1.25 (previous
                                            year: 1.25) underscore the continuing financial stability of the Brain Force Software Group.




88
                 Cash flow and investments
                 Cash flow from operating activities was up substantially year-on-year at EUR 2.06 million (pre-
                 vious year: EUR 1.31 million).
                     Cash flow from investing activities mainly related to the takeover of 77.05 percent of the
                 shares in NSE Software AG and to the development and continuing development of software
                 products. The takeover of NSE Software AG led to an exchange of shares not resulting in a cash
                 outflow with the exception of incidental costs. As the cash and cash equivalents of NSE Software
                 AG exceeded the incidental costs payable. This acquisition resulted in a cash inflow of EUR 0.71
                 million. Investments in property, plant and equipment and in other intangible assets amounted to
                 EUR 1.37 million (previous year: EUR 0.96 million), the main share of which is accounted for by
                 the development and continuing development of software products. Cash outflows from investing
                 activities amounted to EUR –0.74 million (previous year: EUR –1.66 million) in total.
                     Cash flows from financing activities amounted to EUR 0.99 million due to the capital in-
                 crease. Current financial liabilities taken out in previous years were reduced by EUR 0.51 million.
                 Cash inflows from financing activities amounted to EUR 0.48 in total (previous year: EUR 0.18
                 million). The funds available to the Brain Force Software Group at December 31, 2003 amount
                 to EUR 4.34 million (previous year: EUR 2.54 million), up 71 percent year-on-year.

                 Human Resources
                 By the end of the year, the growth strategy of the Brain Force Software Group was already
                 reflected in headcount. At December 31, 2003, the group employed 855 people. This is a rise of
                 14 percent on the previous year. The ratio of salaried employees to freelancers remained con-
                 stant at approximately three quarters to one quarter.
                     Growth in the group was achieved almost exclusively through growth in Germany. 394 people
                 were working in Germany at the balance sheet date, a rise of almost 49.24 percent on the pre-
                 vious year, up 130 on December 31, 2002. The majority of this increase is accounted for by the
                 acquisition of NSE Software AG, now Brain Force Financial Solutions AG, with 107 employees at
                 December 31, 2003. This takeover also included a further 20 employees at the Prague site.
                     Headcount in Italy remained constant up to the end of 2003 at 295 employees. The corre-
                 sponding figure at December 31, 2002 was 302. Austrian headcount fell by 24 to 144 employees.

                 Headcount by country




    Germany                                        394

         Italy                                     295
                                                                                                            855
      Austria                                      144

Other regions                                       22




                                                                                                                       89
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            Outlook
                                            We expect a slight economic upturn in Europe in 2004, together with an increase in investments
                                            made by large and mid-sized companies. We will continue to pursue our strategy of strengthen-
                                            ing the Communication Networks and Financial Solutions businesses. According to our planned
                                            figures, software and services provided by these segments are set to account for more than 25
                                            percent of net sales in 2004.
                                                What’s more, we are also expecting growth in the Professional Services segment for the first
                                            time since 2001. The successful Application Management Services (AMS) and outsourcing pro-
                                            jects of the past year have laid the required foundations for this growth.
                                                We still plan to strengthen all our segments through further acquisitions. Our experience has
                                            shown that one acquisition per year is manageable. Our 2005 strategy foresees accelerated
                                            growth, dependent on a successful capital increase and a significant improvement in cash and
                                            cash equivalents.
                                                Nevertheless, acquisitions are not included in our forecast for the 2004 business year. We
                                            currently plan to achieve net sales of around EUR 66.1 million with EBITDA of EUR 4.5 million.




90
Post balance sheet events
Brain Force Software AG held an extraordinary general meeting on January 23, 2004. The pri-
mary resolution was to revoke the authorisation in accordance with § 169 AktG given to the
Board of Management on June 12, 2003 at its Annual General Meeting to increase share capital
by September 11, 2008 by up to EUR 1,892,571 through the issue of 1,892,571 ordinary bearer
shares payable in cash or kind, with no subscription rights for shareholders in the case of contri-
butions in kind and/or shares issued to employees of the company and its subsidiaries for the
amount of EUR 1,277,545 not yet used. At the same time, the Board of Management was autho-
rised to increase share capital by up to EUR 2,417,394 in one or several tranches through the
issue of 2,417,394 ordinary bearer shares payable in cash or kind, with no subscription rights for
shareholders in the case of contributions in kind and/or shares issued to employees of the com-
pany and its subsidiaries within 5 years of registering the corresponding change to the com-
pany’s articles. The amount issued and the conditions of issue are to be stipulated with the con-
sent of the Supervisory Board. A resolution was also passed authorising the Supervisory Board
to make amendments to the company’s articles relating to the issue of shares from authorised
capital.
    The resolution to set authorised capital at EUR 2,417,394 was passed unanimously. No other
events of material importance have occurred since the balance sheet date.




                                                                                                      91
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140
142
143
      Auditor’s Report
      Glossary
      Important dates                       FINANCIAL STATEMENTS://

                                            Consolidated balance sheet at December 31, 2003



                                            Assets                                              Notes       31.12.2003     31.12.2002
                                                                                                                  EUR            EUR


                                            Non-current assets
                                              Property, plant and equipment                      3, 21    1,204,751.33   1,401,700.99
                                              Goodwill                                           5, 22    4,721,141.78   4,719,192.28
                                              Other intangible assets                         5, 6, 23    3,507,564.64     960,341.77
                                              Investments in associates                          7, 24      510,154.30           0.00
                                              Other financial assets                             7, 25      184,178.23     183,902.49
                                              Other receivables and other assets               11, 29       125,786.95      87,661.89
                                              Deferred tax assets                              19, 26       683,271.20   1,874,924.20
                                                                                                         10,936,848.43   9,227,723.62
                                            Current assets
                                              Inventories                                       9, 27       147,735.22     11,432.48
                                              Trade receivables                                10, 28    14,777,505.53 14,755,525.61
                                              Other receivables and other assets               11, 29     1,242,882.19 1,381,742.40
                                              Cash and cash equivalents                        12, 30     4,345,280.20 2,540,771.75
                                                                                                         20,513,403.14 18,689,472.24
                                                                                                         31,450,251.57 27,917,195.86




92
Equity and liabilities                                  Notes         31.12.2003     31.12.2002
                                                                            EUR            EUR


Equity
  Equity attributable to equity holders of the parent
     Share capital                                            31    4,834,789.00 3,785,143.00
     Reserves                                                 31    5,446,985.64 4,408,642.67
     Retained earnings                                              1,731,178.51 2,854,265.06
  Minority interest                                                   687,292.30          0.00
                                                                   12,700,245.45 11,048,050.73

Non-current liabilities
  Financial liabilities                                 13,   33       46,926.14           0.00
  Other liabilities                                     13,   35       40,786.71      46,163.23
  Provisions for post-employment benefits               15,   32    1,892,606.84   1,595,457.73
  Deferred tax liabilities                              19,   26      332,246.34     305,029.21
  Other provisions                                      14,   37       62,600.00           0.00
                                                                    2,370,166.03   1,946,650.17

Current liabilities
  Financial liabilities                                 13,   33    2,900,150.19 3,375,175.71
  Trade payables                                        13,   34    5,297,856.63 5,087,038.09
  Other liabilities                                     13,   35    7,631,273.87 6,353,234.50
  Tax provisions                                        19,   36        3,311.36    107,046.66
  Other provisions                                      14,   37      547,248.04          0.00
                                                                   16,379,840.09 14,922,494.96
                                                                   31,450,251.57 27,917,195.86




                                                                                                  93
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            Consolidated income statement for the operating year ended 2003


                                                                                                 Notes             2003           2002
                                                                                                                   EUR             EUR


                                             1.   Net sales                                  16, 38, 50    60,099,106.10 58,970,955.83
                                             2.   Changes in work in progress                                 -189,950.83          0.00
                                             3.   Other own work capitalised                                 1,055,943,75    450,807.30
                                             4.   Other operating income                            39         825,612.95    529,303.54
                                             5.   Material and production costs                 17, 40    -42,036,033.21 -43,029,726.22
                                             6.   Employee benefits costs                           41    -10,918,489.04 -10,446,670.19
                                             7.   Depreciation and amortisation expense             42     -2,824,229.32 -1,839,102.12
                                             8.   Other operating expenses                      43, 50      -5,830,119.41 -4,570,149.21
                                             9.   Operating result                                             181,840.99     65,418.93
                                            10.   Financial result                                  44        -157,132.02   -138,738.08
                                            11.   Share of profit of associates                     24         402,016.44          0.00
                                            12.   Profit/loss before taxes                                     426,725.41    -73,319.15
                                            13.   Income taxes                                  19, 45     -2,378,726.55    -384,039.13
                                            14.   Loss for the period                                      -1,952,001.14    -457,358.28




                                                                                                                   2003           2002
                                                                                                                    EUR            EUR


                                            Loss for the period attributable to:
                                             Equity holders of the parent                                  -2,087,241.02   -457,358.28
                                             Minority interest                                                135,239.88          0.00
                                                                                                           -1,952,001.14   -457,358.28

                                            Earnings per share                                   (52)             -0.52           -0.13




94
Consolidated cash flow statement for the operating year ended 2003


                                                        Notes           2003            2002
                                                                         EUR             EUR


Cash flow from operating activities                       46
  Profit / loss before taxes                                      426,725.41      -73,319.15
  Adjustments for
  + Depreciation                                                2,824,229.32    1,839,102.12
  + Financial result                                              157,132.02      138,738.08
  - Share of profit of associates                                -402,316.44            0.00
  +/-Gain/loss on disposal of property, plant and
     equipment and other intangible assets                           -897.39       45,105.76
  +/-Changes in provisions for
     post-employment benefits                                      111,108.40     262,651.47
  +/-Changes in inventories                                        177,662.74     143,269.11
  +/-Changes in receivables                                      1,832,633.43       48,015.91
  +/-Changes in payables                                        -2,281,206.56    -144,013.87
  +/-Currency translation differences                               23,485.67      -11,013.57
                                                                 2,868,556.60   2,248,535.86
- Interest paid                                           44      -157,132.02    -138,738.08
- Taxes on income paid                                            -648,078.85    -803,119.59
  Net cash flow from operating activities                        2,063,345.73   1,306,678.19

Cash flow from investing activities                       47
- Acquisition of subsidiaries                                     609,794.62     -729,152.65
- Cash outflow for investments in property, plant and
  equipment and other intangible assets                         -1,369,660.50    -959,875.68
- Cash outflow for investments in other
  financial assets                                                      -6.30           0.00
+ Cash inflow from the disposal of property, plant
  and equipment and other intangible assets                        21,860.04        26,383.14
  Net cash flow from investing activities                        -738,012.14    -1,662,645.19

Cash flow from financing activities                       48
+ Proceeds from issue of ordinary shares                          992,547.27            0.00
+/-Cash inflow / outflow from financial liabilities              -513,372.41      182,911.58
   Net cash flow from financing activities                        479,174.86      182,911.58

Increase / decrease in cash and cash equivalents          49    1,804,508.45     -173,055.42

  Cash and cash equivalents at beginning of year                2,540,771.75    2,713,827.17
+ Increase / decrease                                           1,804,508.45     -173,055.42
  Cash and cash equivalents at end of year                      4,345,280.20    2,540,771.75




                                                                                                95
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            Consolidated statement of changes in equity




                                            Balance at January 1, 2002

                                            Fair value adjustments of securities
                                            Currency translation differences
                                            Net expense recognised directly in equity
                                            Loss for the period
                                            Total result for the period
                                            Issue of share capital in kind
                                            Transaction costs related to issue of share capital

                                            Balance at December 31, 2002

                                            Fair value adjustments of securities
                                            Currency translation differences
                                            Revaluation of assets
                                            Net income recognised directly in equity
                                            Loss for the period
                                            Total result for the period
                                            Issue of share capital in kind
                                            Transaction costs related to issue of share capital
                                            Transfer to cover losses
                                            Initial consolidation of subsidiaries

                                            Balance at December 31, 2003




96
                          Attributable to equity holders of the parent                    Minority interest           Total
                                                                                                                     equity
Notes   Share capital        Share-            Other          Retained            Total                               Total
                           premium          reserves          earnings
                 EUR            EUR               EUR              EUR             EUR                EUR              EUR


        3,445,052.00    3,805,401.96      -284,935.03     3,311,623.34    10,277,142.27               0.00    10,277,142.27

               0.00            0.00          4,683.23             0.00         4,683.23               0.00         4,683.23
               0.00            0.00         -8,079.10             0.00        -8,079.10               0.00        -8,079.10
               0.00            0.00         -3,395.87             0.00        -3,395.87               0.00        -3,395.87
               0.00            0.00              0.00      -457,358.28      -457,358.28               0.00      -457,358.28
               0.00            0.00         -3,395.87      -457,358.28      -460,754.15               0.00      -460,754.15
         340,091.00      921,646.61              0.00             0.00     1,261,737.61               0.00     1,261,737.61
               0.00      -30,075.00              0.00             0.00       -30,075.00               0.00       -30,075.00

  31    3,785,143.00    4,696,973.57      -288,330.90     2,854,265.06    11,048,050.73               0.00    11,048,050.73

                0.00            0.00           269.44              0.00          269.44             0.00             269.44
                0.00            0.00       -48,653.41              0.00      -48,653.41             0.00         -48,653.41
                0.00            0.00       110,262.00              0.00      110,262.00             0.00         110,262.00
                0.00            0.00        61,878.03              0.00       61,878.03             0.00          61,878.03
                0.00            0.00             0.00     -2,087,241.02   -2,087,241.02       135,239.88      -1,952,001.14
                0.00            0.00        61,878.03     -2,087,241.02   -2,025,362.99       135,239.88      -1,890,123.11
        1,049,646.00    2,060,095.14             0.00              0.00    3,109,741.14             0.00       3,109,741.14
                0.00     -119,475.73             0.00              0.00     -119,475.73             0.00        -119,475.73
                0.00     -964,154.47             0.00        964,154.47            0.00             0.00               0.00
                0.00            0.00             0.00              0.00            0.00       552,052.42         552,052.42

  31    4,834,789.00    5,673,438.51      -226,452.87     1,731,178.51    12,012,953.15       687,292.30      12,700,245.45




                                                                                                                              97
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            Consolidated notes for the operating year 2003

                                            The company
                                            BRAIN FORCE SOFTWARE AG, Vienna, operates internationally in the design of concepts for
                                            the strategic integration of hardware and software systems. The company’s head office is located
                                            at Gumpendorfer Straße 83, 1060 Vienna, Austria.

                                            Accounting principles

                                            (1) Basis of preparation
                                            The Consolidated Financial Statements at December 31, 2003 were compiled in accordance
                                            with International Financial Reporting Standards (IFRS) published by the International Accoun-
                                            ting Standards Board (IASB). The consolidated financial statements were compiled in keeping
                                            with the principle of historical cost, with the exception of available-for-sale securities, which are
                                            measured at fair value on the balance sheet date.
                                                The preparation of the consolidated financial statements in accordance with generally accep-
                                            ted accounting principles requires the use of estimates and assumptions, which influence the
                                            amount and presentation of assets and liabilities in the balance sheet, disclosed contingent as-
                                            sets and liabilities at the balance sheet date, and incomes and expenses recorded during the re-
                                            porting period. Although these estimates are made by the Board of Management to the best of
                                            their knowledge and are based on current transactions, actual values may eventually differ from
                                            the estimates.
                                                The group has applied IAS 1 (revised in 2003) early. Other International Accounting Stan-
                                            dards revised in the course of the Improvements Project have not been applied. The changes
                                            have no material effect on the net worth position, financial and earnings situation of the com-
                                            pany. Furthermore, with regard to naming items in the balance sheet, income statement, cash
                                            flow statement and in the statement of changes in shareholders’ equity, reference was made to
                                            the German version of IFRS accepted by the European Commission in its regulation of Septem-
                                            ber 29, 2003 and published by the European Union. For this reason, some items have been
                                            renamed and reclassifications made in the balance sheet, income and cash flow statements and
                                            in the statement of changes in equity. The comparative figures were adjusted accordingly.

                                            (2) Principles of consolidation
                                            Subsidiaries, i.e. those firms in which the group holds more than half of the voting rights either
                                            directly or indirectly, or is in another way able to exercise control, were consolidated. Subsidi-
                                            aries are consolidated from the day on which the group actually assumes control and ends on
                                            the day control ceases to exist.
                                                The financial statements included in consolidation were all drawn up with a uniform consoli-
                                            dated balance sheet date at December 31, 2003 and all adhere to IFRS principles.




98
Consolidated group
The subsidiaries TEMA Studio di Informatica S.p.A., Milan, Italy, and MMI Consulting AG, Zurich,
Switzerland were renamed Brain Force Software S.p.A. and BFS Brain Force Software AG res-
pectively in 2003. beusen Solutions GmbH, Berlin, Germany, acquired on November 1, 2002
was merged with Brain Force Software GmbH, Unterschleißheim, Munich, Germany.
    A 54.05 % share in NSE Software AG, Munich, Germany, was acquired on April 30, 2003 and
a further 23 % purchased on July 22, 2003. This company was subsequently renamed Brain
Force Financial Solutions AG (see note 51).

   The consolidated financial statements comprise BRAIN FORCE SOFTWARE AG, Vienna,
and all the subsidiaries and associates listed below:


 Company                                                                                Share %

Brain Force Software GmbH, Unterschleißheim, Munich, Germany                                 100
Brain Force Software S.p.A., Milan, Italy                                                    100
TEMA Consulting S.r.l., Milan, Italy           1)
                                                                                             100
Brain Force Software B.V., Amsterdam, Netherlands                                            100
BFS Brain Force Software AG, Zurich, Switzerland                                             100
Brain Force Financial Solutions AG, Munich, Germany                                        77.05
Brain Force Software Ltd., Cambridge, UK                                                     100
SBT s.a., Prague, Czech Republic               2)
                                                                                              85
SBT s.r.l., Bratislava, Slovakia          3)
                                                                                             100
NSE Capital Venture GmbH, Munich, Germany                      4)
                                                                                             100
SFP Software für FinanzPartner GmbH, Munich, Germany                           4)
                                                                                              49

1)
     The investment is held by Brain Force Software S.p.A.
2)
     The investment is indirectly held by Brain Force Financial Solutions AG
3)
     The investment is held by SBT s.a.
4)
     The investment is held by Brain Force Financial Solutions AG


Methods of consolidation
Capital consolidation was carried out in accordance with the principles of IAS 22 (revised 1998).
The historical costs of the investments in the consolidated companies plus direct acquisition
costs are offset against the share in net assets based on the fair values of the assets and liabili-
ties of these companies at the time of acquisition or transfer of control. The positive difference
between the carrying amount of the investments in subsidiaries and the corresponding sharehol-
ders’ equity is recognised as goodwill. A negative difference is recognised as negative goodwill in
accordance with IAS 22 (revised 1998) and is treated in accordance with the provisions of IAS
22.
    Intragroup receivables and liabilities, income, expenses and any interim results are netted.




                                                                                                       99
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            Currency translation
                                            Net sales are denominated in euros and Swiss francs as well as in Czech and Slovak crowns.
                                            Net sales in these currencies account for around 2 % of consolidated net sales. The exchange
                                            risks are therefore of minor importance to the group. Financial statements in foreign currencies
                                            were translated at the rates prevailing on the balance sheet date. Due to the immaterial effects
                                            on earnings due to exchange rate fluctuations, average rates were not applied in the translation
                                            of the income statement.

                                            The following exchange rates were used:


                                                                                             Rate at balance sheet       Rate at balance sheet
                                                                                                         date 2003                   date 2003
                                            Currency                                                        1 EUR                       1 EUR

                                             CHF       Swiss francs                                       1.5600                      1.4500
                                             GBP       British pounds                                     0.7050                           -
                                             CZK       Czech crowns                                      32.5500                           -
                                             SKK       Slovak crowns                                     41.2000                           -


                                                The differences resulting from the translation of financial statements were recognised in
                                            shareholders’ equity, not affecting net income.
                                                Exchange rate differences resulting from the translation of transactions and balance sheet
                                            items in foreign currencies are recognised at the rate prevailing at the time of the transaction or
                                            measurement.



                                            (3) Property, plant and equipment
                                            Property, plant and equipment is stated at historical cost less scheduled depreciation. PP&E is
                                            depreciated on a straight-line basis over the expected useful life of the assets.

                                            Scheduled depreciation is based on the following useful lives, uniform for the group:




                                            Building investments in non-owned facilities                                              10   years
                                            Information and monitoring systems                                                         5   years
                                            IT equipment                                                                          3 to 5   years
                                            Office machines                                                                       4 to 5   years
                                            Other office equipment                                                               5 to 10   years

                                            Maintenance expenses
                                            Maintenance expenses are recognised in the income statement in the period in which they are
                                            incurred.




100
(4) Leased assets
Assets covered by leasing contracts are treated as operating leases and are allocated to the
lessor. Lease payments are recorded as expenses.

(5) Intangible assets
Purchased intangible assets are recognised at cost and amortised on a straight-line basis over
their estimated useful lives. The useful lives for software are usually 3 to 5 years, for licenses
and distribution rights 3 years, and 10 years for registered trademarks.
    Goodwill arising from capital consolidation is amortised on a straight-line basis according to
the estimated useful life. The useful life is 6-10 years. Fully amortised goodwill is recognised as
a disposal.

(6) Research and development
Expenditure on research is recognised as an expense. Development costs, both for bought-in
goods and services and also for internal development costs arising from development projects
are recognised as assets resulting from development (intangible assets) in accordance with IAS
38 to the extent that such expenditure is expected to generate future economic benefits. Devel-
opment costs previously recognised as an expense are not recognised as an asset in a subse-
quent period.
     Capitalised development costs are amortised on a straight-line basis over the expected use-
ful life of each product, currently 3 to 5 years.

(7) Financial assets
Investments in associates, i.e. companies in which the group holds 20% or more of the voting
power, directly or indirectly, or in another way can exercise a significant influence in the financial
and operating policies of the investee, are accounted for using the equity method. Under the
equity method, investments are initially recorded at cost and adjusted thereafter for the post
acquisition change in the investor’s share of net assets of the investee. The income statement
reflects the investor’s share of the results of operations of the investee.
    Other financial assets include securities held for an undetermined period that may be sold for
liquidity requirements or due to changes in interest rates. They are classified as "available-for-
sale”.
    All purchases or sales are recognised at the date of settlement; acquisition costs include
transaction costs. The financial assets available for sale are subsequently measured at fair
value, with non-realised changes in value in equity being recognised immediately within other
reserves.




                                                                                                         101
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            (8) Impairment of non-current assets
                                            Property, plant and equipment, goodwill and other intangible assets are examined to assess
                                            whether events and altered circumstances could indicate that the carrying amount is no longer
                                            recoverable. If an asset is impaired, the carrying amount is reduced to its recoverable amount.
                                            The recoverable amount is the higher of an asset’s net selling price and its value in use. In or-
                                            der to assess impairment, assets are grouped in cash-generating units, i.e. in the smallest identi-
                                            fiable group of assets that generates cash inflows independent of other assets or groups of
                                            assets.

                                            (9) Inventories
                                            Inventories are recognised at the lower of cost or net realisable value in accordance with IAS 2.

                                            (10) Construction contracts
                                            The profit from construction contract work in progress is recognised as soon as it can be reliably
                                            estimated. The group uses the percentage of completion method to determine the appropriate
                                            amount in a period. The stage of completion is shown as the number of hours worked up to the
                                            balance sheet date in proportion to all the hours allocated to the project. Losses are recognised
                                            at the earliest possible date.

                                            (11) Receivables and other assets
                                            Receivables and other assets are recognised at cost less any writedowns required. Receivables
                                            in foreign currencies are measured at the exchange rate prevailing at December 31, 2003.

                                            (12) Cash and cash equivalents
                                            Cash and cash equivalents are measured at fair values. Deposits held in foreign currencies are
                                            measured at the translation rate prevailing at December 31, 2003.

                                            (13) Liabilities
                                            Liabilities are recognised at cost or at the amount repayable, if different. Liabilities in foreign cur-
                                            rencies are measured at the exchange rate prevailing on December 31, 2003.

                                            (14) Provisions
                                            Provisions are measured if the group has a present legal or constructive obligation as a result of
                                            a past event and it is probable that an outflow of resources will be required to settle this obliga-
                                            tion, and that the amount can be reliably estimated.




102
(15) Provisions for post-employment benefits
Provisions for post-employment benefit obligations include long-term obligations calculated using
actuarial methods in accordance with IAS 19 (revised 2000). The present value of the defined
benefit obligation (= DBO) is calculated on the basis of the length of service, the expected deve-
lopment of salary and (in the case of pensions) the pension adjustment. The expense for the
period to be recognised includes the service cost, the interest cost, income or expense from the
amortisation of past service costs and actuarial gains and losses.
    The calculation of defined benefit obligations is based on actuarial assumptions, particularly
with regard to the interest rate applicable for discounting, but also regarding the rate of increase
for salaries and pensions, the pensionable age and probabilities concerning labour turnover and
the probability of occurrence.
    The interest rate applied in calculating the present value of defined benefit obligations is
based on the average market yield on government bonds with the same term to maturity.
    Estimated future salary increases are derived from the average salary development of the
past years, which is considered realistic for the future.
    The deductions for labour turnover and for the probability of occurrence are based on figures
for comparable prior periods.
    The pensionable age used in the calculation of post-employment benefit obligations is de-
rived from the actual commitments made; severance payments are calculated on the basis of
average pensionable age.
    Severance payments relate to obligations under Austrian and Italian law.
    Severance payments under Austrian labour law are one-off employee benefits, which have to
be paid on an enterprise’s decision to terminate an employee’s employment and when the
employee goes into regular retirement. The amount of the benefit depends on the number of
years of service and the remuneration paid.


       Years of     No. of months
        service      remuneration


             3                  2
             5                  3
            10                  4
            15                  6
            20                  9
            25                 12




                                                                                                       103
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                                Due to changes in the law, defined contribution plans are applicable to employees who have
                                            joined the company since 2003. Starting from the second month of the employment relationship,
                                            the employer pays a regular contribution of 1.53% of monthly remuneration and any additional
                                            payments into a "Mitarbeitervorsorgekasse” (employee pension fund).
                                                Severance payments under Italian law (TFR) are one-off employee benefits, which have to
                                            be paid as soon as an employee leaves an enterprise. The amount of the compensation is
                                            based on the number of monthly salaries (indexed), whereby a monthly salary (annual salary
                                            divided by 13.5) is earned per service year.
                                                The employee can receive an advance of up to 70 % of the entitlement under certain condi-
                                            tions, e.g. to purchase a home or medical supplies.

                                            (16) Net sales
                                            Revenue is recognised upon delivery and customer acceptance, discounts and rebates are de-
                                            ducted. Sales relating to the rendering of services are measured using the percentage of com-
                                            pletion method in accordance with IAS 18.

                                            (17) Material and production costs
                                            Payroll costs for project workers are recognised as cost of sales to present the earnings situa-
                                            tion fairly.

                                            (18) Borrowing costs
                                            Borrowing costs are recognised in the income statement in the period in which they are incurred.

                                            (19) Income taxes
                                            Income taxes are recognised according to the source of tax and are based on the corresponding
                                            profit of the financial year. Deferred taxes are taken into consideration due to the temporal diffe-
                                            rences arising from the recognition of income and expenses in IAS and tax accounts.
                                                Deferred taxes are calculated on the basis of all temporary differences arising from tax
                                            values and IAS values of all assets and liabilities using the liability method and applying the rele-
                                            vant national tax rates (24 to approx. 42 %). Deferred tax liabilities are part of provisions for
                                            taxes. Deferred tax assets are recognised under other long-term assets.
                                                The most important temporary differences result from the capitalisation of development costs,
                                            the amortisation of goodwill and other assets, receivables, the tax value of provisions, construc-
                                            tion contracts, provisions for post-employment benefit obligations, and for loss carryforwards.
                                            Deferred taxes relating to tax-loss carryforwards and deductible temporary differences are recog-
                                            nised to the extent that it is probable that future taxable profit will be available against which the
                                            temporary differences can be utilised. The company bases its probability estimates on the plan
                                            data available.




104
(20) Financial risk management

Liquidity risk
Risk management is carried out centrally under policies approved by the Executive Board.
Particular attention is paid to ensuring that there are sufficient cash and cash equivalents or cre-
dit lines available with regard to the liquidity risk. As part of established management mechan-
isms, monthly rolling financial planning is monitored at management level. Statistical assess-
ments of funds available at varying points in time are used on which to base funding decisions.

Foreign exchange risk
The group is not exposed to significant foreign currency risks as part of its operating activities.
Over 95% of its sales are generated within the euro zone, the rest in Switzerland, the Czech
Republic and Slovakia.
    3.0% of foreign exchange exposure results from trade receivables results from receivables
not denominated in euros, and 2.8% from trade payables not denominated in euros.

Interest rate risk
The group’s income and operating cash flow are not significantly affected by changes in interest
rates. There are no significant interest-bearing assets. Financial liabilities are mainly short-term,
partly at variable, partly at fixed-interest rates.

Credit risk
As far as the risk of default is concerned, the group is not exposed to significant risks relating to
individual customers. Transactions are only concluded after the creditworthiness of the business
associate has been checked. Receivables are not insured.
    The group does not use derivative instruments.




                                                                                                        105
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            Notes on balance sheet items

                                            (21) Property, plant and equipment
                                            Property, plant and equipment have changed as follows:

                                                                                            Building invest-   Office machines,             Total
                                                                                             ments in non-        IT equipment,
                                                                                            owned facilities         other office
                                                                                                                      equipment

                                                                                                       EUR                 EUR              EUR


                  Acquisition or production costs 1.1.2003                                   667,227.21        3,364,959.29         4,032,186.50
                  Currency translation differences                                              -258.35           -9,512.71            -9,771.06
                  Additions                                                                   16,960.72          170,053.44           187,014.16
                  Additions due to changes in consolidated group                               9,476.67          388,805.65           398,282.32
                  Disposals                                                                   -8,319.44         -281,767.54          -290,086.98
                  Acquisition or production costs 31.12.2003                                 685,086.81        3,632,538.13         4,317,624.94
                  Accumulated depreciation 1.1.2003                                          345,922.43        2,284,563.08         2,630,485.51
                  Currency translation differences                                               -48.57           -6,223.51            -6,272.08
                  Depreciation charge 2003                                                   105,509.66          652,522.52           758,032.18
                  Disposals                                                                   -7,748.13         -261,623.87          -269,372.00
                  Accumulated depreciation 31.12.2003                                        443,635.39        2,669,238.22         3,112,873.61
                  Carrying amounts at 31.12.2003                                             241,451.42          963,299.91         1,204,751.33


                                                                                            Building invest-   Office machines,             Total
                                                                                             ments in non-        IT equipment,
                                                                                            owned facilities         other office
                                                                                                                      equipment

                                                                                                       EUR                 EUR              EUR


                  Acquisition or production costs 1.1.2002                                   617,450.73        2,944,940.35         3,562,391.08
                  Currency translation differences                                                 0.00            7,792.60             7,792.60
                  Additions                                                                   49,776.48          154,914.22           204,690.70
                  Additions due to changes in consolidated group                                   0.00          463,968.73           463,968.73
                  Disposals                                                                        0.00         -206,656.61          -206,656.61
                  Acquisition or production costs 31.12.2002                                 667,227.21        3,364,959.29         4,032,186.50
                  Accumulated depreciation 1.1.2002                                          243,163.60        1,695,639.75         1,938,803.35
                  Currency translation differences                                                 0.00            3,090.25             3,090.25
                  Depreciation charge 2002                                                   102,758.83          480,617.06           583,375.89
                  Additions due to changes in consolidated group                                   0.00          241,097.52           241,097.52
                  Disposals                                                                        0.00         -135,881.50          -135,881.50
                  Accumulated depreciation 31.12.2002                                        345,922.43        2,284,563.08         2,630,485.51
                  Carrying amounts at 31.12.2002                                             321,304.78        1,080,396.21         1,401,700.99




106
                 (22) Goodwill
                 Goodwill has changed as follows:


                                                                                              2003              2002
                                                                                              EUR               EUR


                  Acquisition costs 1.1.                                            10,152,042.74       8,449,126.60
                  Addition                                                           1,265,606.60       1,702,916.14
                  Acquisition costs 31.12.                                          11,417,649.34      10,152,042.74
                  Accumulated amortisation 1.1.                                      5,432,850.46       4,389,582.56
                  Amortisation                                                       1,263,657.10       1,043,267.90
                  Accumulated amortisation 31.12.                                    6,696,507.56       5,432,850.46
                  Carrying amount                                                    4,721,141.78       4,719,192.28



                    The addition in the business year relates to the acquisition of 77.05 % of the shares in NSE
                 Software AG, Munich, Germany (see note 51). The addition from the previous year relates to the
                 acquisition of beusen Solutions GmbH, Berlin, Germany. The useful life for amortisation was
                 assumed at 10 years.

                 (23) Other intangible assets
                 Other intangible assets have changed as follows:


                                                                     Development          Software,             Total
                                                                            costs             rights

                                                                            EUR               EUR               EUR


Acquisition or production costs 1.1.2003                              777,218.23      663,741.19        1.440.959.42
Currency translation differences                                            0.00         -299.97             -299.97
Additions                                                           1,061,754.75      120,891.59        1.182.646.34
Additions due to changes in consolidated group                      1,763,743.75      402,229.74        2.165.973.49
Disposals                                                                   0.00         -769.27             -769.27
Acquisition or production costs 31.12.2003                          3,602,716.73    1,185,793.28        4.788.510.01
Accumulated amortisation 1.1.2003                                     168,542.93      312,074.72          480.617.65
Currency translation differences                                            0.00       -1,678.09           -1.678.09
Amortisation charge 2003                                              338,758.67      463,781.37          802.540.04
Disposals                                                                   0.00         -534.23             -534.23
Accumulated amortisation 31.12.2003                                   507,301.60      773,643.77        1.280.945.37
Carrying amounts at 31.12.2003                                      3,095,415.13      412,149.51        3.507.564.64




                                                                                                                        107
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                                                                               Development         Software,            Total
                                                                                                      costs            rights

                                                                                                      EUR              EUR              EUR


                  Acquisition or production costs 1.1.2002                                   1,045,849.25       286,183.68      1,332,032.93
                  Currency translation differences                                                   0.00           399.97            399.97
                  Additions                                                                    450,807.31       303,960.67        754,767.98
                  Additions due to changes in consolidated group                                     0.00        77,414.68         77,414.68
                  Disposals                                                                   -719,438.33        -4,217.81       -723,656.14
                  Acquisition or production costs 31.12.2002                                   777,218.23       663,741.19      1,440,959.42
                  Accumulated amortisation 1.1.2002                                            756,191.36       178,477.41        934,668.77
                  Currency translation differences                                                   0.00           138.33             13.33
                  Amortisation charge 2002                                                     131,789.90        80,668.43        212,458.33
                  Additions due to changes in consolidated group                                     0.00        56,294.57         56,294.57
                  Disposals                                                                   -719,438.33        -3,504.02       -722,942.35
                  Accumulated amortisation 31.12.2002                                          168,542.93       312,074.72        480,617.65
                  Carrying amounts at 31.12.2002                                               608,675.30       351,666.47        960,341.77



                                            (24) Investments in associates
                                            Financial assets valued at equity relate to the 49% investment held in SFP Software für Finanz-
                                            Partner GmbH, Munich, Germany by Brain Force Financial Solutions AG, Munich, Germany.

                                            The carrying amount of the investment has changed as follows:


                                                                                                                                        EUR


                                            Carrying amount at 1.1.2003                                                                 0.00
                                            Addition due to acquisition                                                           277,810.23
                                            Share of profit before tax                                                            402,016.44
                                            Share of tax                                                                         -169,672.37
                                            Carrying amount at 31.12.2003                                                         510,154.30




108
                  (25) Other financial assets
                  Other financial assets mainly consist of securities (shares in investment funds) and serve under
                  Austrian tax law to cover provisions for severance payments and pensions. These securities are
                  classified as available-for-sale and are carried at fair value (stock exchange rate at balance
                  sheet date).

                                                                                                    2003             2002
                                                                                                    EUR              EUR


                   Carrying amount at 1.1.                                                  183,902.49        179,219.26
                   Additions                                                                      6.30              0.00
                   Adjustment to fair value                                                     269.44          4,683.23
                   Carrying amount at 31.12.                                                184,178.23        183,902.49



                  (26) Deferred taxes
                  Deferred tax assets are recognised under other non-current assets. Deferred tax liabilities are
                  recognised under non-current liabilities.

                  Deferred taxes are calculated as follows:

                                         1.01.2003         Currency     Addition due to         Change in       31.12.2003
                                                         translation        acquisition   income statement

                                             EUR              EUR                 EUR                EUR             EUR


Deferred tax assets
Goodwill                              371,351.68              0.00               0.00       -324,823.68        46,528.00
Provisions for post-employment
benefits                                     0.00            0.00              0.00          106,132.65        106,132.65
Tax-loss carryforwards               1,683,066.74      -11,926.77      1,131,897.97       -1,111,523.74      1,691,514.20
Other                                    1,911.91            0.00              0.00            -1,911.91             0.00
                                     2,056,330.33      -11,926.77      1,131,897.97       -1,332,126.68      1,844,174.85
Deferred tax liabilities
Development costs                     234,128.02              0.00      769,264.51          230,904.47       1,234,297.00
Other non-current assets               96,611.18              0.00            0.00           10,759.00         107,370.18
Receivables                            40,117.33              0.00       91,419.44           19,946.04         151,482.81
Valuation reserve for tax purposes     64,350.00              0.00            0.00          -64,350.00               0.00
Provisions for post-employment
benefits                               35,913.51              0.00            0.00          -35,913.51               0.00
Other provisions                       15,315.30              0.00       11,393.26          -26,708.56               0.00
                                      486,435.34              0.00      872,077.21          134,637.44       1,493,149.99




                                                                                                                             109
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                                                                   1.01.2002          Currency    Change in income      31.12.2002
                                                                                                    translation          statement

                                                                                       EUR               EUR                 EUR             EUR


                  Deferred tax assets
                  Goodwill                                                      671,934.78             0.00         -300,583.10        371,351.68
                  Tax-loss carryforwards                                        943,699.82         3,504.98          735,861.94      1,683,066.74
                  Other                                                           7,376.44             0.00           -5,464.53          1,911.91
                                                                              1,623,011.04         3,504.98          429,814.31      2,056,330.33

                  Deferred tax liabilities
                  Development costs                                             108,992.87             0.00          125,135.15       234,128.02
                  Other non-current assets                                       73,127.76           134.87            23,348.55       96,611.18
                  Receivables                                                    51,643.81           395.76           -11,922.24       40,117.33
                  Valuation reserve for tax purposes                                  0.00             0.00            64,350.00       64,350.00
                  Provisions for post-employment
                  benefits                                                       17,650.38             0.00           18,263.13        35,913.51
                  Other provisions                                               27,948.49           491.51          -13,124.70        15,315.30
                                                                                279,363.31         1,022.14          206,049.89       486,435.34


                                                Deferred tax assets and deferred tax liabilities are netted and shown in the balance sheet as
                                            assets or liabilities, provided the company has an enforceable right to offset actual tax rebates
                                            against tax liabilities, and the deferred tax assets relate to income taxes levied by the same
                                            financial authorities.

                                            The following amounts are shown in the balance sheet after netting:

                                                                                                                             2003            2002
                                                                                                                             EUR             EUR


                                            Deferred tax assets                                                     683,271.20       1,874,924.20
                                            Deferred tax liabilities                                               -332,246.34        -305,029.21
                                            Carrying amount at 31.12.                                               351,024.86       1,569,894.99


                                                 Deferred tax assets for loss carryforwards are shown in the amount probably to be realised.
                                            The company’s estimate is based on the plan period from 2004 to 2006. Deferred taxes are capi-
                                            talised only in the amount realisable in the following three years.




110
   No deferred tax assets are recognised for unused tax losses that can be carried forward for
an unlimited period, nor for deductible differences:


                                                                              Basis       Deferred tax
                                                                                                assets

                                                                              EUR                EUR


31.12.2003

Tax-loss carryforwards                                             64,775,984.08      26,047,549.00
Deductible temporary differences                                    7,566,832.15       2,572,723.00
                                                                   72,342,816.23      28,620,272.00

31.12.2002

Tax-loss carryforwards                                                817,683.12         278,060.00
Deductible temporary differences                                    8,502,647.29       2,890,900.08
                                                                    9,320,330.41       3,168,960.08



    The amount of deductible differences relates to the item goodwill. The scheduled amortisa-
tion of goodwill has no effect on tax, as the investment is not amortised in the individual tax bal-
ance sheet. By contrast, a writedown or loss on disposal does affect tax, provided the amount of
the writedown required is not due to the company’s dividend policy. The tax claims resulting from
writedowns or losses on disposals are to be allocated on a systematic basis over seven years.
    The Austrian government is working on a comprehensive tax reform. The corporate income
tax rate is to be lowered from 34% to 25% in the course of this reform. If the reform goes
through, deferred tax assets will decline by EUR 82 thousand. The extent of deferred tax assets
not recognised would fall by EUR 1,199 thousand.

(27) Inventories
Inventories are measured at acquisition or production cost. A writedown to the net realisable
value was not necessary in the reporting periods.

Inventories comprise as follows:

                                                                         31.12.2003        31.12.2002
                                                                              EUR                EUR


Work in progress                                                      146,511.47              0.00
Goods for resale                                                        1,223.75         11,432.48
                                                                      147,735.22         11,432.48




                                                                                                         111
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            (28) Trade receivables

                                                                                                                    31.12.2003        31.12.2002
                                                                                                                         EUR               EUR


                                            Gross                                                              12,562,572.64     12,461,411.31
                                            Less allowance for doubtful accounts                                 -130,584.54       -102,048.82
                                            Trade receivables for services not yet invoiced and
                                            service contracts                                                   2,309,265.55      2,396,163.12
                                            Receivables from associates                                            36,251.98              0.00
                                                                                                               14,777,505.53     14,755,525.61



                                               Adequate writedowns were made to account for the estimated risk of default on receivables.

                                            (29) Other receivables and other assets
                                            Other receivables and other assets comprise the following items:

                                                                                                                    31.12.2003        31.12.2002
                                                                                                                         EUR               EUR


                                            Non-current:
                                             Insurance cover for provisions                                       24,484.00         20,623.09
                                             Deposits                                                             65,066.19         67,038.80
                                             Receivables from employees                                           26,420.05              0.00
                                             Other                                                                 9,816.71              0.00
                                                                                                                 125,786.95         87,661.89

                                            Current:
                                             Prepayments                                                           37,782.25          4,071.79
                                             Revenue authorities                                                  142,974.90        370,307.35
                                             Receivables from employees                                            44,028.94              0.00
                                             Deposits (short-term)                                                 13,679.61         10,706.02
                                             Maintenance and other prepaid expenses                               826,200.07        879,293.62
                                             Other                                                                178,216.42        117,363.62
                                                                                                                1,242,882.19      1,381,742.40



                                                The fair value of insurance covering pension commitments is considered a plan asset when
                                            calculating the provision for pensions in the balance sheet (see note 32), as long as the insur-
                                            ance is pledged in favour of the employee.




112
(30) Cash and cash equivalents
Cash and cash equivalents comprise the following:
                                                                     31.12.2003        31.12.2002
                                                                           EUR              EUR


Cash in hand                                                        10,536.75          7,571.69
Cash at banks                                                    4,334,743.45      2,533,200.06
                                                                 4,345,280.20      2,540,771.75



(31) Equity

Share capital
Share capital amounts to EUR 4,834,789 and consists of 4,834,789 individual bearer shares with
no nominal value.
    The company’s shares are listed on the Prime Standard Segment on the Frankfurt Stock
Exchange, Germany.
    At the balance sheet date authorised capital is currently EUR 1,277,545 (previous year: EUR
1,382,435).
    In the financial year, shares from authorised capital amounting to EUR 1,049,646 were sub-
scribed.
The development of share capital and reserves is shown in the table below:

                                                                   Share capital        Reserves
                                                                          EUR               EUR


Balance at 1.1.2003                                              3,785,143.00      4,408,642.67
Capital increase in kind in accordance with resolution of
Management Board of 20.5.2003, authorised on 13.6.2002
and approved by the Supervisory Board on 5.6.2003, registra-
tion in Register of Firms on 6.9.2003                             434,620.00       1,082,203.80
Capital increase in kind in accordance with resolution of
Management Board of 15.9.2003, authorised on 12.6.2003
and approved by the Supervisory Board on 9.10.2003,
registration in Register of Firms on 14.11.2003                    615,026.00        977,891.34
Used to cover losses                                                     0.00       -964,154.47
Other reclassifications within other reserves                            0.00        -57,597.70
Balance at 31.12.2003                                            4,834,789.00      5,446,985.64




                                                                                                    113
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                                The capital increase in kind in May 2003 amounting to 434,620 shares and the capital in-
                                            crease in kind in September 2003 amounting to 190,026 shares was used to settle claims rela-
                                            ting to the purchase price for 77.05 % of the shares in NSE Software AG, Munich, Germany (see
                                            note 51). The remaining 425,000 shares from the capital increase in September were used to
                                            repay a financial liability (see note 53).
                                                The recognition of the change in group reserves to cover losses reflects a measure under
                                            company law. To avoid recognising a balance sheet loss in the individual financial statements of
                                            BRAIN FORCE SOFTWARE AG, appropriated reserves were used accordingly and are thus part
                                            of retained earnings.

                                                                                                                  Share capital         Reserves
                                                                                                                          EUR              EUR


                                            Balance at 1.1.2002                                                 3,445,052.00      3,520,466.93
                                            Capital increase in kind in accordance with resolution of Manage-
                                            ment Board of 29.10.2002, authorised on 13.6.2002 and approved
                                            by the Supervisory Board on 15.11.2002, registration in Register
                                            of Firms on 14.12.2002                                                340,091.00       921,646.61
                                            Other reclassifications within reserves                                       0.00      -33,470.87
                                            Balance at 31.12.2002                                               3,785,143.00      4,408,642.67



                                               Capital increases through contributions in kind were used to settle claims resulting from the
                                            contribution of shares (85%) in beusen Solutions GmbH, Berlin, Germany by previous owners
                                            (see note 51).

                                            Other reserves comprise the following items at the balance sheet date:

                                                                                                                     31.12.2003      31.12.2002
                                                                                                                          EUR              EUR


                                            Fair value reserve of securities                                      -1,107.33         -1,376.77
                                            Revaluation reserve                                                  110,262.00              0.00
                                            Currency translation reserve                                        -335,607.54       -287,014.13
                                                                                                                -226,452.87       -288,390.90

                                               The revaluation reserve has been recorded to reflect fair value adjustments within the
                                            successive purchase of net assets of NSE Software AG (see note 51).




114
(32) Provisions for post-employment benefits
Provisions for post-employment benefits are broken down as follows:

                                                                       31.12.2003       31.12.2002
                                                                            EUR              EUR


Provisions for pensions                                              183,226.00       209,408.52
Provisions for severance payments                                    331,741.02       311,820.04
Provisions for severance payments (TFR)                            1,377,639.82     1,074,229.17
                                                                   1,892,606.84     1,595,457.73



Provisions for pensions
Due to individual arrangements, some employees have been promised an additional pension on
retirement. The size of this pension depends on the defined benefit plan.
     The values recognised for provisions for pensions at the balance sheet dates were computed
by actuaries based on the projected-unit-credit-method and are broken down as follows:

                                                                       31.12.2003       31.12.2002
                                                                            EUR              EUR


Actuarial present value of defined benefit obligation                342,894.00       357,297.00
Fair value of plan assets                                           -133,556.00      -121,336.00
                                                                     209,338.00       235,961.00

Unrecognised past service cost                                        -5,305.00        -7,957.00
Unrecognised actuarial losses                                        -20,807.00       -18,595.48
Liability in the balance sheet                                       183,226.00       209,408.52



   The plan assets pursuant to IAS 19 consist of the insurance cover for the pension commit-
ments pledged in favour of employees, for which a provision was set up for the first time in 2002.
No expected incomes from the plan assets are shown.




                                                                                                     115
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            The expense recorded in the income statement concerning defined benefit obligations com-
                                            prises:

                                                                                                                         2003            2002
                                                                                                                         EUR             EUR


                                            Current service cost                                                   36,344.00       36,685.00
                                            Interest cost                                                          17,636.00       18,527.00
                                            Amortisation of past service cost                                       2,652.00        5,197.00
                                            Effects of plan curtailments/-settlements                             -55,949.52      -17,720.00
                                                                                                                      682.48       42,689.00



                                            The development of the liability recognised in the balance sheet is as follows:

                                                                                                                         2003            2002
                                                                                                                         EUR             EUR


                                            Balance at 1.1.                                                      209,408.52       240,311.46
                                            Additions due to acquisitions                                              0.00        39,678.00
                                            Pension costs for defined benefit obligations                            682.48        42,689.00
                                            Pension settlements                                                   14,387.66             0.00
                                            Pension payments                                                     -41,252.66        -1,213.94
                                            Fair value of plan assets                                                  0.00      -112,056.00
                                            Balance at 31.12.                                                    183,226.00       209,408.52



                                            The principal actuarial assumptions are:

                                                                                                               2003                      2002
                                                                                                               EUR                       EUR


                                            Discount rate                                                   5.75 %                    5.75 %
                                            Future salary increases                                            3%                        3%
                                            Future pension increases                                        1-3%                      1-3%
                                            Pensionable age                                             60 - 62, 65               60 - 62, 65
                                            Mortality table   Austria                       AVÖ 1999-P, employees     AVÖ 1999-P, employees
                                                              Germany                              Heubeck 1998               Heubeck 1998

                                                In addition, fixed contributions to a pension fund are paid to some employees in Austria due
                                            to pension commitments; the payments made by the company are recognised in accordance
                                            with IAS 19 as contributions to defined contribution plans.




116
Total pension costs comprise:


                                                                         2003               2002
                                                                         EUR                EUR


Pensions costs – defined benefit plan                                 682.48       42,689.00
Pensions costs – defined contribution plan                         57,477.84       79,842.60
Capitalisation of premium reserves                                 -4,914.00      -35,156.75
                                                                   53,246.32       87,374.85



Provisions for severance payments (Austria)
The value of provisions for severance payments are computed in the same way as for provi-
sions for pensions:


                                                                    31.12.2003      31.12.2002
    31.12.2003             31.12.2002                                    EUR                EUR


Actuarial present value of defined benefit obligation             402,479.02      393,408.04
Unrecognised actuarial losses                                     -70,738.00      -81,588.00
Liability in the balance sheet                                    331,741.02      311,820.04



The expense recorded in the income statement consists of:

                                                                         2003               2002
                                                                         EUR                EUR


Current service cost                                              78,736.00        86,464.00
Interest cost                                                     21,744.00        21,339.00
Amortisation of actuarial losses                                   4,947.00         4,757.00
Plan settlement                                                   69,204.00        83,374.00
                                                                 174,631.00       195,934.00




                                                                                                   117
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            The development of the liability recognised in the balance sheet is as follows:

                                                                                                                          2003           2002
                                                                                                                          EUR            EUR


                                            Balance at 1.1.                                                         311,820.04    308,387.04
                                            Severance costs                                                         174,631.00    195,934.00
                                            Severance payments                                                     -154,710.02   -192,501.00
                                            Balance at 31.12.                                                       331,741.02    311,820.04



                                            The principal actuarial assumptions are:

                                                                                                               2003                      2002
                                                                                                               EUR                       EUR


                                            Discount rate                                                   5.75
                                                                                                             %                        5.75%
                                            Future salary increases                                          % 3                         3%
                                            Labour turnover                                                 19.9
                                                                                                             %                        19.9%
                                            Probability of occurrence                                        %25                        25%
                                            Pensionable age                                                  60                           60
                                            Mortality table                               AVÖ 1999-P, employees        AVÖ 1999-P, employees



                                            Provisions for severance payments (TFR)
                                            The value of provisions for severance payments (TFR) was computed in the same way as for
                                            provisions for pensions in 2003. The balance of EUR 1,377,639.82 recognised at December 31,
                                            2003 corresponds to the actuarial net present value of the severance payments obligation (defi-
                                            ned benefit obligation). Actuarial gains and losses are therefore recognised in the year in which
                                            they occur.

                                            The expense recorded in the income statement consists of:

                                                                                                                          2003           .2002
                                                                                                                          EUR            EUR


                                            Current service cost                                                   361,533.15     399,236.00
                                            Interest cost                                                           51,026.00      30,608.00
                                            Recognition of actuarial losses                                         55,764.00           0.00
                                                                                                                   468,323.15     429,844.00




118
The development of the liability recognised in the balance sheet is as follows:

                                                                                2003            2002
                                                                                EUR             EUR


Balance at 1.1                                                     1,074,229.17           744,429.76
Severance costs                                                      468,323.15           429,844.00
Severance payments                                                  -164,913.00           -42,247.59
Adjustment to IAS 19                                                       0.00           -57,797.00
Balance 31.12.                                                     1,377,639.32         1,074,229.17



The principal actuarial assumptions are:

                                                                   2003                         2002
                                                                   EUR                          EUR


Discount rate                                                   4.75   %                     4.75   %
Future salary increases                                          3.5   %                      3.5   %
Inflation                                                          2   %                        2   %
Growth rate TFR                                                    3   %                        3   %
Labour turnover                                                 12.5   %                     12.5   %
Probability of occurrence concerning
advances                                                         5%                            5%
Pensionable age                                                   65                            65
Mortality table                                       80 % der ISTAT                80 % der ISTAT
                                                   1992 updated 1996             1992 updated 1996



(33) Financial liabilities
                                                                           31.12.2003      31.12.2002
                                                                                EUR             EUR


Non-current:
 Convertible bonds                                                     41,926.14                0.00

Current:
 Convertible bonds                                                    34,256.56                 0.00
 Bank overdrafts                                                   2,865,893,63         3,363,504.31
 Bank loans                                                                0.00            11,671.40
                                                                   2,900,150.19         3,375,175.71




                                                                                                        119
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                                The item "convertible bonds” relates to the interest-bearing bonds issued by Brain Force Finan-
                                            cial Solutions AG, Munich, Germany to its employees with a right to convert the bonds into ordinary
                                            shares of Brain Force Financial Solutions AG. The amount was not divided into equity and debt
                                            components pursuant to IAS 32 as the amount is not deemed material.
                                                By resolution passed at the general meeting Brain Force Financial Solutions AG on April 7,
                                            1999, the Board of Management was authorised to issue interest-bearing bonds in one or several
                                            tranches with a maximum total nominal value of EUR 2,248 thousand. Bondholders are entitled to
                                            convert their bonds into ordinary shares of Brain Force Financial Solutions AG. Each convertible
                                            bond entitles the holder to convert into 20 ordinary shares, thus granting those entitled to a maxi-
                                            mum of 87,940 conversion rights.

                                                Two tranches had been issued by the balance sheet date. The conditions can be taken from
                                            the following table. Called bonds have been deducted:

                                                                                 Nominal
                                                                                                Yield           Cost             Conversion period
                                                                                    value
                                                                                                in %         in EUR
                                                                                in TEUR


                                            Tranche 1                                34         4.60         13.64     30.12.2001 - 31.12.2004
                                            Tranche 2                                42         4.90         24.46     25.05.2002 - 02.05.2005



                                                Measurement at market rates on the balance sheet date does not differ significantly from the
                                            carrying amount.
                                                The Board of Management was also authorised at the general meeting of Brain Force
                                            Financial Solutions AG on April 7, 1999 with the consent of the Supervisory Board to issue one
                                            or several tranches of stock options up to a total number of 1,081,996 up to April 30, 2004 to im-
                                            plement its stock option plan for Management Board members and top-tier management. The
                                            ratio of NSE ordinary shares with a nominal value of EUR 1 to options is 1:1. The options gran-
                                            ted are not transferable and cannot be sold.

                                            The conditions of the tranches issued up to the balance sheet date are:

                                                                                                           Units          Cost             earliest
                                                                                                                       in Euro     exercise period


                                            Tranche 1                                                    17,000         13.64       30.12.2001
                                            Tranche 2                                                   127,380         24.46       25.05.2002
                                            Tranche 3                                                   260,291          1.00       05.12.2003


                                                Interest on overdrafts is currently charged at 4.5 – 7.00 % (2002: 4.75 – 8.125 %), on loans
                                            in 2002 at 4.98 %.




120
(34) Trade payables

                                                                   31.12.2003      31.12.2002
                                                                        EUR              EUR


Trade payables already invoiced                                4,225,428.57     4,411,637.65
Prepayments                                                      179,834.97        49,086.24
Trade payables not yet invoiced                                  892,593.09       626,314.20
                                                               5,297,856.63     5,087,038.09

(35) Other liabilities
Other liabilities comprise the following:

                                                                   31.12.2003       31.12.2002
                                                                        EUR              EUR


 Non-current:
  Other                                                           40,786.71        46,163.23

 Current:
  Taxes                                                        1,610,744.64     1,469,665.45
  Social security contributions                                  968,934.43       854,499.16
  Unpaid obligations arising from acquisition of investments      68,000.00       178,252.07
  Holiday entitlements                                           996,338.49     1,023,724.53
  Overtime payables                                              203,527.76       181,624.75
  Bonuses                                                        270,106.19       311,978.14
  Payroll                                                      1,013,444.33       688,121.08
  Deferred income from maintenance contracts                   1,374,147.87       993,835.17
  Penalties                                                      255,645.94             0.00
  Other                                                          870,384.22       651,534.15
                                                               7,631,273.87     6,353,234.50



(36) Tax provisions
Tax provisions relate to 2003.




                                                                                                 121
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            (37) Other provisions


                                                                      Balance at    Addition due          Use      Reversal     Allocation    Balance at
                                                                       1.1.2003    to Acquisition                                             31.12.2003
                                                                           EUR              EUR           EUR          EUR            EUR           EUR



                                            Non-current:
                                              Restructuring                0.00    200,400.00 -137,800.00             0.00            0.00    62,600.00


                                            Current:
                                              Restructuring                0.00    420,138.19 -273,138.19             0.00    326,640.44     473,640.44
                                              Guarantee                    0.00      60,000.00      -36,700.00    -6,300.00    25,000.00      42,000.00
                                              Expected losses              0.00    187,675.86       -56,157.51   -99,910.75           0.00    31,607.60
                                                                           0.00    667,814.05 -365,995.70 -106,210.75         351,640.44     547,248.04


                                                The provision for restructuring relates to Brain Force Financial Solutions AG. Restructuring
                                            costs comprise unused office space to a value of EUR 281,100 and redundancy settlements to
                                            27 employees amounting to EUR 183,300. The provision also includes EUR 17,500 relating to
                                            the costs of releasing employees and EUR 54,340.44 from expected court rulings in connection
                                            with restructuring measures. The restructuring plan entails 27 redundancies.
                                                The provision for guarantees was set up in the amount of EUR 25,000 for expenses to rectify
                                            faults relating to one project; EUR 17,000 relate to the expected expense to rectify faults relating
                                            to projects completed at the balance sheet date and is based on past values.
                                                The provision for expected losses amounting to EUR 31,607.60 corresponds to the expected
                                            additional expenses incurred in maintenance and additional services.



                                            Notes on income statement items

                                            (38) Net sales
                                            Net sales consist of:

                                                                                                                               2003                2002
                                                                                                                               EUR                 EUR


                                            Services                                                                52,975,573.46       55,665,423.36
                                            Products                                                                 7,123,532.64        3,305,532.47
                                                                                                                    60,099,106.10       58,970,955.83




122
(39) Other operating income
Other operating income includes:

                                                    2003            2002
                                                    EUR             EUR


Gains on disposal of fixed assets             19,294.19        8,186.03
Translation differences                        1,114.01       24,669.57
Subsidies                                     52,736.49       47,088.65
Business facilitation income                 156,929.03            0.00
Rental income                                143,205.88       48,731.32
Reversal of writedowns on receivables         13,510.58       60,421.16
Reversal of other provisions and closing
out of other liabilities                     207,895.49      113,631.70
Other                                        230,927.28      226,575.11
                                             825,612.95      529,303.54


(40) Material and production costs
This item is broken down as follows:

                                                    2003            2002
                                                    EUR             EUR


Cost of materials
Cost of goods sold                            973,642.38      664.069.03
Maintenance                                   406,357.60      984.468.70
Licences                                      487,178.23    1.160.295.64
Other                                           2,645.88        3.226.34
                                            1,869,824.09    2.812.059.71

Other production costs
Project workers                            21,255,464.72   19.709.051.05
Subcontractors                             18,910,744.40   20.508.615.46
                                           40,166,209.12   40.217.666.51
                                           42,036,033.21   43.029.726.22




                                                                           123
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            (41) Employee benefits costs
                                            Employee benefits costs are broken down as follows:

                                                                                                                        2003             2002
                                                                                                                        EUR              EUR


                                            Salaries                                                          8,490,936.37      8,112,044.61
                                            Severance payments                                                  698,252.88        608,847.11
                                            Pension costs                                                        53,246.32         87,374.85
                                            Social security costs and payroll-related
                                            contributions                                                     1,531,361.66      1,445,357.92
                                            Other fringe benefits                                               144,691.81        193,045.70
                                                                                                             10,918,489.04     10,446,670.19


                                                The expenses for severance payments include voluntary severance payments and contribu-
                                            tions to the Mitarbeitervorsorgekasse (employee pension fund) (EUR 6,319.46, see note 15) in
                                            addition to expenses relating to statutory claims (see note 32).

                                            (42) Depreciation and amortisation expense
                                            This item contains depreciation of property, plant and equipment and amortisation of intangible
                                            assets.

                                                                                                                        2003             2002
                                                                                                                        EUR              EUR


                                            Amortisation of goodwill                                          1,263,657.10      1,043,267.90
                                            Depreciation and amortisation of other assets                     1,560,572.22        795,834.22
                                                                                                              2,824,229.32      1,839,102.12




124
(43) Other operating expenses
Other operating expenses contain:

                                                       2003           2002
                                                       EUR            EUR


Rents and energy costs                         1,881,029.00   1,271,676.26
Maintenance                                      248,769.95     197,931.16
Post, telecommunications                         567,709.78     455,449.02
Travel expenses                                  283,350.40     207,008.63
Insurance                                        162,908.24      99,502.14
Legal, audit and consultancy fees                629,557.81     417,538.72
Marketing                                        524,504.39     411,604.95
Commissions and reimbursements                    48,788.18      30,031.17
Vehicle costs                                    922,648.58     860,394.78
Office expenditure                                86,193.91      96,692.85
Currency translation differences                  25,713.62         297.59
Taxes and other fees                              30,556.96      27,316.46
Uncollectibles                                    51,778.58     130,659.68
Writedown of receivables                          11,218.66      32,822.09
Recruiting                                         1,565.00      18,308.94
Membership fees                                   20,126.58      17,111.60
Transaction fees                                  54,408.97      39,658.35
Loss on retirement of fixed assets                 7,716.23      53,291.79
Other expenses                                   271,574.57     202,853.03
                                               5,830,119.41   4,570,149.21



(44) Financial result
The financial result is computed as follows:

                                                       2003           2002
                                                       EUR            EUR


Income from securities                             7,390.50       7,856.20
Interest and similar income                       26,748.06      21,817.25
Interest and similar expenses                   -191,270.58    -168,411.53
                                                -157,132.02    -138,738.08




                                                                             125
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            (45) Income taxes

                                                                                                                     2003            2002
                                                                                                                     EUR             EUR


                                            Current tax expense                                               742,290.06      607,803.55
                                            Deferred tax expense                                            1,466,764.12     -223,764.42
                                            Share of tax of associates                                        169,672.37            0.00
                                                                                                            2,378,726.55      384,039.13


                                                Tax expenses for the year are EUR 2,233,639.91 (2002: EUR 408,967.64) higher than the
                                            calculated income taxes of EUR 145,086.64 (2002: EUR –24,928.51 (income)) that would result
                                            from the application of the income tax rate of 34% (= the income tax rate of the parent com-
                                            pany) on the loss before taxes. The reasons for the difference between calculated and recog-
                                            nised tax expenses are as follows:

                                                                                                                     2003            2002
                                                                                                                     EUR             EUR


                                            Profit/loss before taxes                                          426,725.41      -73,319.15
                                            thereof 34 % = calculated tax expense                             145,086.64      -24,928.51
                                            Effect of different tax rates in other countries                  581,491.84      454,394.34
                                            Income not subject to tax                                        -244,071.92      -80,084.13
                                            Expenses not deductible for tax purposes                          559,357.31      472,783.07
                                            Write down of deferred tax assets                               1,397,503.29            0.00
                                            Temporary deductible differences not recognised
                                            (see Note 26)                                                    682,996.93       -79,627.93
                                            Utilisation of previously unrecognised temporary
                                            deductible differences                                           -425,900.52     -314,756.48
                                            Utilisation of previously unrecognised tax losses                -303,948.97      -72,454.26
                                            Tax expense current period                                      2,392,514.60      355,326.10
                                            Tax income/expense prior periods                                  -13,788.05       28,713.03
                                            Tax expense recognised                                          2,378,726.55      384,039.13



                                                Non-deductible expenses mainly include amortisation charges on goodwill.




126
Notes on the cash flow statement

The cash flow statement was prepared using the indirect method.
    This illustrates the change in cash and cash equivalents in the group resulting from cash in-
flows and outflows over the reporting period, divided into cash flow from operating, investing and
financing activities.

(46) Cash flow from operating activities
Cash flow from operating activities is based on profit before taxes adjusted for non-cash reve-
nue and expenses, after changes to funds tied up in working capital and deduction of paid in-
terest and income taxes.

(47) Cash flow from investing activities
This item shows all cash inflows and outflows relating to additions to and disposals of non-
current assets.
    Refer to Notes (51) for disclosures according to IAS 7 on the acquisition of subsidiaries.

(48) Cash flow from financing activities
This item shows all cash inflows and outflows relating to financing via equity and loan capital.

(49) Cash and cash equivalents
This item contains cash in hand and at banks.



Other disclosures

(50) Segment reporting

a) Business Segments
The BRAIN FORCE SOFTWARE Group has three business segments:
    Professional Services
    Communication Networks
    Financial Solutions
    Professional Services consists of two strategic units – Business Solution Services (BSS) and
Technology Integration Services (TIS). TIS combines highly specialised IT know-how in server,
storage and networks. BSS provides its customers with sector and solution-specific expertise.
There is an increasing trend from the provision of individual services via outsourcing to out-
tasking, where separate teams take on full responsibility for the implementation, continuing
development and even for the day-to-day running of applications.




                                                                                                     127
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                                Communication Networks is engaged in the creation of software, systems and applications
                                            for the entire spectrum of network management and telecommunications.
                                                The product and technology portfolio contains solutions for the areas IP load balancing, intel-
                                            ligent networks, PBX network management, cable management, and billing & accounting.
                                                Financial Solutions covers almost all branches of financial services firms with its innovative
                                            solutions and products. Based on the standardised, modular components of the FINAS product
                                            family, individual solutions are combined in software packages tailored to requirements. Such
                                            components include financial planning, post-employment benefits and construction financing.
                                            A central component of this modular system is FINAS CRM. The individual components are
                                            scalable, web-enabled and support all distribution channels and sales processes of the financial
                                            service provider: acquisition, analysis, consulting and sales.
                                                This segment is derived from the acquisition of NSE Software AG, Munich, Germany in the
                                            past business year.

                                            The ratios for 2003 and the previous year are:


                                                             Professional   Communication           Financial     Unallocated             Total
                                                                Services        Networks            Solutions
            Ratios by segment 2003                                 EUR                EUR               EUR              EUR               EUR


           Segment net sales (consolidated)               48,905,766.73      4,557,605.43      6,635,733.94              0.00   60,099,106.10
           Segment operating result                        1,403,384.86       -593,828.20        626,591.68     -1,254,307.35      181,840.99
           Financial result                                                                                                        -157,132.02
           Share of profit of associates                                                         402,016.44                        402,016.44
           Profit before taxes                                                                                                     426,725.41
           Income taxes                                                                                                          -2,378,726.55
           Loss for the period                                                                                                   -1,952,001.14
           Segment assets                                 19,599,924.71      3,719,774.41      6,770,451.19     1,360,101.26    31,450,251.57
           Segment liabilities                            14,182,607.00        760,738.28      2,981,187.39       825,473.45    18,750,006.12
           Segment capital expenditure                       407,269.13        411,582.75      4,380,671.03              0.00    5,199,522.91
           Segment depreciation and amortisation 1,544,681.31                  604,145.52        675,402.49              0.00    2,824,229.32




128
                                                              Professional      Communication           Unallocated                   Total
                                                                 Services           Networks
Ratios by segment 2002                                              EUR                      EUR                EUR                    EUR


Segment net sales (consolidated)                        56,237,520.42           2,733,435.41                    0.00      58,970,955.83
Segment operating result                                  2,097,947.94           -721,988.13          -1,310,540.88             65,418.93
Financial result                                                                                                               -138,738.08
Loss before taxes                                                                                                               -73,319.15
Income taxes                                                                                                                   -384,039.13
Loss for the period                                                                                                            -457,358.28
Segment assets                                          21,389,634.54           4,224,827.77          2,302,733.55        27,917,195.86
Segment liabilities                                     14,415,966.85           1,489,283.51            963,894.77        16,869,145.13
Segment capital expenditure                                   246,213.42        2,957,544.81                    0.00       3,203,758.23
Segment depreciation and amortisation                     1,649,903.55            189,198.57                    0.00       1,839,102.12


                         b) Geographical segments
                         Geographical segments contain the figures allocated to the individual group companies for
                         activities primarily based in the countries where the company’s headquarters are located.
                         Other regions contain the group companies in Switzerland, the Netherlands, the UK, the Czech
                         Republic and Slovakia.

                                                    Segment net sales                Segment assets            Segment capital expenditure
                                                       2003              2002         2003              2002            2003            2002
                                                      TEUR              TEUR         TEUR              TEUR            TEUR            TEUR



                           Austria                 12,152          15,086           4,132             5,368            136               25
                           Germany                 31,090          23,329          14,721             8,485           4,688          2,986
                           Italy                   15,518          16,301          11,464          12,332              248              190
                           Other regions            1,339           4,255           1,133             1,732            127                   3
                                                   60,099          58,971          31,450          27,917             5,199          3,204




                         (51) Acquisitions
                         BRAIN FORCE SOFTWARE AG acquired 6,323,800 shares (approx. 54.05 % of the share capi-
                         tal) in NSE Software AG listed in the General Standard Segment of Frankfurt Stock Exchange
                         from 14 shareholders (hereafter referred to as "pool shareholders”) on April 30, 2003. The pur-
                         chase price for these shares was EUR 1,708,056.60.
                              The purchase price was met by the delivery of shares in BRAIN FORCE SOFTWARE AG.
                         The number of BRAIN FORCE SOFTWARE AG shares to be delivered was determined by the
                         purchase price divided by the average closing prices of BRAIN FORCE SOFTWARE AG in the
                         XETRA trading system of Frankfurt Stock Exchange over the 65 trading days preceding the
                         acceptance of the offer on April 30, 2003. The average XETRA closing prices of BRAIN FORCE




                                                                                                                                                 129
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            SOFTWARE AG shares in the 65 trading days preceding the acceptance of the offer (January
                                            27, 2003 to April 29, 2003) was EUR 3.93. This meant that the pool shareholders received
                                            434,620 shares in BRAIN FORCE SOFTWARE AG in exchange for transferring their 6,323,800
                                            shares in NSE Software AG (Ratio 14.55 : 1). The 434,620 BRAIN FORCE SOFTWARE shares
                                            transferred to the pool shareholders were transferred directly from the Helmut Fleischmann
                                            Private Foundation. This was done by way of a contract dated April 30, 2003 entailing the
                                            assumption of an obligation to perform, obliging the Helmut Fleischmann Private Foundation to
                                            deliver the 434,620 BRAIN FORCE SOFTWARE AG shares to the NSE Software AG sharehol-
                                            ders as compensation immediately at BRAIN FORCE SOFTWARE AG’s request (hereafter
                                            "contractual relationship”). A settlement balance of EUR 21.34 was transferred.
                                                According to the contractual relationship between BRAIN FORCE SOFTWARE AG and the
                                            Helmut Fleischmann Private Foundation, the shares were intended for transfer directly by the
                                            Helmut Fleischmann Private Foundation to the shareholders of NSE SOFTWARE AG on the
                                            basis of the contract of April 30, 2003. The entire account receivable from the Helmut
                                            Fleischmann Private Foundation resulting from the performance of the contract dated April 30,
                                            2003 at the beginning of May 2003 was brought into the company as a contribution in kind as
                                            part of the capital increase in May 2003. The issue price was set at EUR 3.49, which was the
                                            average of the XETRA closing share prices of BRAIN FORCE SOFTWARE AG shares 30 days
                                            before the application to register the capital increase in the register of firms was filed.
                                                The difference resulting from the change in the share price between the repayment of the
                                            purchase price debt (EUR 3.93) and the contribution in kind (EUR 3.49) amounting to EUR
                                            191,232.80 was recorded as a purchase price adjustment.
                                                On the basis of a voluntary takeover bid in accordance with German takeover law of June 6,
                                            2003, a further 23%, or 2,691,526 shares were acquired in NSE Software AG. The purchase
                                            price was EUR 755,816.71 and was settled by delivery of BRAIN FORCE SOFTWARE AG
                                            shares at a ratio of 14 : 1.
                                                The exchange ratio was based on a NSE Software share price of around EUR 0.28 per
                                            share and a BRAIN FORCE SOFTWARE share price of approx. EUR 3.93 per share. A settle-
                                            ment balance of EUR 9,014.53 was agreed.
                                                The exchange ratio thus fixed resulted in an obligation to deliver 190,026 shares in BRAIN
                                            FORCE SOFTWARE AG, which were transferred by the Helmut Fleischmann Private Foun-
                                            dation at BRAIN FORCE SOFTWARE AG’s request.
                                                The account receivable from the Helmut Fleischmann Private Foundation resulting from the
                                            performance of the contract was brought into the company as a contribution in kind as part of the
                                            capital increase in September 2003. The issue price was set at EUR 2.59.
                                                The difference resulting from the change in the share price between the repayment of the
                                            purchase price debt (EUR 3.93) and the contribution in kind (EUR 2.59) amounting to EUR
                                            254,634.84 was recorded as a purchase price adjustment.




130
The goodwill from the acquisition is computed as follows:

                                                                                           EUR


Purchase price 54.05 %                                                            1,708,056.60
Purchase price 23 %                                                                 755,816.71
Related costs                                                                       517,496.50
Adjustments                                                                        -445,867.64
Total price                                                                       2,535,502.17

Less fair value of net assets (54.05 %)                                            -763,806.83
Less fair value of net assets (23 %)                                               -353,854.32
Less fair value adjustments of assets                                              -152,234.42
Goodwill                                                                          1,265,606.60



The fair value of the net assets acquired in NSE Software AG is broken down into assets and
liabilities as follows:

                                                                      1.05.2003        1.08.2003
                                                                          EUR              EUR


Property, plant and equipment                                      389,349.92        317,383.28
Intangible assets                                                1,847,946.84      2,032,941.78
Financial assets                                                   566,331.39        451,644.94
Non-current receivables                                             47,966.32         30,195.35
Deferred tax assets                                                103,673.19        216,194.00
Inventories                                                        193,420.68        165,695.62
Current receivables                                              1,409,900.07      1,469,266.14
Cash and cash equivalents                                        1,200,989.47        766,716.54
Non-current liabilities                                           -335,918.97       -421,363.00
Non-current other provisions                                       -62,600.00        -62,600.00
Current liabilities                                             -3,189,224.63     -2,694,288.90
Current other provisions                                          -758,685.67       -733,288.75
Fair value of net assets                                         1,413,148.61      1,538,497.00
Acquired share in %                                                  54.05 %              23 %
Fair value of acquired share of net assets                         763,806.83        353,854.31




                                                                                                   131
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                                The acquired company contributes to the result of the reporting period as follows: In the
                                            period from May 1 to December 31, 2003 net sales at a value of EUR 6,635,733.94 and a
                                            profit before taxes at a value of EUR 1,096,281.10 were generated. At December 31, 2003
                                            total assets amounted to EUR 6,115,928.14, liabilities to EUR 3,043,572.77.

                                            The net cash flow from the acquisition of the subsidiary is as follows:

                                                                                                                                            EUR


                                            Total purchase price                                                                -2,535,502.17
                                            Less acquired cash and cash equivalents                                              1,204,341.15
                                            Payment by issue of shares                                                           2,008,991.14
                                            Less outstanding purchase price liabilities                                             31,964.50
                                            Net cash flow acquisition                                                              709,794.62



                                                In addition, EUR 100,000 was paid to former owners of one4net GmbH (formerly GMRS
                                            Software GmbH). This company had merged with Brain Force Software GmbH, Unterschleiss-
                                            heim, Germany, in the previous year. One purchase price liability amounting to EUR 68,000
                                            remains outstanding at the balance sheet date.
                                                Payments in cash are shown in the Cash Flow Statement within the line “acquisition of sub-
                                            sidiaries” under investment activities.
                                                Due to the contract of sale and contract of contribution in kind of October 16, 2002, the
                                            company acquired all shares of beusen Solutions GmbH, Berlin, Deutschland for a price of EUR
                                            1,485,422.46 effective from November 1, 2002. Related costs amounted to EUR 103,312.20.
                                                EUR 223,684.85 was paid in cash and EUR 1,261,737.61 through the issue of 340,091
                                            shares, the share price being fixed at EUR 3.71.

                                                                                                                                            EUR


                                            Purchase price                                                                       1,485,422.46
                                            Related costs                                                                          103,312.20
                                            Total price                                                                          1,588,734.66
                                            Less fair value of net assets (negative                                                114,181.48
                                            Goodwill                                                                             1,702,916.14




132
The following assets and liabilities were acquired

                                                                                       31.10.2002
Fair values                                                                                 EUR


Intangible assets                                                                     21,120.11
Property, plant and equipment                                                        222,871.21
Inventories                                                                          154,701.59
Receivables                                                                          568,400.07
Tax receivables                                                                        2,279.74
Cash and cash equivalents                                                              6,845.23
Provisions for post-employment benefits                                              -39,678.00
Short-term financial liabilities                                                     -84,221.92
Tax provisions                                                                       -70,241.12
Other liabilities                                                                   -896,258.39
Fair value of net assets                                                            -114,181.48



The net cash flow from the acquisition of the subsidiary is as follows:

                                                                                            EUR


Total purchase price                                                              -1,588,734.66
Less acquired cash and cash equivalents                                                6,845.23
Payment by issue of shares                                                         1,261,737.61
Less outstanding purchase price liabilities                                           13,058.63
Net cash flow acquisition                                                           -307,093.19

    The acquired company contributes to the result of the reporting period as follows: in the
period from November 1 to December 31, 2002 net sales at a value of EUR 957,509.52 and a
profit before taxes at a value of EUR 210,565.48 were generated. At December 31, 2002, total
assets amounted to EUR 1,643,332.29, liabilities to EUR 1,557,393.88.




                                                                                                    133
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            (52) Earnings per share
                                            Earnings per share are computed by dividing the profit / loss for the period by the weighted
                                            average number of ordinary shares.

                                                                                                                        2003               2002
                                                                                                                        EUR                EUR


                                            Loss for the period attributable to the equity holders of
                                            the parent                                                        -2,087,241.02      -457,358.28
                                            Weighted average number of ordinary shares issued
                                            (basic and diluted)                                                   4,001,359        3,459,222
                                            Losses per share (in EUR)                                                 -0.52            -0.13



                                            (53) Notes on related party transactions
                                            The major shareholders and the Management and Supervisory Board members of BRAIN
                                            FORCE SOFTWARE AG and its associates are deemed to be related parties.
                                                The following material transactions with the company’s major shareholders occurred in the
                                            reporting period:
                                                In the course of the NSE Software AG acquisition, the Helmut Fleischmann Private Founda-
                                            tion settled the purchase price in exchange for shares in BRAIN FORCE SOFTWARE AG. It sub-
                                            sequently transferred the resulting account receivable to the company as a contribution in kind
                                            (see note 51 and 31).
                                                In addition, the Helmut Fleischmann Private Foundation granted the company a cash loan in
                                            the amount of EUR 1,015,655.40 in three tranches between July and September 2003. Further-
                                            more, the Helmut Fleischmann Private Foundation held a receivable from the company resulting
                                            from transaction costs amounting to EUR 85,094.60. The total account receivable amounting to
                                            EUR 1,100,750 was transferred to the company as a contribution in kind (see note 51 and 31).
                                                Remuneration of Executive Board members in the reporting period was EUR 941,975.94
                                            (previous year: EUR 937,575.94). Remuneration of Supervisory Board members was recognised
                                            as an expense and amounted to EUR 35,548.00 (previous year: EUR 20,568.00).
                                                In addition, expenses for severance payments and pensions for Executive Board members
                                            were recognised at an amount of EUR 48,976.54 (previous year: EUR 42,675.88).
                                                Neither loans were granted nor guarantees given to Executive Board or Supervisory Board
                                            members.
                                                Fees amounting to EUR 60,166.18 for services rendered (consulting) were paid to compa-
                                            nies in which the Supervisory Board members hold shares.
                                                The following transaction occurred between the BRAIN FORCE SOFTWARE group and its
                                            associated company, SFP Software für Finanzpartner GmbH, Munich, Germany, (Note 24):
                                                Brain Force Financial Solutions AG, Munich, Deutschland, renders services to SFP Software
                                            für FinanzPartner GmbH, Munich, Germany in the form of a business facilitation agreement.
                                            These services consist of provision of a general manager, the management accounting including




134
payroll, financial controlling, back office services and the provision of office facilities. Brain Force
Financial Solutions AG receives business facilitation fees amounting to EUR 156,929.03 resul-
ting from this agreement. Receivables at the balance sheet date amount to EUR 36,251.98.

(54) Equity compensation benefits
BRAIN FORCE SOFTWARE AG granted share options to Management Board members and
top-tier management. The option rights entitled the holders to shares in BRAIN FORCE SOFT-
WARE AG at no charge subject to the development of the share price.
    In accordance with the programme, the maximum option entitlement was dependent on the
number of shares purchased when the company went public. Employees were entitled to one
option for every six shares purchased. The number of options was limited to 100. Option rights
could only be exercised within the exercise period. The exercise period began on June 10, 2002
(blocking period of three years from flotation) and ended on January 31, 2004. Option rights
were not transferable. There was no holding period for shares acquired. For each full percentage
point by which the BRAIN FORCE share outperformed the Neue Markt during the option’s term
up to the exercise period, option holders were entitled to one share per option. The number of
maximum shares that could be acquired per option was limited to 30. Holders had no rights to
shares if BRAIN FORCE share’s performance was equal to or worse than the performance of
the Neue Markt.
    No shares had been exercised by the end of the exercise period.
    In total, 172 share options were allocated to the Executive Board and to employees of the
BRAIN FORCE SOFTWARE Group, which are broken down as follows:


As of 31.12.2003 (and 2002)                                   Number of options granted

                                                      Total                               Financial year



Executive Board:
 Helmut Fleischmann                                   100                                            0
 Wolfgang Lippert                                       0                                            0
 Günter Pridt                                           0                                            0
 Gunter Reißmann                                        0                                            0
Top-tier management                                    72                                            0
Employees                                               0                                            0


There were no share options allocated to the Supervisory Board.

We refer to the notes to the financial liabilities (note 33) for details of the share option scheme at
Brain Force Financial Solutions AG.




                                                                                                           135
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            (55) Financial instruments
                                            The financial instruments listed in the balance sheet are securities, cash and cash equivalents
                                            and bank accounts, receivables and supplier credits and financial liabilities (see note 33). The
                                            accounting principles described for each balance sheet item are applicable to original financial
                                            instruments.
                                                No derivative financial instruments exist.

                                            (56) Commitments from leasing transactions

                                                                                                                         2003              2002
                                            Operating lease commitments                                                  EUR               EUR


                                            Not later than one year                                            2,150,173.25      1,431,225.87
                                            Later than 1 and not later than 5 years                            3,769,246.60      4,429,463.12
                                            Later than 5 years                                                         0.00        421,071.32


                                            (57) Notes on employees

                                                                                                                 On average        At 31.12.
                                                                                                              2003       2002   2003       2002


                                            Number of employees (salaried)                                    598        530    634        542



                                            (58) Post balance sheet events
                                            BRAIN FORCE SOFTWARE AG held an extraordinary general meeting on January 23, 2004.
                                            The primary resolution was to revoke the authorisation in accordance with § 169 AktG given to
                                            the Board of Management on June 12, 2003 at its Annual General Meeting to increase share
                                            capital by September 11, 2008 by up to EUR 1,892,571 through the issue of 1,892,571 ordinary
                                            bearer shares payable in cash or kind, with no subscription rights for shareholders in the case of
                                            contributions in kind and/or shares issued to employees of the company and its subsidiaries for
                                            the amount of EUR 1,277,545 not yet used. At the same time, the Board of Management was
                                            authorised to increase share capital by up to EUR 2,417,394 in one or several tranches through
                                            the issue of 2,417,394 ordinary bearer shares payable in cash or kind, with no subscription rights
                                            for shareholders in the case of contributions in kind and/or shares issued to employees of the
                                            company and its subsidiaries within 5 years of registering the corresponding change to the com-
                                            pany’s articles. The amount issued and the conditions of issue are to be stipulated with the con-
                                            sent of the Supervisory Board. A resolution was also passed authorising the Supervisory Board
                                            to make amendments to the company’s articles relating to the issue of shares from authorised
                                            capital.
                                                No events requiring disclosure have occurred since the balance sheet date.




136
Notes governing exemption to compile consolidated financial statements in accordance
with § 245 a HGB (Austrian Commercial Code)

Reporting in accordance with internationally accepted accounting standards
The consolidated financial statements at December 31, 2003 were drawn up according to Inter-
national Financial Reporting Standards (IFRS). Pursuant to § 245 a HGB, these statements
prepared in accordance with IFRS do not need to be compiled in accordance with HGB.
Consequently, additional disclosures are required pursuant to § 245 a Sec. 1 lines 1 - 3 HGB.

Notes on significant differences between IAS and the 7th EC Directive
Due to the EU Regulation passed on September 29, 2003 by the EU Commission relating to the
adoption of certain international financial reporting standards that are compatible with the EU
Regulation of the European Parliament and the Council of July 19, 2002 and with the EU
Directive passed by the European Parliament and the Council on June 18, 2003 amending the
fourth and seventh EU Directives, there are no significant discrepancies between IFRS and the
seventh EU Directive.

Notes on the main differences between Austrian reporting requirements (HGB) and IFRS

Development costs
Development costs are capitalised in accordance with IAS 38 and amortised over their useful
lives.

Securities
According to Austrian reporting requirements, short-term and long-term securities are recog-
nised at the lower of cost or market. Measurement according to IAS, by contrast, is at fair value,
with unrealised gains/losses using the option in IAS 39 for "available-for-sale financial instru-
ments” being recognised directly in equity.

Revenue recognition by reference to stage of completion of construction
contracts / services rendered.
According to IAS 11/18, the profit from construction contracts / services rendered is recognised
as soon as it can be reliably estimated, according to the stage of completion. According to HGB,
recognition over and above production cost is only permitted for long-term construction contracts
in the amount of the proportional administrative and distribution costs.

Foreign currency measurement
There is a difference between both reporting systems regarding the recognition of unrealised
gains from the measurement of foreign currencies at the balance sheet date. According to
Austrian law, only unrealised losses are recognised in keeping with the imparity principle,
whereas unrealised gains must also be realised under IAS.




                                                                                                     137
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140   Auditor’s Report
142   Glossary
143   Important dates




                                            Deferred taxes
                                            In contrast to HGB, deferred tax assets are recognised for loss carryforwards in accordance with
                                            IAS, provided these tax loss carryforwards will probably be used by future taxable income.

                                            Other provisions
                                            In contrast to the classification required under HGB, amounts that would be stated as provisions
                                            according to Austrian law are recorded under current liabilities.

                                            Additional disclosures pursuant to § 245 a Sec. 1 line 3 HGB

                                            Income payable after the balance sheet date
                                            Other receivables and other assets do not include any significant income payable after the
                                            balance sheet date.

                                            Expenses payable after the balance sheet date
                                            Other liabilities include the following significant expenses, payable after the balance sheet date:

                                                                                                                          2003              2002
                                                                                                                          EUR               EUR


                                            Provision for bonuses                                                  270,106.19       311,978.14
                                            Payroll liabilities                                                  1,013,444.33       688,121.08
                                            Other liabilities from taxes                                           625,051.64       645,370.10
                                            Other liabilities from social security contributions                   968,934.43       854,499.16

                                            Remaining terms of receivables and payables
                                            Subdivision into long-term and short-term balance sheet items is based on the assumption that
                                            long-term items have a remaining term of more than one year.

                                            Expenses for post-employment benefits
                                            Expenses for severance payments and pensions for Executive Board members and top-tier
                                            management according to § 80 AktG amount to EUR 93,915.39 (previous year: EUR 60 thou-
                                            sand) for other employees EUR 657,583.81 (previous year: EUR 636 thousand).




138
Members of the Management and Supervisory Boards
The following served on the Management Board in 2003:
   Helmut Fleischmann, Kitzbühel, CEO
   Wolfgang Lippert, Langenzersdorf, Deputy CEO
   Günter Pridt, Vienna
   Gunter Reißmann, Fürstenfeldbruck, Germany

The following served on the Supervisory Board in 2003:
   Dr. Edith Hlawati, Vienna, Chairwoman (until June 12, 2003)
   Roman Gregorig, Vienna, Deputy (until June 12, 2003), Chairman (since June 12, 2003)
   Dr. Hermann Wenusch, Vienna, member (until June 12, 2003), Deputy (since June 12, 2003)
   Rolf Michael Betz, Frankfurt am Main, Germany (until June 12, 2003)
   Mag. Wolfgang M. Hickel, Vienna
   Mag. Christian Schamburek, Brunn am Gebirge (since June 12, 2003)
   Josef Schmid, Pfaffstätten, (since June 12, 2003)
   Dr. Christoph Senft, Angerberg, (since June 12, 2003)




Vienna, February 20, 2004



The Board of Management:




Helmut Fleischmann        Wolfgang Lippert        Günter Pridt               Gunter Reißmann
Chief Executive Officer   Chief Finance Officer   Chief Operations Officer   Chief Technical Officer




                                                                                                       139
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140
142
143
      Auditor’s Report
      Glossary
      Important dates                       AUDITOR’S REPORT://
                                            Auditor’s Report

                                            To the Management and Supervisory Boards of BRAIN FORCE SOFTWARE AG:
                                            We have audited the accompanying consolidated financial statements of BRAIN FORCE SOFT-
                                            WARE AG, Vienna, as of December 31, 2003, prepared in accordance with International Finan-
                                            cial Reporting Standards (IFRS) published by the International Accounting Standards Board
                                            (IASB). These financial statements are the responsibility of the company’s management. Our
                                            responsibility is to express an opinion on these consolidated financial statements based on our
                                            audit.
                                                We conducted our audit in accordance with internationally accepted auditing standards
                                            (International Standards on Auditing (ISA)) issued by the International Federation of Accountants
                                            (IFAC) and in accordance with Austrian Standards of Auditing. Those standards require that we
                                            plan and perform the audit to obtain reasonable assurance about whether the financial state-
                                            ments are free of material misstatement. An audit includes examining, on a test basis, evidence
                                            supporting the amounts and disclosures in the financial statements. An audit also includes asses-
                                            sing the accounting principles used and significant estimates made by management, as well as
                                            evaluating the overall financial statement presentation. We believe that our audit provides a rea-
                                            sonable basis for our opinion.




140
    In our opinion the consolidated financial statements give a true and fair view of the financial posi-
tion of BRAIN FORCE SOFTWARE AG, Vienna at December 31, 2003 and of the results of its ope-
rations and its cash flows for the year then ended in accordance with International Financial
Reporting Standards (IFRS).
    According to the provisions of the Austrian Commercial Code, we have a duty to audit the group
management report and to confirm that the legal requirements governing exemption from the obliga-
tion to compile consolidated financial statements in accordance with Austrian law have been met.
    We certify that the group management report corresponds with the consolidated financial state-
ments and that the legal requirements for exemption from the obligation to prepare consolidated
financial statements in accordance with Austrian law have been met.



Vienna, February 20, 2003



                                    PwC INTER-TREUHAND GmbH
                                      Wirtschaftsprüfungs- und
                                     Steuerberatungsgesellschaft

                 signed:                                                      signed:
         Mag. Karl Hofbauer                                         Mag. Gerhard Prachner
      Certified Public Accountant                                  Certified Public Accountant




                                                                                                     141
014   Highlights 2003
016   Foreword by the Board of Management
018   Board of Management
028   Brain Force Software today
034   Business Segments
072   Strategic direction
078   Report of the Supervisory Board
080   Group Management Report
092   Consolidated Financial Statements
140
142
143
      Auditor’s Report
      Glossary
      Important dates                       GLOSSARY://
                                            Segment abbreviations:
                                            BFS                      Brain Force Software AG
                                            BSS                      Business Solutions Services
                                            CN                       Communication Networks
                                            CU                       Competence Units
                                            EBS                      Enterprise Business Solutions
                                            FS                       Financial Solutions
                                            PDC                      Product Development Center
                                            PS                       Professional Services
                                            SC                       Service Centern
                                            SDC                      Solution Distribution Center
                                            TIS                      Technology Integration Services

                                            Products:
                                            B-100 Load Balancer      Product to ensure high availability of server farms
                                            bAV                      Company pension provision – component of FINAS
                                            beusenBAS                Billing & Accounting System
                                            beusenKNV                Communication and Cable Network Administration
                                            INKAS-SQL                Integrated control and billing system – PBX Management
                                            FINAS                    Financial Information and Sales Support System
                                            CRM                      Customer Relationship Management – Component of FINAS

                                            General:
                                            IAMCP                    International Association of Microsoft Certified Partner
                                            ERP                      Enterprise Resource Planning
                                            PBX-Management           Management of private telecommunication systems
                                            Persistence              Saving of connection information to regain access to the same
                                                                     server in server farm
                                            SSL                      Secure Sockets Layer /
                                            TK                       Telecommunication
                                            TKA                      Telecommunication system




142
IMPORTANT DATES://
Important dates

                                                          2004
Date                                                     Event

31.03.04          Press conference to present financial results
27.05.04                            Report on the first quarter
11.06.04                        Annual shareholders’ meeting
30.08.04                                 Analysts’ conference
30.08.04                        Report on the first six months
29.11.04                           Report on the third quarter




                                                                  143
Imprint



Content:
Brain Force Software AG
Gumpendorfer Strasse 83
A-1060 Vienna


Produced by:
Brain Force Software GmbH
Carl-von-Linde-Strasse 38
D-85716 Unterschleissheim


www.brainforce.com


Concept/Design:
Paul Lauer


Editor:
Birgit Tratzki


Layout/Lithography:
Uwe Köhler


Photos:
Fotostudio Eva Kubinská


Translation:
Elizabeth Hull


Print:
Mediahaus Biering GmbH



Particular thanks go to all our staff across the group
for their support at the photo shoots for this annual report.
+++   +++   There is more than Software   +++   +++   There is more than Software   +++   +++   There is more than Software   +++   +++   There is more than Software   +++   +++




                                            Brain Force Software AG
                                            Gumpendorfer Strasse 83
                                            A-1060 Vienna

                                            Tel.: +43 1 5 99 51 0
                                            Fax: +43 1 5 99 51 13
                                            info@brainforce.com

                                            www.brainforce.com

				
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