As filed with the Securities and Exchange Commission on December 29, 2006
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
[_] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 2006
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
OR
[_] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of event requiring this shell company report ...................
Commission File No.: 0-30690
EUROTRUST A/S
(Exact name of Company as specified in its charter)
EUROTRUST A/S THE KINGDOM OF DENMARK
(Translation of Company's (Jurisdiction of incorporation
name into English) or organization)
KOHHOLM 3,
DK 6000 KOLDING DENMARK
(Address of principal executive offices)
Securities registered or to be
registered pursuant to Section 12(b)
of the Act: None
Securities registered or to be
registered pursuant to Section 12(g)
of the Act: None
Securities for which there is a American Depositary Shares, each
reporting obligation pursuant to representing one ordinary share, nominal
Section 15(d) of the Act: value DKK 7.50 per ordinary share.
Indicate the number of outstanding
shares of each of the Company's
classes of capital or common stock
as of close of the period covered by Ordinary shares 33,342,760
the annual report (June 30, 2006): American Depositary Shares: 28,680,886
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
YES [_] NO [X]
If this report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
YES [X] NO [_]
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES [X] NO [_]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [_] Accelerated filer [X] Non-accelerated filer [_]
Indicate by check mark which financial statement item the Registrant
has elected to follow
Item 17 [_] Item 18 [X]
If this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act).
YES [_] NO [X]
TABLE OF CONTENTS
PAGE
EXCHANGE RATE INFORMATION......................................................3
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.............4
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE...........................4
ITEM 3. KEY INFORMATION...................................................4
ITEM 4. INFORMATION ON THE COMPANY........................................7
ITEM 4A. UNRESOLVED STAFF COMMENTS........................................21
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.....................21
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.......................32
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS................38
ITEM 8. FINANCIAL INFORMATION............................................39
ITEM 9. THE OFFER AND LISTING............................................40
ITEM 10. ADDITIONAL INFORMATION...........................................41
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......46
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES...........46
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES..................46
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
AND USE OF PROCEEDS..............................................46
ITEM 15. CONTROLS AND PROCEDURES..........................................46
ITEM 16. RESERVED.........................................................47
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.................................47
ITEM 16B. CODE OF ETHICS...................................................47
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES...........................47
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT..................48
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED......48
ITEM 17. FINANCIAL STATEMENTS.............................................48
ITEM 18. FINANCIAL STATEMENTS.............................................48
ITEM 19. EXHIBITS.........................................................49
SIGNATURES .................................................................50
2
EXCHANGE RATE INFORMATION
In this annual report, unless otherwise specified or unless the context
otherwise requires, all references to "$" or "dollars" are to U.S. dollars and
all references to "DKK" are to Danish kroner. We have converted DKK amounts as
of June 30, 2006 into U.S. dollars at an exchange rate of $1.00 = DKK 5.8674,
which was the noon buying rate on June 30, 2006, the last business day of the
fiscal year. We do not make any representation that the Danish kroner amounts
could have been, or could be, converted into U.S. dollars at that rate on June
30, 2006, or at any other rate.
Unless specifically indicated or the context clearly indicates otherwise
all references to our ordinary shares shall include our American Depositary
Shares (ADSs) and vice-versa.
------------
WE USE THE TERMS "WE", "OUR", "US", EUROTRUST" AND "THE COMPANY" TO MEAN
EUROTRUST A/S AND ITS SUBSIDIARIES AND THEIR RESPECTIVE PREDECESSORS.
------------
AS NO INDEPENDENT SOURCES OF INDUSTRY DATA ARE AVAILABLE, INDUSTRY DATA
CONTAINED HEREIN, INCLUDING MARKET SIZE DATA, ARE BASED ON OUR ESTIMATES WHICH
ARE DERIVED FROM INTERNAL MARKET STUDIES AND MANAGEMENT CALCULATIONS.
------------
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 20-F contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995 regarding
our plans and objectives and future operations. Forward-looking statements
attempt to predict future occurrences and are identified by words like
"believe," "may," "intend," "will," "expect," "anticipate," "estimate" or
"continue," or other comparable terms. Forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause our actual
results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by these
forward-looking statements. The forward-looking statements included in this
report are based on current expectations that involve numerous risks and
uncertainties. Our plans and objectives are based, in part, on assumptions
involving judgments about, among other things, future economic, competitive and
market conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control.
Although we believe that our assumptions underlying the forward-looking
statements are reasonable, any of these assumptions could prove inaccurate and,
therefore, we cannot assure you that the forward-looking statements included in
this report will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included in this report, you should
not assume, and we cannot assure you, that we can achieve our objectives or
implement our plans. Such statements speak only as of the date hereof and are
subject to change. We undertake no obligation to revise or update publicly any
forward-looking statements for any reason. Factors that could cause our actual
results to differ materially from those expressed or implied by forward-looking
statements include, but are not limited to, (a) economic and other factors that
could affect the development and sales of properties such as (i) a downturn in
the housing market in Denmark or Norway, (ii) delays in obtaining necessary
governmental permits and approvals, and (iii) delays in the construction of
housing units; (b) factors that could impact the development and sale of wind
energy such as (i) the availability of wind energy turbines for the development
of new wind farms, (ii) the market price of electricity, and (iii) the amount of
wind in any year; (c) the potential unforeseen impact of offerings from
competitors;(d) our ability to raise additional capital to finance our growth
aspirations; (e) our ability to control costs and expenses; and (f) general
economic political and labor conditions, as well as the factors set forth under
3
the headings "Key Information - Risk Factors" (Item 4.C), "Information on the
Company" (Item 4) and "Operating and Financial Review and Prospects" (Item 5).
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not required because this Form 20-F is filed as an Annual Report.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not required because this Form 20-F is filed as an Annual Report.
ITEM 3. KEY INFORMATION
A. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below as of June 30,
2004, 2005 and 2006 and for the years then ended have been taken or are derived
from our audited consolidated financial statements for those periods. The
selected consolidated financial data have been prepared in accordance with
generally accepted accounting principles in the United States of America
("GAAP").
On May 19, 2005 our shareholders approved a one for six reverse split of
our ordinary shares such that six ordinary shares nominal value DKK 1.25 were
combined into one ordinary share nominal value DKK 7.50 ("New Ordinary Shares").
In lieu of issuing a fraction of a New Ordinary Share, we paid to each holder
the value thereof based upon the closing price of an ADS on the NASDAQ Small Cap
Market on May 19, 2005. All information contained in this annual report has been
presented as if such reverse stock split occurred as of July 1, 2003.
The financial information presented below is only a summary and should
be read together with our consolidated financial statements included elsewhere
in this report.
4
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
YEAR ENDED JUNE 30,
2004 2005 2006 2006
------- ------- ------- ------
DKK DKK DKK US$
(in thousands, except per share amounts)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue 295,975 247,333 433,788 73,932
Total operating expenses 266,411 185,416 368,355 62,780
Operating income 29,564 61,917 65,433 11,152
Net (loss) income 17,540 37,099 45,890 7,827
Net (loss) income per average
common share, basic 0.80 1.68 1.93 0.33
Net (loss) income per average
common share diluted 0.80 1.68 1.93 0.33
Weighted average number of
common shares outstanding, basic 22,050 22,050 23,760 23,760
Weighted average number of
common shares outstanding diluted 22,050 22,050 23,829 23,829
5
YEAR ENDED JUNE 30,
-------------------
2004 2005 2006 2006
------- ------- ------- -------
DKK DKK DKK US$
REAL ESTATE DEVELOPMENT:
Net sales 295,975 247,333 414,588 70,660
------- ------- ------- -------
Total operating expenses 266,411 184,506 354,956 60,496
------- ------- ------- -------
Operating income (loss) 29,564 62,827 59,632 10,164
------- ------- ------- -------
2004 2005 2006 2006
------- ------- ------- -------
DKK DKK DKK US$
WIND ENERGY
Net sales 0 0 19,200 3,272
------- ------- ------- -------
Total operating expenses 0 910 13,399 2,283
------- ------- ------- -------
Operating income (loss) 0 (910) 5,801 989
------- ------- ------- -------
CONSOLIDATED BALANCE SHEET DATA:
JUNE, 30
(IN THOUSANDS)
2004 2005 2006 2006
------- ------- --------- -------
DKK DKK DKK US$
CONSOLIDATED BALANCE SHEET DATA:
Total assets 482,180 611,638 2,288,547 390,043
Net assets 26,496 63,550 589,485 100,468
Capital stock 165,375 165,375 250,071 42,620
Working capital 12,407 (110,609) (506,348) (86,299)
Number of ordinary shares 22,050 22,050 33,353 33,353
We have never paid any dividends on our ordinary shares.
EXCHANGE RATE INFORMATION
The exchange rate on December 19, 2006 (the latest practicable date) was
DKK 5.6648 per $1.00. The following table sets forth (i) the average exchange
rate for the years ended June 30, 2002, 2003, 2004, 2005 and 2006 calculated
using the average exchange rate on the last day of each month of the relevant
year and (ii) the high and low exchange rates for each of the most recent six
months. (All rates are expressed as Danish kroner per U.S. dollar.)
6
AVERAGE
-------
YEAR ENDED JUNE 30,:
--------------------
2002 DKK 8.3148
2003 DKK 7.1324
2004 DKK 6.2586
2005 DKK 5.8606
2006 DKK 6.1369
MONTH ENDED: HIGH LOW
------------ ---------- ----------
December 2006 (as of December 19, 2006) DKK 5.6920 DKK 5.5929
November 30, 2006 DKK 5.8706 DKK 5.6474
October 31, 2006 DKK 5.9531 DKK 5.8542
September 30, 2006 DKK 5.8964 DKK 5.8050
August 31, 2006 DKK 5.8663 DKK 5.7754
July 31, 2006 DKK 5.9774 DKK 5.8310
B. CAPITALIZATION AND INDEBTEDNESS
Not required because this Form 20-F is filed as an Annual Report.
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not required because this Form 20-F is filed as an Annual Report.
ITEM 4. INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT
We are a Danish limited company, organized in 1986 under the Danish Act
on Limited Companies of the Kingdom of Denmark. Originally, we were organized
under the name Telepartner A/S. In 1999 we changed our name to euro909.com A/S
and in December 2001 we changed our name to EuroTrust A/S. Our registered office
is Kokholm 3, 6000 Kolding, Denmark. Our telephone number is +45 75 50 24 75.
OUR BUSINESS.
HISTORICAL.
Until December 2001, our business operated in three distinct areas:
Internet products and services; broadcasting; and print and online media. In
2001, we sold our domain name registration business, the remaining assets of our
historical telecommunications business and our print and online media
businesses, and consolidated our television programming business. As of January
1, 2004, we sold our secure internet hosting business, our digital video
surveillance business and our secure remote back-up business. As a part of these
transactions, we will continue to receive royalty payments from future sales of
the secure hosting and remote back-up services that we formerly marketed. We
sold our PKI services business to on April 1, 2004. We sold the last of our
Internet related business, our virus detection software and services business on
September 30, 2004.
7
As a result of these various transactions, subsequent to September 30,
2004 our business consisted of dk4, a Danish television station and the
television production company Prime Vision.
On November 29, 2005, we entered into agreements to acquire all of the
capital stock of Aktiv Gruppen Holdings A/S, a Danish company which operates in
two distinct lines of business, namely the development and sale of residential
real estate projects in Denmark and Norway, and the operation of wind energy
farms in Germany. On April 17, 2006 we consummated our acquisition of Aktiv
Gruppen. Pursuant to this acquisition, the holders of the shares of the capital
stock of Aktiv Gruppen received approximately 70% of the shares of the capital
stock of our Company. In accordance with United States generally accepted
accounting principles, the acquisition was accounted for as a reverse
acquisition (i.e. as if Aktiv Gruppen acquired EuroTrust). Therefore, the
pre-acquisition financial statements of Aktiv Gruppen are treated as the
historical financial statements of the combined companies. The EuroTrust
historical financial statements prior to the acquisition are disregarded. The
results of operations of EuroTrust will only be included in the financial
results from the date of the acquisition (April 17, 2006). In addition,
beginning with the fiscal year ended on June 30, 2006, EuroTrust changed its
fiscal year end to June 30, which is the fiscal year end of Aktiv Gruppen.
On May 4, 2006 we entered into an agreement to sell three of our seven
mobile television production vans, our Prime Vision brand name and the external
customer base of Prime Vision.
Effective April 17, 2006, we completed the sale of our media business by
selling all of the outstanding shares of Europe-Visions A/S to Tritel
Investment, Inc.
As a result of the sale of Europe-Visions A/S, our business currently
consists of our property development operations and our wind energy operations
B. BUSINESS OVERVIEW
DESCRIPTION OF BUSINESS
REAL ESTATE DEVELOPMENT
Our real estate development segment, through various wholly owned
subsidiaries and corporate joint ventures, primarily develops homeowner
condominiums, complexes, single family homes, recreational homes and
multi-family rental complexes throughout Denmark and Norway. The development
occurs as we: 1) seek out desirable locations for property development, 2)
acquire permission for resale of a finalized development project, 3) acquire the
land or options to purchase the land, 4) design the project in cooperation with
outside architects and engineers, 5) acquire governmental permission to build
the project, 6) pre-sell through local real estate agents a minimum number of
units, requiring purchasers to sign a binding sales contract and guarantee, 7)
construct the properties through outside construction contractors and 8) sell
remaining units, if any.
In order to minimize our potential exposure in this area we generally do
not begin construction of each stage of the development project until at least
75% of the units to be developed in that stage of the project have been
contracted for by purchasers who put down a small deposit and deliver to us a
bank guarantee for the remainder of the purchase price.
We sell these units primarily through local real estate agents to whom
we pay a commission for each sale.
8
Generally, if we are unable to obtain contracts for between 50 % and 75%
of the units within a designated period of time we will return the deposits and
bank guarantees to the prospective purchasers and will not begin construction of
the project. Additionally, in these instances if the land on which the project
was to be built was not owned by us, but was subject to our option, we will not
exercise the option to acquire the land.
Operating under this methodology we generally do not obligate the
Company to incur expenditures for a particular project until we have assured
ourselves that the revenue to be received in regard to the number of units that
have been pre-sold will cover a substantial portion of our expenses associated
with the project. Since 2001, we have developed and sold more than 1000 housing
units throughout Denmark, including a 175 unit apartment dwelling in Copenhagen,
Denmark.
As of December 26, 2006 we have under development, projects to construct
approximately 1,400 units in Denmark and 200 units in Norway. We expect to
complete construction of these units over the next two years.
We also have options to acquire land and/or own land for the development
of approximately 6,000 units in Denmark and 1,400 units in Norway.
We are also developing a 200 bed hotel in Austria which is expected to
open by the end of 2007. We will both own and operate this hotel
We also own a 565 square meter office property in K0ge, Denmark which is
leased to third parties
WIND ENERGY
During 2006 we acquired an additional 19 operating wind turbines located
in windparks in Germany. The Company also acquired a 50% equity interest in 13
operating wind turbines in Germany. In June 2005, we acquired six operating wind
turbines located in windparks in Germany. The Company also holds a 25% equity
interest in an additional wind turbine in Germany, which we acquired the
remaining 75% on December 31, 2005. Each respective wind turbine or windpark has
entered into 20 year agreements with German electric utilities companies, to
sell all of the electricity generated. The agreements have fixed prices. The
manufacturers have agreed to operate the windparks at a fixed percentage of
revenue. When the wind turbines were purchased the manufacturers guaranteed that
they would be in full operation for 97% of each year for the ten years after
installation. The Company has leased the land on which the wind parks are
located for 20 years with two five year options to extend the lease.
We plan to continue to expand this segment through the development and
operation of wind turbine energy parks throughout Europe, where we believe there
is a strong consumer and government preference for renewable and alternative
non-polluting energy sources, resulting in attractive government subsidies and
tax benefits from accelerated depreciation. We expect this political climate to
persist in the near future.
9
In May 2006 we entered into an agreement, which closed July 2, 2006 to
acquire a 50.25% interest in European Wind Farms A/S. European Wind Farms is
currently developing wind energy farms in Germany, Italy, Poland, Bulgaria,
Lithuania and France. European Wind Farms current projects will have an
installed capacity of approximately 200 megawatts generating approximately 400
million kilowatt hours of electric power on a yearly basis. The wind farms under
development are all expected to be operational within two years. European Wind
Farms IS in the final stages of negotiations for the project rights to develop
additional wind farms with an installed capacity of 300 megawatts.
Wind turbines installed in countries other than Germany will not have
government fixed prices and therefore, the amount we receive for the sale of the
electricity generated by the wind turbines is subject to the then prevailing
market price for electricity. However in these countries when the wind turbine
begins operation we will in some of these other countries be given a "green
certificate" because the energy we generate is non-polluting. These certificates
allow energy companies to create a certain amount of pollution from their energy
production and therefore these certificates can be sold to companies that
produce energy from sources that are not "non-polluting", such as oil and coal.
A market has developed in Europe for the sale of these "green certificates." In
determining where and when to put up new wind turbines we will consider both the
expected market price of electricity and the value of the "green certificates."
The amounts of electricity that can be generated by a wind turbine is
dependent upon the amount of wind at the specific site and therefore before we
decide where to establish a wind farm we review existing historical wind studies
and, if necessary, commission our own wind measurement study.
ROYALTIES FROM INTERNET BUSINESSES.
As of January 1, 2004, we sold our secure internet hosting business, our
digital video surveillance business and our secure remote back-up business. As a
part of these transactions, we will continue to receive royalty payments from
future sales of the secure hosting and remote back-up services that we formerly
marketed. The royalty payments for our secure hosting business will end as of
December 31, 2006. The royalty payments for our remote back up business will
continue until December 31, 2010 and are based upon future revenue from this
business.
The following tables set out our revenues by category and region for
each of the years ended June 30, 2004, 2005 and 2006.
BREAKDOWN OF REVENUES BY CATEGORY (1)
2004 2005 2006 2006
DKK PERCENTAGE DKK PERCENTAGE DKK PERCENTAGE USD PERCENTAGE
Real Estate development: 295,975 100% 247,333 100% 414,588 96% 70,660 96%
Wind Energy -- -- -- -- 19,200 4% 3,272 4%
-----------------------------------------------------------------------------------
295,975 100% 247,333 100% 433,788 100% 73,932 100%
-----------------------------------------------------------------------------------
10
BREAKDOWN OF REVENUES BY GEOGRAPHIC MARKET
BREAKDOWN OF REVENUES BY GEOGRAPHIC MARKET(1)
2004 2005 2006
DKK % DKK % DKK % USD
Denmark 295,975 100% 247,333 100% 412,389 95% 70,285
Norway -- -- -- -- 2,199 1% 375
Germany -- -- -- -- 19,200 4% 3,272
-------------------------------------------------------------------
295,975 100% 247,333 100% 433,788 100% 73,932
-------------------------------------------------------------------
SEASONALITY
Our quarterly operating results typically fluctuate with the seasons.
Construction of a customer's home typically proceeds after signing the agreement
of sale and can require 12 months or more to complete. Weather-related problems
may occur in the late winter and early spring, delaying starts or closings or
increasing costs and reducing profitability. In addition, delays in opening new
communities or new sections of existing communities could have an adverse impact
on home sales and revenues. Because of these factors, our quarterly operating
results may be uneven and may be marked by lower revenues and earnings in some
quarters than in others. In addition, the electricity generated by our wind
parks is dependent upon the seasonal nature of the wind velocity in a particular
area.
INTELLECTUAL PROPERTY
We rely primarily on a combination of copyrights, trademarks, service
marks, restrictions on disclosure and other methods to protect our intellectual
property. We also enter into confidentiality agreements with our employees,
consultants and current and potential affiliates, customers and business
partners. We also generally control access to and distribution of documentation
and other proprietary information.
COMPETITION
REAL ESTATE DEVELOPMENT
We compete with many other developers in Denmark and Norway in the sale
of residential housing units. Many of our competitors have greater resources
than we do which may enable them to obtain better parcels of land for
development. The sale of residential real estate in Denmark and Norway is
dependent to a large extent on the location of the development and the purchase
price of the unit.
WIND ENERGY
We compete with both other wind energy companies as well as companies
which generate electricity from other sources both polluting and non-polluting.
Most of these companies have far greater resources then us.
11
GOVERNMENT REGULATION
REAL ESTATE DEVELOPMENT
Our real estate development business is subject to obtaining numerous
national and local approvals and licenses in connection with our construction of
residential units and to our compliance with various zoning and other
regulations.
WIND ENERGY
Our wind energy business is subject to obtaining numerous permits
regarding the construction of wind turbines and to various regulations regarding
the operation of the wind turbines.
SALES AND MARKETING
Our real estate units are primarily sold through local real estate
brokers to whom we pay a sales commission.
C. RISK FACTORS
IN ADDITION TO OTHER INFORMATION IN THIS FORM 20-F, THE FOLLOWING RISK
FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING US AND OUR BUSINESS BECAUSE
THESE FACTORS CURRENTLY HAVE OR MAY IN THE FUTURE HAVE A SIGNIFICANT IMPACT ON
OUR BUSINESS, OPERATING RESULTS OR FINANCIAL CONDITION. ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD- LOOKING STATEMENTS
CONTAINED IN THIS FORM 20-F AS A RESULT OF THE RISK FACTORS DISCUSSED BELOW AND
ELSEWHERE IN THIS FORM 20-F.
AN ADVERSE CHANGE IN ECONOMIC CONDITIONS COULD REDUCE THE DEMAND FOR HOMES AND,
AS A RESULT, COULD REDUCE OUR EARNINGS.
Changes in economic conditions in Denmark and Norway, as well as local
economic conditions where we conduct our operations and where prospective
purchasers of our homes live, can have a negative impact on our business.
Adverse changes in employment levels, job growth, consumer confidence, interest
rates and population growth may reduce demand and depress prices for our homes.
This, in turn, can reduce our earnings.
THE PROPERTY DEVELOPMENT INDUSTRY IS HIGHLY COMPETITIVE AND, IF OTHERS ARE MORE
SUCCESSFUL, OUR BUSINESS COULD DECLINE.
We operate in a very competitive environment, which is characterized by
competition from a number of other property developers in each market in which
we operate. We compete with other property developers for land, financing, and
skilled management and labor resources. We also compete with the resale, or
"previously owned," home market. Increased competition could cause us to reduce
our prices. An oversupply of homes available for sale could also depress our
home prices and adversely affect our operations. If we are unable to compete
effectively in our markets, our business could decline.
IF LAND IS NOT AVAILABLE AT REASONABLE PRICES, OUR SALES AND EARNINGS COULD
DECREASE.
12
Our operations depend on our ability to continue to obtain land for the
development of our residential communities at reasonable prices. Changes in the
general availability of land, competition for available land, availability of
financing to acquire land, zoning regulations that limit housing density and
other market conditions may hurt our ability to obtain land for new residential
communities. If the supply of land appropriate for development of our
residential communities becomes more limited because of these factors, or for
any other reason, the cost of land could increase and/or the number of homes
that we sell and build could be reduced.
GOVERNMENT REGULATIONS MAY DELAY THE START OR COMPLETION OF OUR COMMUNITIES,
INCREASE OUR EXPENSES OR LIMIT OUR PROPERTY DEVELOPMENT ACTIVITIES, WHICH COULD
HAVE A NEGATIVE IMPACT ON OUR OPERATIONS.
We must obtain the approval of numerous governmental authorities in
connection with our development activities, and these governmental authorities
often have broad discretion in exercising their approval authority. We incur
substantial costs related to compliance with legal and regulatory requirements.
Any increase in legal and regulatory requirements may cause us to incur
substantial additional costs. Various statutes, ordinances, rules and
regulations concerning building, zoning, sales and similar matters apply to
and/or affect the housing industry. This governmental regulation affects
construction activities as well as sales activities, mortgage lending activities
and other dealings with consumers.
INCREASES IN TAXES OR GOVERNMENT FEES COULD INCREASE OUR COSTS, AND ADVERSE
CHANGES IN TAX LAWS COULD REDUCE CUSTOMER DEMAND FOR OUR HOMES.
Increases in real estate taxes and other local government fees could
increase our costs and have an adverse effect on our operations. In addition,
increases in local real estate taxes could adversely affect our potential
customers who may consider those costs in determining whether to make a home
purchase and decide, as a result, not to purchase one of our homes. In addition,
any changes in the income tax laws that would reduce or eliminate tax deductions
or incentives to homeowners, such as the proposed changes limiting the
deductibility of interest on home mortgages, could make housing less affordable
or otherwise reduce the demand for housing, which in turn could reduce our sales
and hurt our operating results.
ADVERSE WEATHER CONDITIONS AND CONDITIONS IN NATURE BEYOND OUR CONTROL COULD
DISRUPT THE DEVELOPMENT OF OUR PROJECTS, WHICH COULD HARM OUR SALES AND
EARNINGS.
Adverse weather conditions and natural disasters, such as, floods and
fires, can have serious effects on our ability to develop our residential
communities. We also may be affected by unforeseen engineering, environmental or
geological problems. Any of these adverse events or circumstances could cause
delays in the completion of, or increase the cost of, developing one or more of
our residential communities and, as a result, could harm our sales and earnings.
PRODUCT LIABILITY LITIGATION AND WARRANTY CLAIMS THAT ARISE IN THE ORDINARY
COURSE OF BUSINESS MAY BE COSTLY, WHICH COULD ADVERSELY AFFECT OUR BUSINESS.
As a homebuilder, we are subject to construction defect and home
warranty claims arising in the ordinary course of business. These claims are
common in the homebuilding industry and can be costly. In many of our projects
we have an indemnity from our general construction contractor, which covers
defects for up to 10% of the cost of a project for the first year after the
construction has been completed, and for up to 2% of the cost of a project for
the next 4 years. We anticipate that this will cover any claims Therefore,
13
we do not carry an additional insurance, which is costly and the amount of
coverage offered by insurance companies is currently limited. There can be no
assurance that the indemnity coverage we have from our general contractors will
cover all defect and home warranty claims. If claims exceed the amount of this
indemnity, we may experience losses that could hurt our financial results
IF OUR POTENTIAL CUSTOMERS ARE NOT ABLE TO OBTAIN SUITABLE FINANCING, OUR
BUSINESS MAY DECLINE.
Our business and earnings also depend on the ability of our potential
customers to obtain mortgages for the purchase of our homes. Increases in the
cost of home mortgage financing could prevent our potential customers from
purchasing our homes. In addition, where our potential customers must sell their
existing homes in order to buy a home from us, increases in mortgage costs could
prevent the buyers of our customers' existing homes from obtaining the mortgages
they need to complete the purchase, which could result in our potential
customers' inability to buy a home from us. If our potential customers or the
buyers of our customers' current homes are not able to obtain suitable
financing, our sales and revenues could decline.
IF WE ARE NOT ABLE TO OBTAIN SUITABLE FINANCING, OUR BUSINESS MAY DECLINE.
Our business and earnings depend substantially on our ability to obtain
financing for the development of our residential communities and the purchase
and installation of windmills If we are not able to obtain suitable financing,
our costs could increase and our revenues could decrease, or we could be
precluded from continuing our operations at current levels. Increases in
interest rates can make it more difficult and/or expensive for us to obtain the
funds we need to operate our business.
OUR BUSINESS IS SEASONAL IN NATURE, SO OUR QUARTERLY OPERATING RESULTS
FLUCTUATE.
Our quarterly operating results typically fluctuate with the seasons.
Construction of a customer's home typically proceeds after signing the agreement
of sale and can require 12 months or more to complete. Weather-related problems
may occur in the late winter and early spring, delaying starts or closings or
increasing costs and reducing profitability. In addition, delays in opening new
communities or new sections of existing communities could have an adverse impact
on home sales and revenues. Because of these factors, our quarterly operating
results may be uneven and may be marked by lower revenues and earnings in some
quarters than in others. In addition, the electricity generated by our wind
parks is dependent upon the seasonal nature of the wind velocity in a particular
area.
AVAILABILITY OF WIND TURBINES.
The Wind turbine industry is currently experiencing a great demand for
capacity resulting in demand from wind farm project developers which currently
is significantly greater than the production capacity of the wind turbine
manufacturers. The major turbine manufacturers currently require a down payment
of up to 25% in order to accept an order for a turbine. And for certain wind
turbine models the delivery lead time can be up to 18 months, and the lead times
are continuously growing. The lack of ability of the wind turbine manufacturers
to supply turbines within our expected construction schedules could have a
negative impact on the timing of the commencement of commercial operation of our
wind farms currently under development, and hence negatively impact our future
results.
THE AMOUNT OF ELECTRICITY WE GENERATE FOR SALE IS ENTIRELY DEPENDENT UPON WIND
VELOCITY.
14
We locate our wind parks in areas where studies indicate that the
historic wind velocity is sufficient to generate such minimum amount of
electricity as in our judgment will generate a profit. If wind patterns change
and the expected minimum wind velocity does not occur over our revenues and
profits may be materially adversely affected.
NEW TECHNOLOGIES MAY BECOME BETTER SOURCES OF CLEAN ENERGY.
If new technologies for the production of clean energy from sources
other than wind power are developed and these technologies are to provide clean
energy more efficiently and at lower prices than wind energy we may not be able
to sell the electricity we generate at a profit which would have a material
adverse effect on our business.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE. IF WE CANNOT DO SO, WE
MAY NOT BE ABLE TO FUND OUR FUTURE ACTIVITIES OR CONTINUE OPERATING.
Our future capital requirements will depend on a number of factors,
including our ability to generate positive cash flow from operations, capital
expenditure requirements and acquisition opportunities. If we need to raise
additional capital in the future, we cannot assure you that we will be able to
do so on acceptable terms or at all. If we raise additional capital through the
issuance of equity or convertible debt securities, the percentage ownership of
our company held by existing shareholders, including holders of our ADSs, will
be diluted. In addition, new securities may contain certain rights, preferences
or privileges that are senior to those of our ordinary shares. If we are
unsuccessful in raising additional capital, when needed, our business and
results from operations may be materially and adversely affected.
OUR LONG-TERM GROWTH STRATEGY ASSUMES THAT WE MAKE SUITABLE ACQUISITIONS AND
INVESTMENTS. IF WE ARE UNABLE TO ADDRESS THE RISKS ASSOCIATED WITH ACQUISITIONS
AND INVESTMENTS OUR BUSINESS COULD BE HARMED.
Our long-term growth strategy includes identifying and, from time to
time, acquiring or investing in suitable candidates on acceptable terms. In
particular, we intend to acquire or make investments in businesses that provide
products and services that expand or complement our existing businesses and
expand our geographic reach. In pursuing acquisition and investment
opportunities, we may compete with other companies having similar growth and
investment strategies. Competition for these acquisition or investment targets
could also result in increased acquisition or investment costs and a diminished
pool of businesses, available for acquisition or investment. Our long-term
growth strategy could be impeded if we fail to identify and acquire or invest in
promising candidates on terms acceptable to us.
Assimilating acquired businesses involves a number of other risks,
including, but not limited to:
o disrupting our business;
o incurring additional expense associated with a write-off of all or a
portion of the related goodwill and other intangible assets due to
changes in market conditions or the economy in the markets in which we
compete or because acquisitions are not providing the benefits expected;
o incurring unanticipated costs or unknown liabilities;
15
o managing more geographically-dispersed operations;
o diverting management's resources from other business concerns;
o assimilating the operations and personnel of the acquired businesses;
and
o maintaining uniform standards, controls, procedures and policies.
For all these reasons, our pursuit of an overall acquisition and
investment strategy or any individual acquisition or investment could have a
material adverse effect on our business, financial condition and results of
operations. If we are unable to successfully address any of these risks, our
business could be harmed.
RAPID GROWTH IN OUR BUSINESS COULD STRAIN OUR MANAGERIAL, OPERATIONAL,
FINANCIAL, ACCOUNTING AND INFORMATION SYSTEMS, AND OFFICE RESOURCES. IF WE FAIL
TO MANAGE OUR GROWTH EFFECTIVELY, OUR BUSINESS MAY BE NEGATIVELY IMPACTED.
In order to achieve our growth strategy, we will need to expand all
aspects of our business, including our computer systems and related
infrastructure. We cannot assure you that our infrastructure, technical staff
and technical resources will adequately accommodate or facilitate our expanded
operations. To be successful, we will need to continually improve our financial
and managerial controls, billing systems, reporting systems and procedures, and
we will also need to continue to expand, train and manage our workforce.
OUR INTERNATIONAL PRESENCE CREATES RISKS WHICH MAY ADVERSELY AFFECT OUR
BUSINESS.
There are certain risks inherent in doing business on an international
level. These risks include differences in legal and regulatory requirements and
other trade barriers, difficulties in staffing and managing foreign operations,
problems in collecting accounts receivable, fluctuations in currency exchange
rates, delays from government agencies, and tax laws. In addition, our
operations may be affected by changing economic, political and governmental
conditions in the countries in which we operate. Our inability or failure to
address these risks could have a material adverse affect on our business,
operations and financial condition. Also, we cannot assure you that laws or
administrative practices relating to taxation, or other matters of countries
within which we operate will not change. Any change in these areas could have a
material adverse effect on our business, financial condition and results of
operations.
OUR RESULTS FROM OPERATIONS MAY BE ADVERSELY AFFECTED BY EXCHANGE RATE
FLUCTUATIONS.
A portion of our expenditures and receivables are paid in foreign
currencies. As a result, our financial results may be affected by an
appreciation or depreciation in the value of the Danish kroner relative to the
currencies of the countries in which we operate. We have not engaged in hedging
or other risk management activities in order to offset the risk of currency
exchange rate fluctuations. We cannot predict in any meaningful way the effect
of exchange rate fluctuations upon future results. If the value of
16
the Danish kroner declines and the currencies of the countries in which we
operate appreciate or remain stable our results from operations may be
negatively affected.
WE ARE SUBJECT TO INCREASED U.S. REGULATORY REQUIREMENTS IN OUR NEXT FISCAL
YEAR, WHICH WILL INCREASE OUR COSTS AND POSE RISKS THAT THE VALUE OF OUR ADSS
COULD DECLINE IF WE FAIL TO TIMELY COMPLY.
The value of our publicly traded ADSs held by non-affiliates makes us
subject to the financial controls certification requirements of Section 404 of
the Sarbanes-Oxley Act as of the end of our fiscal year, June 30, 2008. We will
have to expend significant resources to meet this requirement, and we cannot
assure you that we will successfully achieve this objective by that date.
Failure to achieve Section 404 certification in a timely manner may adversely
effect investor confidence in our Company and this lack of investor confidence
may adversely effect the market price of our ADSs.
THE MARKET PRICE OF OUR ADSS MAY DECLINE IF THE VALUE OF THE DANISH KRONER FALLS
AGAINST THE US DOLLAR.
Fluctuations in the exchange rate between the Danish Kroner and the US
dollar are likely to affect the market price of our ADSs. For example, because
EuroTrust's financial statements are reported in Danish Kroners, if the value of
the Danish Kroner falls against the US dollar, EuroTrust's earnings per share in
US dollars will be reduced. This may adversely affect the price at which our
ADSs trade in the US.
THERE IS A LIMITED PUBLIC MARKET FOR OUR SECURITIES AND OUR SECURITIES MAY
EXPERIENCE EXTREME PRICE AND VOLUME FLUCTUATIONS.
Our ordinary shares are not listed on any securities exchange or market.
However, our ADSs are quoted on the Nasdaq National Market(R). The market price
of our ADSs may fluctuate significantly in response to various factors and
events, including:
o variations in our operating results;
o the liquidity of the markets;
o investor perceptions of us and the segments in which we operate;
o changes in earnings estimates by analysts;
o sales of ADSs by existing holders; and
o general economic conditions.
In addition, Nasdaq has recently experienced broad price and volume
fluctuations. This volatility has had a significant effect on the market price
of securities of companies for reasons that have often been unrelated to their
operating performance. These broad market fluctuations may also adversely affect
the market price of our ADSs and as a result, holders of our ADSs may lose a
significant portion of their investment.
17
WE HAVE NEVER PAID A DIVIDEND NOR DO WE ANTICIPATE DOING SO IN THE FORESEEABLE
FUTURE.
We have not declared or paid any cash dividends on our ordinary shares.
We do not expect to declare any dividends in the foreseeable future. We
anticipate that all cash that would otherwise be available to pay dividends will
be applied in the foreseeable future to finance our growth or to implement
shareholder-approved repurchases of our stock. Payment of any future dividends
will depend on our earnings and capital requirements, and other factors our
board of directors deem appropriate.
D. ORGANIZATIONAL STRUCTURE OF THE COMPANY
COUNTRY OF INTEREST
SUBSIDIARY INCORPORATION OWNERSHIP
---------- ------------- ---------
Aktiv Gruppen Holdings A/S Denmark 100%
AGH Norge A/S Denmark 100% (1)(2)
Euro909.dk A/S Denmark 100%
EuroTrust PKI Services A/S Denmark 100%
Selskabet af 1. Oktober 2004 A/S Denmark 100%
EuroTrust NetVaulting A/S Denmark 100%
(1) Formally known as AGH Nordan Invest A/S
(2) 50% owned directly by EuroTrust A/S and 50% owned by Aktiv Gruppen
Holdings A/S, a wholly owned subsidiary of EuroTrust
Other significant operating subsidiaries consolidated under Aktiv
Gruppen Holdings A/S and its jurisdiction of incorporation and the related
Company ownership interest in those subsidiaries at June 30, 2006 are as
follows:
COUNTRY OF INTEREST
SUBSIDIARY INCORPORATION OWNERSHIP
---------- ------------- ---------
Kronborg Byg ApS Denmark 100%
Ejendomsselskabet Parkhusene ApS Denmark 100%
Ejendomsselskabet Faergegardsvej, Vordingborg ApS Denmark 100%
Ejendomsselskabet Krohaven ApS Denmark 100%
Erritso Bygade 79 ApS Denmark 100%
Vognmandsmarken ApS Denmark 100%
N0rrebjerg Boligpark ApS Denmark 100%
Ejendomsselskabet Strandparken, Stege ApS Denmark 100%
Ejendomsselskabet Blavand Byferie ApS Denmark 100%
Ejendomsselskabet Kildevej, Helsinge ApS Denmark 100%
Ejendomsselskabet Kommandorparken, Solrod ApS Denmark 100%
Ejendomsselskabet Marienlyst Palae ApS Denmark 100%
Ejendomsselskabet Nyrad, Vordingborg ApS Denmark 100%
Ejendomsselskabet Soparken, Fredensborg ApS Denmark 100%
Ejendomsselskabet Olbycentervej 65 ApS Denmark 100%
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COUNTRY OF INTEREST
SUBSIDIARY INCORPORATION OWNERSHIP
---------- ------------- ---------
Kobenhavns Byejendomme A/S Denmark 100%
Ejendomsselskabet Hyltebjerg Alle ApS Denmark 100%
Win:pro Invent GmbH & Co Zehnte Wind KG (3) Germany 100%
Sonderborg Havnefront ApS Denmark 100%
Ejendomsudviklingsselskabet af 2001 A/S Denmark 100%
Aktiv Boligopsparing ApS Denmark 100%
Alpen Holidays Ferienhauser GmbH Austria 100%
Delta Byg ApS Denmark 80%
Delta Houses SIA (1) Latvia 80%
Aktiv Wind ApS Denmark 100%
EWF Drei Funf GmbH & Co. KG (2) Germany 78%
Win:pro Invent Gmbh & Co. Neunte Wind KG (2) Germany 100%
Aktiv Wind GmbH (1) (2) Germany 100%
EWF Eins Zwei GmbH & Co KG (2) Germany 78%
EWF Eins Drei GmbH & Co KG (2) Germany 78%
EWF Eins Vier GmbH & Co KG (2) Germany 78%
UW Thrana GmbH & Co KG (2) Germany 78%
EWF Zwei Eins GmbH & Co KG (2) Germany 78%
UW Nielitz GmbH & Co KG (2) Germany 78%
Komplementarselskabet Difko Buchbrunn I ApS (2) Denmark 100%
K/S Difko Buchbrunn I (2) Germany 100%
AGH Norge A/S (4) Denmark 100%
Nordan Parkhusene ApS (5) Denmark 100%
Den Gamle Skibssmedie ApS (5) Denmark 100%
Hotel Den Gamle Skibssmedie ApS (6) Denmark 100%
Bygg og Ejendomsutvikling Sor A/S (5) Norway 100%
Teamhus A/S (7) Norway 100%
Topdalfjordens Utvikling AS (7) Norway 100%
Romaasen Utvikling AS (7) Norway 100%
Drejens Strandskovpark A/S Denmark 100%
2S Ejendomsinvest ApS Denmark 100%
Silkegade Invest A/S (8) Denmark 100%
RGW A/S (8) Denmark 100%
Romo Golf A/S (8) Denmark 100%
Romo Golf & Wellness A/S (8) Denmark 100%
Romo Ferie ApS (8) Denmark 100%
St. Rorbaek Byudvikling ApS Denmark 100%
St. Rorbaek Byudvikling II ApS Denmark 100%
St. Rorbaek Byudvikling III ApS Denmark 100%
Gribskov Bolig ApS Denmark 100%
(1) Wholly owned subsidiary of Delta Byg ApS
(2) Wholly owned subsidiary of Aktiv Wind GmbH
(3) Wholly owned subsidiary of Hytlebjerg Alle
(4) 50% owned directly by EuroTrust A/S and 50% owned by Aktiv Gruppen
Holdings, A/S
(5) Wholly owned subsidiary of AGH Norge A/S
19
(6) Wholly owned subsidiary of Den Gamle Skibssmedie ApS
(7) Wholly owned subsidiary of Bygg og Ejendomsutvikling Sor A/S
(8) Wholly owned subsidiary of 2S Ejendomsinvest ApS
On December 12, 2005, AGH Norge A/S purchased a 100% interest in Bygg og
Ejendomsutvikling Sor A/S. On June 1, 2006, the Company purchased the remaining
50% interest of AGH Norge A/S. The Company has consolidated the result of AGH
Norge A/S from date of acquisition. The minority interests' proportionate share
of income or loss of AGH Norge A/S is included in the consolidated statement of
operations through May 31, 2006.
The results of operations for 2S Ejendomsinvest ApS have been included
in the consolidated statement of operations from the date of acquisition on June
2, 2006 through June 30, 2006.
The results of operations for Gribskov Bolig Aps have been included in
the consolidated statement of operations from the date of acquisition on June
16, 2006 through June 30, 2006.
The Company discontinued the it's Production and Broadcasting Operations
with the sale of certain production vans during April 2006, and the sale of
EuroVision A/S and subsidiaries effective April 17, 2006.
At June 30, 2006 and 2005, the Company held a 25% interest in Mediehuset
Danmark ApS; the investment is accounted for under the equity method of
accounting.
During January 2003, the Company purchased 50% of Kobenhavns Byejendomme
A/S from an entity controlled by a shareholder of the Company for DKK 1 (not in
thousands) and acquired an option to purchase the remaining 50% plus the
outstanding receivable payable for DKK 1 (not in thousands), which the Company
exercised January 15, 2005. The shares are acquired in order to utilize the net
operating loss carry forward in K0benhavns Byejendomme A/S. At the time of
acquisition the Company recorded contributed capital of DKK 480 in connection
with the DKK 1.7 million (not in thousands) net operating loss carry forward.
The Company has been consolidated from the date of acquisition as the Company
had an effective 100% controlling interest and right to profit and losses.
During 2003, Aktiv Gruppen Holding organized the subsidiary Aktiv
Boligopsparing ApS and distributed an 20% interest to each of 4 individuals for
DKK 26,000 receivables from each of the individuals, these interests were
reacquired from these individuals from during 2004 and 2005 in connection with
collection of the receivables. The Company consolidated 100% of the DKK 161
losses as required by Financial Accounting Standards Board (FASB) Interpretation
No. 46R.
PROPERTY, PLANT AND EQUIPMENT
For our operations, we lease 412 square meters in Kolding,
Denmark, 305 square meters in Copenhagen, Denmark and 354 square meters in
Kristiansand, Norway.
The total aggregate annual lease costs were approximately DKK 785,000
(not in thousands) for the fiscal year ended June 30, 2006 The operating leases
are cancelable by both parties through various times between 6 and 32 months. We
believe that the current facilities for our media operations will be adequate
for our purposes for at least the next 12 months. We also believe that there is
a supply of alternative facilities available in each of the locations where we
operate, should we deem it desirable to expand our facilities or otherwise
change locations.
20
ITEM 4A. UNRESOLVED STAFF COMMENTS
NONE.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A. OPERATING RESULTS
OVERVIEW
Our business currently consists of our property development operations
and our wind energy operations. We have been in the business of property
development since 2002. We started our wind energy business in June, 2005 with
the acquisition of six operating wind turbines in Germany.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States (GAAP). The preparation of these financial statements requires
management to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities. Management bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not
readily available from other sources. Actual results may differ from these
estimates under different assumptions or conditions. We believe that the
estimates, assumptions and judgments involved in the accounting policies
described below have the greatest potential impact on our consolidated financial
statements, so we consider these to be our critical accounting policies. See
"Summary of Significant Accounting Policies" in the consolidated financial
statements for more information about these critical accounting policies, as
well as descriptions of other significant accounting policies.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and short-term deposits with
maturities of less than three months at the time of purchase..
RESTRICTED CASH
Restricted cash as of June 30, 2006 and 2005, includes customer deposit
construction credits and bank deposits which are held as collateral for the
underlying mortgage and construction loans.
MARKETABLE SECURITIES - AVAILABLE FOR SALE
The Company accounts for debt and equity investments in Marketable
securities in accordance with Statement of Financial Accounting Standard. (SFAS)
No. 115, "Accounting for Certain Investments in Debt and Equity Securities".
Under SFAS 115 the Company's investments in public companies or
21
securities are classified as "available-for-sale". These investments are carried
at fair value based on quoted market prices. We review the marketable equity
holdings in publicly traded companies on a regular basis to determine if any of
the marketable securities have experienced an other-than-temporary decline in
its fair value. We consider the investee company's cash position, earnings and
revenue outlook, stock price performance over the past six months, liquidity and
management, among other factors, when reviewing the marketable equity
securities. If it is determined that an other-than-temporary decline in fair
value exists in a marketable equity security, we record an investment loss in
the consolidated statement of operations. Marketable securities are classified
as current if the Company has the ability or intention of selling the security
within 12 months.
EQUITY METHOD INVESTMENTS
Investments in corporate joint ventures, non-public companies or public
companies in which we are significant shareholder but less than majority are
included in long-term investments in the consolidated balance sheet and are
accounted for under the cost method if our percentage ownership is 20% or less
or the equity method if our ownership is in excess of 20 but less than 50% and
in which we do not have significant ability to influence management. For
non-quoted investments, we regularly review the assumptions underlying the
operating performance and cash flow forecasts based on information requested
from these privately held companies. Generally, this information may be more
limited, may not be as timely as and may be less accurate than information
available from publicly traded companies. Assessing each investment's carrying
value requires significant judgment by management. If it is determined that
there is an other-than-temporary decline in the fair value of a non-public
equity security, we write-down the investment to its fair value and record the
related write-down as an investment loss in the consolidated statement of
operations.
As of June 30, 2006 investments in non consolidated entities included:
% OWNERSHIP
ENTITY NATION
Europe Vision PLC (Formerly Tritel Investments, Inc.) Sweden 22.95%
Windpark Wriezener Hohe GmbH & Co KG Denmark 50.00%
Mediehuset Danmark ApS Denmark 25.00%
CONTRACT & OTHER ACCOUNTS RECEIVABLE
Trade accounts receivable are recorded at the amount invoiced to
customers and they do not bear interest. The allowance for doubtful accounts is
the Company's best estimate of amount of probable losses resulting from the
inability of our customers to make required payments. We regularly review the
adequacy of our accounts receivable allowance after considering the size of the
accounts receivable balance, each customer's expected ability to pay and our
collection history with each customer. We review significant invoices that are
past due to determine if an allowance is appropriate based on the risk category
using the factors described above The Company's policy for putting the loan on
non-accrual status and to record an allowance for doubtful accounts is based
upon management's best estimate of amount of probable losses resulting from the
purchaser inability to make required payments.
The following includes the changes in the allowance for doubtful
accounts for the years ended June 30, 2004 to June 30, 2006:
22
Allowance for doubtful accounts: Amounts
charged
(credited) to
Balance at Operating Balance at
July 1 Expenses Write-offs June 30
---------- ----------
Year ended June 30, 2004 595 208 0 803
Year ended June 30, 2005 803 200 (352) 651
Year ended June 30, 2006 651 887 (586) 952
MORTGAGE LOANS RECEIVABLE
Mortgage loans receivable represent a note received from the sale of
real estate owned by the Company. All of the loans are secured by First Deeds of
Trust in real property and are carried at unpaid principal. The Company monitors
the recoverability of its loans and notes receivable. Interest on mortgage loans
is recognized as revenue as it accrues during the period the loan is
outstanding. Mortgage loans receivable are evaluated periodically for
impairment. If it becomes evident that the borrower is unable to meet its debt
service obligations and cannot satisfy its payments using sources other than
sales or operations of the property securing the loan, such loan will be
considered impaired. In that event, interest income on impaired loans will cease
to accrue and the recorded amount will be reduced to the fair value of the
collateral securing it.
PROPERTIES HELD FOR SALE OR FUTURE DEVELOPMENT
Real estate inventory held for current sale or future development
includes land, land development and carrying costs, including real estate taxes
and assessments, management fees and other directly related costs incurred. It
also includes the non-refundable deposits on land for future development. Costs
are allocated to individual units based on the specific identification or
relative sales value method. Real estate inventory held for current sale and
land held for future development is carried at the lower of cost or fair market
value. Impairment is recognized when estimated expected future cash flows
(undiscounted and without interest charges) are less than the carrying amount of
the project. Due to uncertainties inherent in the valuation process and in the
economy, it is reasonably possible that the actual sales values and profits of
the Company's inventory of land held for current sale and future development
could be materially different than current expectations. To the extent that
impairment has occurred, the excess of the carrying amount of such property over
its estimated fair value, less estimated selling costs, will be charged to
operations. As of June 30, 2006 and 2005, the Company's management believed that
there was no impairment on the carrying value of real estate.
PROPERTY ON OPERATING LEASE
Property on operating lease is stated at cost, net of accumulated
depreciation, unless circumstances indicate that cost, net of accumulated
depreciation, cannot be recovered from estimated future undiscounted cash flows,
in which case, the carrying value of the property is reduced to its estimated
fair value. Due to uncertainties inherent in the valuation process and in the
economy, it is reasonably possible that the actual results of operating and
disposing of the Company's property could be materially different than current
expectations. At June 30, 2006 and 2005, the Company's management believed that
there was no impairment on the carrying value of the property. Depreciation of
the building
23
and improvements is provided using the straight line method over 30 years the
estimated useful lives of the respective assets.
PLANT AND EQUIPMENT
Plant, equipment, furniture and fixtures, automobiles and leasehold
improvements are carried at cost less accumulated depreciation.
Equipment, furniture and fixtures and automobiles are depreciated on a
straight-line basis over the expected useful lives of between three and ten
years. Leasehold improvements are amortized over the shorter of their expected
lives, which is ten years or the non-cancelable term of the leases.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS No. 144, long-lived assets, such as property,
plant, and equipment, and purchased intangibles subject to amortization, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Circumstances which
could trigger a review include, but are not limited to: significant decreases in
the market price of the asset; significant adverse changes in the business
climate or legal factors; current period cash flow or operating losses combined
with a history of losses or a forecast of continuing losses associated with the
use of the asset; and current expectation that the asset will more likely than
not be sold or disposed of significantly before the end of its estimated useful
life.
Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of an asset
exceeds its estimated undiscounted future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the
fair value of the asset. Assets to be disposed of would be separately presented
in the balance sheet and reported at the lower of the carrying amount or fair
value less costs to sell, and would no longer be depreciated. The depreciable
basis of assets that are impaired and continue in use is their respective fair
values.
GOODWILL AND OTHER DEFINITE LIFE INTANGIBLE ASSETS
Goodwill represents the excess of costs over the fair value of the
identifiable net assets of businesses or remaining interest of businesses
acquired. Other definite life intangibles assets consisted in 2006 of amounts
paid for the rights to acquire land and the allocation of purchase price in
asset and subsidiary acquisition to development rights in specific real estate
development projects. The Company accounts for Goodwill and Other Intangible
Assets in accordance with SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS,
and accordingly Goodwill and indefinite intangible assets are tested for
impairment at least annually or when circumstances change that could result in
impairment; definite-life intangible assets with estimable useful lives are
amortized over their respective estimated useful lives, and reviewed for
impairment in accordance with SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets.
24
REVENUE RECOGNITION LONG TERM CONTRACT
Real Estate development
Revenues from real estate development contracts are recognized on the
percentage-of-completion method, measured by the percentage of project /
construction costs incurred to date to estimated total project / construction
costs for each contract multiplied by the ratio of the number of units sold over
the total number of units on a project by project basis. This method is used
because management considers costs incurred to be the best available measure of
progress on contracts in process.
Construction costs of projects under contract include all direct
material and labor costs and those indirect costs related to contract
performance. Directly related selling, general, and administrative costs are
capitalized and accreted included in cost of sales charged to expense as
incurred. Provisions for estimated losses on the incomplete contracts are made
in the period in which such losses are determined. Changes in estimated
profitability are recognized in the period in which the revisions are
determined. The aggregate of costs incurred and income recognized on incomplete
contracts in excess of billings on uncompleted contracts is shown as a current
asset. The aggregate of billings in excess of related costs incurred and income
recognized would be shown as a current liability.
All leases are classified as operating leases and minimum rents are
recognized on a straight-line basis over the lease terms, commencing on the date
that possession is taken by the tenant.
Tenant reimbursements for real estate taxes, common area maintenance and
other recoverable costs are recognized in the period that the expenses are
incurred. Lease termination fees, which are included in other income in the
accompanying consolidated and combined statements of operations, are recognized
when the related leases are cancelled and we have no continuing obligation to
provide services to such former tenants.
Wind Energy
The Company recognizes revenue from the generation of wind energy in
accordance with the terms of the individual wind turbines or windpark contracts
with the German Electric Utility Companies. These contracts contain a 20 year
fixed floor price to be paid per kilowatt hour delivered. Revenue is recognized
upon delivery of the electricity to the electric utility substation and
collection is probable.
ADVERTISING COSTS
Advertising costs are expensed as incurred. In the consolidated
statements of operation advertising costs directly related to specific real
estate projects are included in cost of sales.
INCOME TAXES
The Company utilizes the asset and liability method to account for
income taxes. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and to operating loss carry forwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
The Company records a valuation allowance to reduce deferred tax assets to an
amount in which realization is more likely than not.
25
CONCENTRATION OF CREDIT RISK
Cash and cash equivalents are, for the most part, maintained with
several major financial institutions in Scandinavia. These balances are insured
up to DKK 300 per account.
A majority of the Company's current real estate development are located within
Denmark.
All of the Company's wind turbines are located in Germany.
ASSET RETIREMENT OBLIGATIONS
The Company's wind turbines are located on property leased from third
parties. We are obligated to remove the wind turbine upon expiration. We account
for these estimated obligations in accordance with Statement of Financial
Accounting Standards No. 143, "Accounting for Asset Retirement Obligations"
(SFAS No. 143) and Financial Accounting Standards Board (FASB) Interpretation
No. 47, "Accounting for Conditional Asset Retirement Obligations". SFAS No. 143
requires the accrual of the present value of the future estimated asset
retirement obligations at installation, with an offsetting amount booked as
additions to property & equipment. The estimated obligation is accreted to
expense over the estimated life of the assets for the increase in the present
value of the obligation.
CONSOLIDATED RESULTS
YEAR ENDED JUNE 30, 2006 COMPARED WITH YEAR ENDED JUNE 30, 2005
Net sales for the year ended June 30, 2006 was DKK 414.6 million, an
increase of DKK 167.3 million, or 67.6%, compared to net sales of DKK 247.3
million for the year ended June 30, 2005. This increase was primarily
attributable to an overall increase in the activities of the company. Within the
Real Estate Development segment the increased activity was due to a higher
demand for our projects. Except for certain immaterial start-up general and
administrative expenses (DKK 910,000) we had no material activities in our Wind
Energy segment in the year ended June 30, 2005. Our Wind Energy segment began
its activities in the year ended June 30, 2006. The table below compares sales
for both years for our Real Estate development segment-and sets forth the sales
for our Wind Energy segment for the year ended June 30, 2006.
---------------------- ------------------------
SALES AMOUNT PERCENTAGE
INCREASE INCREASE
2006 2005 (DECREASE) (DECREASE)
---------- ---------- ---------- ------------
(IN THOUSANDS OF DKK)
Real Estate development: 414,588 247,333 167,255 67.6%
Wind Energy 19,200 --- --- ---%
---------- ---------- ---------- ------------
Total 433,788 247,333 186,455 75.4%
---------- ---------- ---------- ------------
Total operating expenses for the year ended June 30, 2006 were DKK 368.4
million, an increase of DKK 183.0 million, or 98.7%, from the total operating
expenses of DKK 185.4 million for the year ended June 30, 2005. This increase is
primarily attributable to an overall increase in the activities for the company.
The table below compares our operating expenses by category for both years for
our Real
26
Estate development segment, and sets forth our operating expenses by category
for our Wind Energy segment for the year ended June 30, 2006.
---------------------- ------------------------
COST OF SALES AMOUNT PERCENTAGE
INCREASE INCREASE
2006 2005 (DECREASE) (DECREASE)
---------- ---------- ---------- ------------
(IN THOUSANDS OF DKK)
Real Estate development: 333,594 173,637 159,957 92.1%
Wind Energy 1,202 --- --- ---%
---------- ---------- ---------- ------------
Total 334,796 173,637 161,159 92.8%
---------- ---------- ---------- ------------
---------------------- ------------------------
SALES AND MARKETING AMOUNT PERCENTAGE
INCREASE INCREASE
2006 2005 (DECREASE) (DECREASE)
---------- ---------- ---------- ------------
(IN THOUSANDS OF DKK)
Real Estate development: 1,049 907 142 15.7%
Wind Energy 0 --- --- ----
---------- ---------- ---------- ------------
Total 1,049 907 142 15.7%
---------- ---------- ---------- ------------
---------------------- ------------------------
GENERAL/
ADMINISTRATIVE AMOUNT PERCENTAGE
INCREASE INCREASE
2006 2005 (DECREASE) (DECREASE)
--------- ---------- ----------- -----------
(IN THOUSANDS OF DKK)
Real Estate development: 19,632 9,442 10,190 107.9%
Wind Energy 7,061 910 6,151 675.9%
---------- ---------- ---------- ------------
Total 26,693 10,352 16,341 157.9%
---------- ---------- ---------- ------------
---------------------- ------------------------
DEPRECIATION AMOUNT PERCENTAGE
INCREASE INCREASE
2006 2005 (DECREASE) (DECREASE)
--------- ---------- ----------- -----------
(IN THOUSANDS OF DKK)
Real Estate development: 681 520 161 31.0%
Wind Energy 5,136 --- --- ---%
---------- ---------- ---------- ------------
Total 5,817 520 5,297 1018.7%
---------- ---------- ---------- ------------
---------------------- ------------------------
In our Real Estate Development segment our operating expenses increased
as a result of our increased sales.
For the year ended June 30, 2006, the gross profit for our Real Estate
Development segment was DKK 80,994 or 19.5% of segment revenues, while the gross
profit for the year ended June 30, 2005 was
27
DKK 73,696 or 29.8%of segment revenues. The increase in the gross profit is due
to a higher demand for our projects and the decrease in the gross profit margin
is due to increasing building costs and the type of real estate projects sold
during the period.
In our Wind Energy segment the gross profit for the year ended June 30,
2006 was DKK 12,862 or 67.0% of segment revenues.
For the year ended June 30, 2006 our operating profit increased by DKK
3.5 million to DKK 65.4 million compared to a profit of DKK 61.9 million for the
year ended June 30, 2005.
The operating profit for our Real Estate Development segment decreased
by DKK 2.3 million to DKK 59.6 million compared to a profit of DKK 61.9 million
for the year ended June 30, 2005. This decrease is attributable to increased
operating expenses incurred as a result of our increased focus on further
developing and enhancing our Real Estate Development business.
For the year ended June 30, 2006, we had interest income of DKK 4.0
million and interest expense of DKK 14.6 million. For the year ended June 30,
2005, interest income was DKK 1.3 million and interest expense was DKK 9.2
million.
For the year ended June 30, 2006 the Net income increased to DKK 45.9
million compared to a Net income of DKK 37.1 million for the year ended June 30,
2005 The increase in our Net income of DKK8.8 million is primarily attributable
to an increase in our activities within both our Real Estate Development and
Wind Energy segments.
YEAR ENDED JUNE 30, 2005 COMPARED WITH YEAR ENDED JUNE 30, 2004.
During the fiscal years ended June 30, 2005 and June 30, 2004 the
Company's revenues and expenses were, except for immaterial expenses for our
wind energy business in 2005, exclusively attributable to our real estate
development business. Therefore no segment information is provided in the
discussion of the comparison of these results
Net sales for the year ended June 30, 2005 was DKK 247.3 million, a
decrease of DKK 48.7 million, or 16.5%, compared to sales of DKK 296.0 million
for the year ended June 30, 2004. The decrease in sales was attributable to
delays in obtaining the required municipality plans and building permits, which
caused us to postpone the start of several planned projects. However, as a
result of these delays, our pipeline of projects to be built and sold in the
coming years has increased substantially.
Total operating expenses for the year ended June 30, 2005 were DKK 185.4
million (of which 0.9 million were attributable to the wind energy segment), a
decrease of DKK 81.0 million, or 30.4%, from the total operating expenses of DKK
266.4 million for the year ended June 30, 2004. This decrease was primarily
attributable to a decrease in our cost of sales of DKK 85.5 million and an
increase in general and administrative expenses of DKK 4.9 million (of which 0.9
million were attributable to the wind energy segment).
For the year ended June 30, 2005, our operating income was DKK 61.7
million or 24.9% of sales. For the year ended June 30, 2004, the operating
income was DKK 29.6 million, or 10.0% of sales.
28
For the year ended June 30, 2005, we had interest income of DKK 1.3
million and interest expense of DKK 9.2 million. For the year ended June 30,
2004 interest income was DKK 0.6 million and interest expense was DKK 2.3
million.
Our Net income for the year ended June 30, 2005 increased to DKK 37.1
million compared to a Net income of DKK 17.5 million for the year ended June 30,
2004. The increase in our Net income of DKK 19.6 million or112% is primarily
attributable to increased sales offset by increased cost of sales, increased
general and administrative expenses and increased income tax expense.
B. LIQUIDITY AND CAPITAL RESOURCES
For the year ended June 30, 2006, cash provided by operations was DKK
56.8 million compared to cash provided by operations of DKK 17.9 million for the
year ended June 30, 2005, an increase of DKK 38.9 million. The increase was
primarily due to an increase in our Net income and an increase in customer's
deposits of DKK 49.2 million, partly offset by a decrease in other receivables
and account payable.
For the year ended June 30, 2006, cash provided by investing activities
was DKK 6.3 million compared to cash provided by investing activities of DKK 1.0
million for the prior year, an increase of DKK 5.3 million. This increase was
partly due to an increase in cash acquired in business acquisitions and notes
receivable from related party offset by cash used to purchase investments and a
decrease in mortgage deed receivables.
For the year ended June 30, 2006, cash used in financing activities was
DKK 64.4 million compared to cash provided by financing activities of DKK 20.5
million for the prior year, an increase of DKK 84.9 million. This increase was
primarily due to an increase in short- and long-term borrowings of DKK 261.5 and
an increase in proceeds from the issuance of our common stock of DKK 155.8
million offset by a decrease in restricted cash of DKK 352.8 million.
Our capital expenditures for the year ended June 30, 2006 were DKK 2.4
million. These expenditures primarily related to office equipment (furniture's)
and IT
We believe that our cash on hand and the positive trend of our operating
cash flow together with borrowings currently available and other potential
sources of funds as described above will be sufficient to fund our anticipated
working capital needs and capital spending requirements in the foreseeable
future. However, if we were to incur any unanticipated expenditures or the
positive trend of our operating cash flow does not continue, such circumstances
could put a substantial burden on our cash resources.
CONTRACTUAL OBLIGATIONS (in thousands of DKK)
----------------------------- ------- ---------- ----------- -------------------
YEAR
ENDED
JUNE 30,
CONTRACTUAL OBLIGATIONS 2007 LATER YEARS TOTAL OBLIGATIONS
----------------------------- ------- ---------- ----------- -------------------
Operating leases 3,442 36,691 40,133
----------------------------- ------- ---------- ----------- -------------------
TOTAL CONTRACTUAL OBLIGATIONS 3,442 36,691 40,133
----------------------------- ------- ---------- ----------- -------------------
29
INFLATION
We do not believe that inflation had a material impact on our results of
operations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In September 2006, the Chief Accountant of the SEC issued a letter
regarding the accounting implications of certain option granting practices of
which the SEC staff has become aware, many of which affect the determination of
an option's measurement date. Although not yet embodied in a separate accounting
pronouncement, the Chief Accountant's letter elaborates on the staff's view as
to accounting issues related to APB Opinion 25, "Accounting for Stock Issued to
Employees", should a registrant's practices related to such matters be reviewed.
The Company is evaluating the impact of the Chief Accountant's letter, but does
not presently believe that its consolidated financial statements will be
effected thereby.
In September 2006, the SEC staff issued Staff Accounting Bulletin No.
108, "Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements." SAB 108 was issued to
provide consistency between how registrants quantify financial statement
misstatements. SAB 108 established an approach that requires quantification of
financial statement misstatements based on the effects of the misstatement on
each of the Company's financial statements and the related financial statement
disclosures. This approach is commonly referred to as the "dual approach"
because it requires quantification of errors under two widely-used methods for
quantifying the effects of financial statement misstatements, generally referred
to as the "roll-over" and "iron curtain" methods. SAB 108 allows registrants to
initially apply the dual approach either by (1) retroactively adjusting prior
financial statements as if the dual approach had always been used or by (2)
recording the cumulative effect of initially applying the dual approach as
adjustments to the carrying values of assets and liabilities as of January 1,
2006 with an offsetting adjustment recorded to the opening balance of retained
earnings. Use of this "cumulative effect" transition method requires detailed
disclosure of the nature and amount of each individual error being corrected
through the cumulative adjustment and how and when it arose. The Company expects
to apply SAB 108 using the cumulative effect transition method in connection
with the preparation of its annual financial statements for the year ending June
30, 2007. When the Company initially applies the provisions of SAB 108, it does
not presently expect to record any effects of financial statement misstatements.
In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109"
(FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes by
prescribing a two-step method of first, evaluating whether a tax position has
met a more-likely-than-not recognition threshold, and second, measuring that tax
position to determine the amount of benefit to be recognized in the financial
statements. FIN 48 provides guidance on the presentation of such positions
within a classified statement of financial position as well as on
de-recognition, interest and penalties, accounting in interim periods,
disclosure and transition. FIN 48 is effective for the Company beginning July 1,
2007. Management is currently reviewing FIN 48 to determine the impact of
adopting it and its materiality to the Company.
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain
Hybrid Financial Instruments, an amendment of FASB statements No. 133 and 140"
(SFAS 155). SFAS No. 155 allows financial instruments that have embedded
derivatives to be accounted for as a whole (eliminating the need to bifurcate
the derivative from its host) as long as the entire instrument is valued on a
fair value
30
basis. The statement also resolves and clarifies other specific SFAS No. 133 and
SFAS No. 140 related issues. SFAS No. 155 is effective for all financial
instruments acquired or issued after the beginning of an entity's first fiscal
year that begins after September 15, 2006. We will be required to adopt SFAS No.
155 on July 1, 2007 and do not expect that it will have a material effect on our
Consolidated Financial Statements.
On September 28, 2005, the FASB ratified the following consensus
reached in EITF Issue 05-8 ("Income Tax Consequences of Issuing Convertible Debt
with a Beneficial Conversion Feature"): a) The issuance of convertible debt with
a beneficial conversion feature results in a basis difference in applying FASB
Statement of Financial Accounting Standards SFAS No. 109, Accounting for Income
Taxes. Recognition of such a feature effectively creates a debt instrument and a
separate equity instrument for book purposes, whereas the convertible debt is
treated entirely as a debt instrument for income tax purposes. b) The resulting
basis difference should be deemed a temporary difference because it will result
in a taxable amount when the recorded amount of the liability is recovered or
settled. c) Recognition of deferred taxes for the temporary difference should be
reported as an adjustment to additional paid-in capital. This consensus is
effective in the first interim or annual reporting period commencing after
December 15, 2005, with early application permitted. The effect of applying the
consensus should be accounted for retroactively to all debt instruments
containing a beneficial conversion feature that are subject to EITF Issue 00-27,
"Application of Issue No. 98-5 to Certain Convertible Debt Instruments" (and
thus is applicable to debt instruments converted or extinguished in prior
periods but which are still presented in the financial statements). The adoption
of this pronouncement is not expected to have a material impact on the Company's
financial statements.
The Emerging Issues Task Force ("EITF") reached a tentative conclusion
on EITF Issue No. 05-1, "Accounting for the Conversion of an Instrument That
Becomes Convertible upon the Issuer's Exercise of a Call Option" that no gain or
loss should be recognized upon the conversion of an instrument that becomes
convertible as a result of an issuer's exercise of a call option pursuant to the
original terms of the instrument. The application of this pronouncement is not
expected to have an impact on the Company's consolidated financial statements.
In June 2005, the FASB ratified EITF Issue No. 05-2, "The Meaning of
'Conventional Convertible Debt Instrument' in EITF Issue No. 00-19, 'Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock'" ("EITF No. 05-2"), which addresses when a convertible debt
instrument should be considered 'conventional' for the purpose of applying the
guidance in EITF No. 00-19. EITF No. 05-2 also retained the exemption under EITF
No. 00-19. EITF No. 05-2 is effective for new instruments entered into and
instruments modified in periods beginning after June 29, 2005. The Company has
applied the requirements of EITF No. 05-2 since the required implementation
date. The adoption of this pronouncement did not have an impact on the Company's
consolidated financial statements.
EITF Issue No. 05-4 "The Effect of a Liquidated Damages Clause on a
Freestanding Financial Instrument Subject to EITF Issue No. 00-19, 'Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock'" ("EITF No. 05-4") addresses financial instruments, such as
stock purchase warrants, which are accounted for under EITF 00-19 that may be
issued at the same time and in contemplation of a registration rights agreement
that includes a liquidated damages clause. The consensus of EITF No. 05-4 has
not been finalized. The Company does not believe the adoption of this
pronouncement will have an impact on the Company's consolidated financial
statements.
31
In September 2005, the FASB ratified EITF Issue No. 05-7, "Accounting
for Modifications to Conversion Options Embedded in Debt Instruments and Related
Issues" ("EITF No. 05-7"), which addresses whether a modification to a
conversion option that changes its fair value affects the recognition of
interest expense for the associated debt instrument after the modification and
whether a borrower should recognize a beneficial conversion feature, not a debt
extinguishment, if a debt modification increases the intrinsic value of the
debt. EITF No. 05-7 is effective for the first interim or annual reporting
period beginning after December 15, 2005. The Company is currently in the
process of evaluating the effect that the adoption of this pronouncement will
have on its financial statements.
OFF BALANCE SHEET ARRANGEMENTS
The Company is not aware of any material transactions which are not
disclosed in its consolidated financial statements.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of December 1, 2006, the name,
position, age, principal occupation and address and the date on which they first
became an officer or director for our directors and senior management.
DATE BECAME A
NAME AND POSITION AGE PRINCIPAL OCCUPATION AND ADDRESS DIRECTOR/OFFICER
----------------------------- ------ ---------------------------------------- ----------------
Bo Kristensen Chief Executive Officer of
President, Chief EuroTrust A/S
Executive Officer ........ Kokholm 3
47 6000 Kolding
Denmark May 2006
Soren Degn Chief Financial Officer of
Chief Financial Officer... 37 EuroTrust A/S
Kokholm 3
6000 Kolding September
Denmark 2003
Erik Damgaard Private Investor
Chairman of the Board..... 45 c/o EuroTrust A/S
Kokholm 3
6000 Kolding
Denmark December 2005
32
DATE BECAME A
NAME AND POSITION AGE PRINCIPAL OCCUPATION AND ADDRESS DIRECTOR/OFFICER
----------------------------- ------ ---------------------------------------- ----------------
Peter Juul 44 Chief Executive Officer of Aktiv
Director, Chief Executive Gruppen Holding A/S and a Director of
Officer of Aktiv Gruppen EuroTrust A/S
Holding A/S............... Kokholm 3
6000 Kolding
Denmark December 2005
John J. Stuart, Jr.(1)(2) Chief Financial Officer of
Director.................. 67 Irvine Sensors Corporation
3001 Redhill Avenue
Costa Mesa, CA 92626-4532
USA May 1998
Christian Rovsing (1)(2) Management Consultant
Director.................. 70 c/o EuroTrust A/S
Kokholm 3
6000 Kolding
Denmark May 2006
Jan Berger(1)(2) Management Consultant
Director.................. 63 c/o EuroTrust A/S
Kokholm 3
6000 Kolding
Denmark May 2003
------------------------
(1) Member, audit committee of the Board of Directors.
(2) Member, compensation committee of the Board of Directors.
BO KRISTENSEN, PRESIDENT, CHIEF EXECUTIVE OFFICER
Mr. Kristensen has been our Chief Executive Officer since May 2006. He
has been affiliated as partner and responsible for economy and financing in the
subsidiary Aktiv Gruppen Holding A/S since 2001. Mr. Kristensen also serves as a
member of the board for several of our wholly owned subsidiaries.Mr. Kristensen
has a Graduate Diploma in Economics (Management Accounting) and Higher
Commercial Examination. Mr. Kristensen is highly experienced in both business
areas - Renewable Energy and Estate Development
SOREN DEGN, CHIEF FINANCIAL OFFICER
Mr. Degn has been our Chief Financial Officer since September 2003. He
also serves as a member of the board for several of our wholly-owned
subsidiaries. Prior to this appointment he served as our Corporate Finance
Director since 2001. Mr. Degn spent 5 years with Kampsax A/S (a consultancy
firm) and 7 years with KPMG in Denmark. Mr. Degn has a Graduate Diploma in
Business Administration in accountancy and a MSC (Business Administration and
Auditing) in financial planning and control from the Copenhagen Business School.
PETER JUUL, DIRECTOR, CHIEF EXECUTIVE OFFICER OF AKTIV GRUPPEN HOLDIng A/S
Mr. Juul has been the Chief Executive Officer of Aktiv Gruppen Holding
A/S since November 14, 2005. He was Chairman of the board of Aktiv Gruppen from
September 1, 2002 to November 14, 2005. Prior to his becoming Chief Executive
Officer of Aktiv Gruppen, Mr. Juul was a partner in the law firm of Interlex
Advokater located in Arhus, Denmark.
33
ERIK DAMGAARD, CHAIRMAN OF THE BOARD OF DIRECTORS
Mr. Damgaard is currently a private investor. From 2002 to 2004 Mr.
Damgaard was a software architect for Microsoft Corporation. Prior to 2002 Mr.
Damgaard was the Technology Officer of Navision A/S, a company which he helped
found. In 2002, Navision A/S was sold to Microsoft.
JOHN J. STUART, JR., DIRECTOR
Mr. Stuart was elected to our Board of Directors in May 1998. Since
January 1983 Mr. Stuart has been employed by Irvine Sensors Corporation ("ISC"),
Costa Mesa, California USA, a developer of proprietary technologies to produce
extremely compact packages of solid state microcircuitry. He currently serves as
ISC's Senior Vice President and Chief Financial Officer, positions he has held
since November 1998 and July 1985, respectively. Between July 1985 and February
1995, he also held the position of ISC's treasurer and was reappointed to this
position in November 1998. Mr. Stuart holds a degree in Industrial Management
from the Massachusetts Institute of Technology.
CHRISTIAN ROVSING, DIRECTOR
Mr. Rovsing was a member of the European Parliament from 1989-2004. He
is currently president or a board member of a number of companies active mainly
in the areas of space, biotech and telecommunications. Mr. Rovsing received a
M.Sc. (electronics) from the Technical University of Denmark.
JAN BERGER, DIRECTOR
Mr. Berger was elected to our Board of Directors in May 2003. Mr. Berger
has been a Management Consultant since 1998. He has more than 24 years of
experience in the Information Technology (IT) industry and has held various top
management positions with leading IT companies. In addition, Mr. Berger has
served as a board member at several companies including, chairman of the board
of Skrivervik Data, a SUN Microsystems distributor in Norway. Mr. Berger has
degree in Business Economics and Administration with an emphasis on Sales and
Marketing.
There are no family relationships among any of our directors and
executive officers or those of our subsidiaries.
B. COMPENSATION
EXECUTIVE COMPENSATION
Cash compensation paid by us and our subsidiaries for the year ended
June 30, 2006 to our directors and senior management for services in all
capacities, other than professional fees, totaled approximately DKK 5.4 million
(approximately $0.9 Million). In addition, we maintain a standard pension plan
for our executive officers under the terms of which we contribute an amount
equal to 15% of their annual salary to the plan. The total contribution for the
year ended June 30, 2006 totaled approximately DKK 168 (approximately $29).
We have an employment agreement with Mr. Soren Degn our chief financial
officer which provides, among other things, for an annual salary of DKK 1,680.
Mr. Degn's employment agreement will
34
initially expire on December 31, 2008. However the agreement will automatically
be extended for unlimited 1-year periods unless we provide him with 2 years
advance notice that the Company will not renew his employment.
We have an employment agreement with Mr. Bo Kristensen our chief
executive officer which provides, among other things, for an annual salary of
DKK 2,280. Mr. Kristensen's employment agreement will initially expire on June
30, 2009. However the agreement will automatically be extended for unlimited
1-year periods unless we provide him with 30 months advance notice that the
Company will not renew his employment.
OPTIONS
No options were granted pursuant to our stock option plan to the named
executive officers during the year ended June 30, 2006.
DIRECTOR COMPENSATION
Directors are reimbursed for expenses they incur in connection with
attending meetings of the Board of Directors and committees thereof. We may
periodically grant options to our directors, although the amount and timing of
those grants are determined by the Board in its sole discretion. In addition,
our independent directors are paid (U.S.) $6.25 per quarter for serving as a
director and receive (U.S.) $1.5 for each Board meeting which they attend in
person and (U.S.) $.5 for each Board meeting which they attend by telephone. In
addition the Chairman of our Audit Committee is paid an additional (U.S.) $2.500
per quarter. Directors may also receive a one time grant of ordinary shares when
they first join our Board.
C. BOARD PRACTICES
Our Board of Directors may consist of between three and seven members.
As of December 1, 2006, the Board consisted of five members. Under certain
provisions of the Danish Companies Act, our employees have the right to elect
three board members. However, our employees have not exercised this right.
Each director is elected by a vote at the annual or special meeting of
the shareholders and serves for a term of one year. All of our current directors
were elected or re-elected at the annual general meeting held on November 17,
2006.
There is no restriction on the re-election of directors. The quorum for
a meeting of the Board of Directors is a simple majority. All members of the
Board of Directors have equal voting rights and all resolutions are passed by a
simple majority.
The citizenships of the directors are as follows:
Name Country of Citizenship
--------------------------------------------------------------------------
ERIK DAMGAARD Denmark
PETER JUUL Denmark
JOHN J. STUART, JR. United States
JAN BERGER Norway
CHRISTIAN ROVSING Denmark
35
There are no agreements with our Board members that provide for the
payment of benefits upon termination of their directorship.
The Board has determined that Messrs. Berger, Rovsing and Stuart meet
the standard for independent directors as required by the listing standards of
NASDAQ.
BOARD COMMITTEES
Our Board of Directors has an audit committee and a compensation
committee.
The audit committee reviews our financial statements and accounting
practices, approves the selection of the Company's independent auditors and
meets and interacts with the independent auditors to discuss questions in regard
to the Company's financial reporting, reviews the results and scope of the audit
and other services provided by our independent auditors, and our internal
controls. The audit committee consists of Messrs. Berger, Rovsing and Stuart.
The Board has determined that Mr. Stuart is an "audit committee financial
expert", as defined under the rules promulgated by the United States Securities
and Exchange Commission.
The compensation committee makes recommendations to the Board regarding
remuneration of executive officers and reviews our compensation plans and
policies. The compensation committee consists of Messrs. Berger, Rovsing and
Stuart.
INDEMNIFICATION
Except to the extent indicated below, neither our Articles of
Association nor any contract or other arrangement to which we are a party
contains any provision under which any of our directors, members of management
or officers are insured or indemnified in any manner against any liability that
he or she may incur in his or her capacity as a director or an officer.
We have obtained an insurance policy under which our directors and
officers are insured against losses arising from their acts or omissions in
their capacities as directors or officers up to DKK 40 million. This policy has
a DKK 50, deductible.
Under the Danish Act on Limited Companies, our directors and officers,
who are registered as managers with the Danish Commerce and Companies Agency,
are liable for losses caused deliberately or by negligence in connection with
the performance of their duties to us and to third parties. Officers not so
registered are indemnified by us under applicable Danish law in respect of
actions taken by them in their official capacity.
Insofar as indemnification for liabilities under the Securities Act of
1933, as amended, may be permitted to our directors, officers or controlling
persons as set forth above, we have been informed that in the opinion of the
SEC, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
36
D. EMPLOYEES
As of June 30, 2006, we had 91 employees, an increase from 82 employees for the
prior year. This increase is primarily attributable to the growth of our
business All of our employees are located in Denmark and Norway (see the
following table.) The table below gives a breakdown of our employees and area of
employment:
Denmark Norway Total
Sales and Marketing 3 1 4
Customer Service and Support 4 1 5
Technical 1 0 1
Finance and Administration 16 1 17
Other 61 3 64
----------------------------
Totals 85 6 91
----------------------------
Some of our employees are members of various labor unions; however, we
are not required to, and we do not have agreements with any union. We have not
experienced any work stoppages, and we consider our relations with our employees
to be good.
Competition in the recruiting of highly-qualified personnel is intense.
We believe that our future success will depend, in part, on our continued
ability to hire, motivate and retain qualified management, marketing and
technical personnel. To date, we have not experienced any difficulty in
attracting and retaining qualified personnel, but we can provide no assurance
that we will be able to continue to attract and retain qualified personnel in
the future.
We believe that our relations with our union and non-union employees are
good.
E. The following table sets forth the ownership of our ordinary
shares by the individuals named in Item 6.A., as of December 1, 2006
NUMBER ORDINARY
NAME SHARES AND ADSs (1) PERCENT (2)
--------------------------- ---------------------- -------------
Bo Kristensen 3,180,303 9.28
Erik Damgaard 2,652,700 7.74
Peter Juul 1,910,967 5.58
Soren Degn * *
John J. Stuart, Jr. * *
Christian Rovsing * *
Jan Berger * *
All officers and directors
As a group (7 persons) 8,072,760 23.50
-----------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Common shares relating to
options currently exercisable or exercisable within 60 days of December 1,
2006 are deemed outstanding for computing the percentage of the person
holding such securities but are not deemed outstanding for computing the
percentage of any other person. Except as indicated by footnote, and subject
to community property laws
37
where applicable, the persons named in the table above have sole voting and
investment power with respect to all shares shown as beneficially owned by
them.
(2) As of December 1, 2006, 34,258,260 ordinary shares were issued, including no
treasury shares. Beneficial ownership percentages are calculated based on
34,258,260 ordinary shares issued and outstanding as of December 1, 2006. Of
the amount issued, 34,246,386 ordinary shares have been deposited
(represented by 34,246,386 ADSs, each representing one ordinary share
issued) under the Deposit Agreement with The Bank of New York.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS
The following table sets forth information, as of December 1, 2006 with
respect to the beneficial ownership of our ordinary shares by each shareholder
known by us to beneficially own more than 5% of our ordinary shares.
NAME OF BENEFICIAL OWNER(1) SHARES BENEFICIALLY OWNED
NUMBER (1) PERCENT
Erik Damgaard 1,910,967 5.58%
A,O, Holding ApS, controlled by Arne Olsen 3,614,017 10.55%
J,L,Invest Holding ApS, controlled by Jan Larsen 2,133,332 6.20%
Dansk Anlaegsinvest ApS, controlled by Bo Kristensen 3,183,303 9.28%
Volleshave Holding ApS, controlled by Peter Juul 2,652,700 7.74%
Peter Forchhammer 2,343,825 6.84%
Vind Energi Invest A/S 2,300,000 6.71%
Invesco Perpetual 2,725,000 8.00%
TOTAL 20,860,144 60.90%
============ ========
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Ordinary shares issuable upon
currently exercisable or convertible securities or securities exercisable or
convertible within 60 days of May 29, 2006 are deemed beneficially owned and
outstanding for computing the percentage owned by the person holding such
securities, but are not considered outstanding for computing the percentage
of any other person.
Our major shareholders do not have different voting rights. We are not
owned or controlled, directly or indirectly, by another corporation or by any
foreign government. We are not aware of any arrangement that may at a subsequent
date result in a change of control.
38
B. RELATED PARTY TRANSACTIONS
During 2006, the Company sold 55 holiday condominiums for DKK 103,131 to
Marienlyst Hotel Invest A/S (MHI). MHI is partially owned by two shareholders
who own approximately 5% of the outstanding shares of EuroTrust A/S at June 30,
2006, one of which is the president of the EuroTrust A/S' Norwegian operations.
At June 30, 2006 the company had received DKK 4,000 of the purchase price and
recorded a DKK 99,131 6% mortgage deed receivable for the balance During
September 2006, the Company collected an additional DKK 11,000 against the note
receivable.
During January 2006, the Company purchased the remaining 75% interest of
Windpark Timpberg GmbH & Co Zehnte Wind KG from our Chief Executive Officer for
DKK 5,382.
The Chairman of the board of directors and Chief Executive Officer of
Aktiv Gruppen Holdings A/S, who is also a director of EuroTrust, was a partner
of Interlex Lawyers until December 31, 2005. The Company paid DKK 754 and DKK
1,976 to Interlex Lawyers for legal services during June 30, 2004 and 2005,
respectively. The total outstanding payables due to Interlex Lawyers as at June
30, 2004 and June 30, 2005 were DKK 28 and DKK 587, respectively.
C. INTERESTS OF EXPERTS AND COUNSEL,
Not applicable because this is an Annual Report filed under the Exchange
Act of 1934.
ITEM 8. FINANCIAL INFORMATION
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
See Item 18, "Financial Statements" and pages F-1 through F-43 of this
report.
LEGAL PROCEEDINGS
In 2003, we terminated our contract with PA Tomrerforretning, the
general contractor retained by us in connection with the construction of our
Rodvig Hytte og Feriecenter real estate development project. We cancelled the
contract due to considerable delays and defects with the construction of the
project. On October 31, 2005 the High Court of Denmark ordered us to pay DKK
1,300,000 to the guarantor of the general contractor. We appealed immediately to
the Supreme Court of Denmark, which appeal is still pending.
Other than as described above, neither we nor our property is a party in
any other pending material legal proceeding.
DIVIDEND PAYMENT POLICY
We have not paid out any dividend to our shareholders in the last three
financial years. Payment of any future dividends will depend on our earnings and
capital requirements, and other factors our board of directors deem appropriate.
39
B. SIGNIFICANT CHANGES
None
ITEM 9. THE OFFER AND LISTING
A. TITLE
Our ordinary shares are not traded on any stock exchange or
over-the-counter market. However, our ADS are traded on the Nasdaq National
Market under the symbol "EURO".
On August 29, 2002, we implemented a one for six reverse ratio change in
the number of ordinary shares represented by each ADS such that each new ADS
issued subsequent to the ratio change will represent six ordinary shares (prior
the ratio change, each ADS represented one ordinary share). Holders of our ADSs
prior to the ratio change, each of which represents one ordinary share ("Old
ADSs"), exchanged their Old ADSs for new ADSs, each of which represents six
ordinary shares ("New ADSs"). On May 19, 2005 our shareholders approved a one
for six reverse split of our ordinary shares such that six ordinary shares
nominal value DKK 1,25 were combined into one ordinary share nominal value DKK
7,50 ("New Ordinary Shares"). Therefore, each ADS now represents one New
Ordinary Share.
On June 30, 2006, there were 28,680,886 New ADSs issued and outstanding
representing 28,680,886 ordinary shares. On December 1, 2006 there were
34,246,386 New ADSs issued and outstanding representing 34,246,386 ordinary
shares.
The following table sets forth, for the periods indicated, the range of
high and low market prices per ADS as quoted on the Nasdaq SmallCap or National
Market. The prices shown below (in US Dollars) are adjusted to reflect the 1 for
6 reverse ratio change in our ADSs, described above, and represent quotations
among securities dealers, do not include retail markups, markdowns or
commissions and may not represent actual transactions.
AMERICAN
DEPOSITARY
SHARES
----------------
HIGH LOW
------ ------
Year Ending June 30, 2002: $2.34 $0.65
Year Ending June 30, 2003: $5.95 $0.46
Year Ending June 30, 2004: $5.50 $1.75
Year Ending June 30, 2005:
First Quarter $4.75 $4.06
Second Quarter $6.00 $4.40
Third Quarter $6.00 $4.12
Fourth Quarter $6.51 $4.41
40
AMERICAN
DEPOSITARY
SHARES
----------------
HIGH LOW
------ ------
Year Ending June 30, 2006:
First Quarter $6.97 $5.40
Second Quarter $12.08 $4.85
Third Quarter $13.65 $10.07
Fourth Quarter $18.45 $12.50
Month Ending:
December 2006 (as of December 19, 2006) $14.99 $13.39
November 30, 2006 $15.80 $12.50
October 31, 2006 $12.80 $11.95
September 30, 2006 $12.41 $11.27
August 31,, 2006 $13.19 $11.38
July 31, 2006 $14.53 $12.44
B. PLAN OF DISTRIBUTION
Not required because this Form 20-F is filed as an Annual Report.
C. MARKETS
Our ordinary shares are not traded on any stock exchange or
over-the-counter market. However, our ADSs are traded on the Nasdaq National
Market under the symbol "EURO".
D. SELLING SHAREHOLDERS
Not required because this Form 20-F is filed as an Annual Report.
E. DILUTION
Not required because this Form 20-F is filed as an Annual Report.
F. EXPENSES OF THE ISSUE
Not required because this Form 20-F is filed as an Annual Report.
ITEM 10. ADDITIONAL INFORMATION
A. SHARE CAPITAL
Not required because this Form 20-F is filed as an Annual Report.
B. MEMORANDUM AND ARTICLES OF ASSOCIATION
See Exhibit 1.1.
41
C. MATERIAL CONTRACTS
o We purchased all of the remaining issued and outstanding ordinary
shares ("Shares") of AGH Nordan Invest A/S, a Denmark corporation,
not already owned by us from three selling shareholders pursuant to
the following separate Share Purchase Agreements, each dated April
25, 2006, between Eurotrust and:
a) Kalodde AS, to purchase 100,000 Shares at a purchase price
of 1,060,000 New Ordinary Shares;
b) Soprosjekt Holding AS, to purchase 50,000 Shares at a
purchase price of 530,000 New Ordinary Shares; and
c) Soren Hager Holding 2 ApS, to purchase 100,000 Shares at a
purchase price of 1,060,000 New Ordinary Shares.
o As described above in Section Item 4. B. "Business Overview", in May
2006 we entered into an agreement to acquire a 50.25% interest in
European Wind Farms A/S. Pursuant to that agreement we purchased an
aggregate of 3,030,000 ordinary shares from European Wind Farms and
European Energy Systems A/S for aggregate cash and non-cash
consideration equal to DKK 190,029,800.
o In June 2006, pursuant to a Share Purchase Agreement, we acquired 2S
Ejendomsinvest ApS, a Denmark corporation, all of its wholly-owned
subsidiaries by purchasing all the issued and outstanding ordinary
shares of 2S Ejendomsinvest, a Denmark corporation, at a purchase
price of DKK 134,160,000.
D. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are no governmental laws, decrees or regulations of the Kingdom of
Denmark that restrict the export or import of capital (including, without
limitation, foreign exchange controls), or that affect the remittance of
dividends, interest or other payments to nonresident holders of ordinary shares.
There are no limitations imposed by the laws of the Kingdom of Denmark or our
Articles of Association on the right of nonresident or foreign holders to hold
or vote ordinary shares.
E. TAXATION
The following summary contains a description of the material United
States federal income tax and Danish tax consequences of the purchase, ownership
and disposition of ordinary shares or ADSs by a beneficial owner that (i) is an
individual citizen or resident in the United States (for United States federal
income tax purposes), a corporation or partnership organized under the laws of
the United States or any state thereof, or estates or trusts the income of which
is subject to United States federal income tax regardless of its source, (ii) is
not also a resident or corporation of Denmark and is not domiciled in Denmark,
(iii) does not hold ordinary shares or ADSs in connection with any permanent
establishment or fixed base in Denmark, (iv) does not own, and has not owned
(directly, indirectly or by attribution) at any time, 10% or more of our total
combined voting power or equity, and (v) holds ordinary shares or ADSs as
capital assets. The term "United States holder," as used in this summary, means
a beneficial owner of ordinary shares or ADSs meeting these requirements.
The following summary of certain United States federal and Danish tax
matters is based on tax laws of the United States and Denmark as in effect on
the date of this report and the current Income Tax Treaty between the United
States and the Kingdom of Denmark (the "Treaty"), which is a generally effective
as of January 1, 2001. We cannot assure you that future legislation,
regulations, administrative rulings or court decisions will not adversely affect
the accuracy of the statements contained in this report, Also, changes in United
States and Danish law and the Treaty made after the date of this report could
have retroactive effect.
42
The following summary does not consider or discuss the tax laws of any
country other than the United States or Denmark. This summary does not describe
United States federal estate and gift tax considerations, or state, local or
provincial tax considerations. Furthermore, it does not address United States
federal income tax or Danish tax considerations that apply to United States
holders of our ordinary shares or ADSs who are also subject to taxing
jurisdictions other than or in addition to the United States. Finally, it does
not address all possible categories of United States holders, some of whom (such
as financial institutions, trusts, estates, insurance companies, dealers in
securities, certain retirement plans and tax exempt organizations) may be
subject to special rules.
THE FOLLOWING DISCUSSION DOES NOT PURPORT TO BE EXHAUSTIVE OF ALL
POSSIBLE TAX CONSIDERATIONS,. UNITED STATES HOLDERS OF ORDINARY SHARES OR ADSs
SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE UNITED STATES, DANISH OR OTHER
TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF ORDINARY SHARES
OR ADSs.
UNITED STATES TAX CONSEQUENCES OF OWNERSHIP OF ORDINARY SHARES OR ADSs
DIVIDENDS. For United States federal income tax purposes, the gross
amount of all dividends (that is, the amount before reduction for Danish
withholding tax) paid to a United States holder with respect to ordinary shares
or ADSs out of our current or accumulated earnings and profits ("E&P") will be
taxable for United States federal income taxation as a foreign source dividend
income. As such, these dividends are not eligible for the dividends received
deduction otherwise available to United States corporations in connection with
dividends received from United States corporations. To the extent that a
distribution exceeds E&P, it will be treated first as a return of capital to the
extent of the Untied States holder's basis, and then, as gain from the sale of a
capital asset.
For United States federal income tax purposes, the amount of any
dividend paid in Danish kroner will be the United States dollar value of the
kroner at the exchange rate in effect on the date of receipt, whether or not the
kroner is converted into United States dollars at that time.
The withholding tax imposed by Denmark generally is a creditable foreign
tax for United States federal income tax purposes. As a result, a United States
holder generally will be entitled to include the amount withheld as foreign tax
paid in computing a foreign tax credit (or in computing a deduction for foreign
income taxes paid, if the United States holder does not elect to use the foreign
tax credit provisions of the Internal Revenue Code of 1986, as amended (the
"Code")). The Code, however, imposes a number of limitations on the use of
foreign tax credits, based on the particular facts and circumstances of each
taxpayer. United States holders who hold ordinary shares or ADSs should consult
their tax advisors regarding the availability of the foreign tax credit.
Backup withholding, imposed at the rate of 31%, may apply to a United
States holder in connection with the sale or exchange of ordinary shares or
ADSs. Generally, backup withholding does not apply to a United States holder (i)
that is a corporation or comes within certain other exempt categories or (ii)
provides a taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with applicable requirements of
the backup withholding rules.
SALE OR OTHER DISPOSITION OF ORDINARY SHARES OR ADSs. Gain or loss
recognized by a United States holder on the sale or other disposition of
ordinary shares or ADSs will be taxable for United States federal income tax
purposes as capital gain or loss in an amount equal to the difference between
such
43
United States holder's basis in the ordinary shares or ADSs and the amount
realized on the disposition. The capital gain or loss will be long term if the
securities were held for more than 12 months and will be short term if they were
held for less than 12 months. Capital losses are generally deductible only
against capital gains and not against ordinary income.
Capital gain recognized by a United States holder on the sale or other
disposition of ordinary shares or ADSs will be United States source gain. Losses
from the sale of ordinary shares or ADSs would generally be sourced in the same
manner as gains from the sale of such ordinary shares or ADSs. However, treasury
regulations include a dividend recapture rule and other exceptions that may
apply. United States holders of ordinary shares or ADSs should consult their tax
advisors regarding the proper treatment of such losses.
DANISH TAX CONSEQUENCES OF OWNERSHIP OF ORDINARY SHARES OR ADSs
DIVIDENDS. For Danish income tax purposes, the gross amount of all
distributions made by us to our shareholders is taxed as a dividend. However, a
distribution of liquidation proceeds made by us to our shareholders during the
calendar year in which we are finally liquidated and dissolved is taxed as
capital gain. In addition, the gross amount paid by us to redeem ordinary shares
or ADSs are generally taxed as a dividend. However, a shareholder may apply to
Danish tax authorities for a ruling allowing for capital gains treatment. If the
ruling is obtained before the distribution is decided the ruling includes an
exemption from the dividend tax. If the exemption request is granted, the
consideration will be taxed as capital gain.
The granting of bonus shares to shareholders, and the right of
shareholders to subscribe for ordinary shares or ADSs at a price that is less
than the current trading value of such ordinary shares or ADSs, are not
considered taxable distributions to shareholders.
In general, a Danish withholding tax of 28% is levied on all dividends.
However, corporate shareholders holding at least 10 % (for 2007 and 2008 at
least 15%) of the share capital for a consecutive period for at least one year
may be exempt from Danish withholding tax on dividends. The dividend in question
must be covered by the double tax treaty between Denmark and United States.
Further, a United States holder (individual or a company) may apply to the
Danish tax authorities for a partial refund of the dividends tax that has been
withheld under the Treaty. If this refund request is granted, the Danish
withholding tax on such dividends is effectively reduced to 15%. The rate is
reduced to 5% for corporate shareholders holding at least 10% of the share
capital. We do not presently contemplate the payment of any dividends on our
ordinary shares or ADSs. However, should we decide to make payment of dividend,
we will apply to the Danish tax authorities for a blanket exemption allowing us
to withhold only 15% of all gross dividends paid to a United States holder.
While we believe that such an exemption will be granted, there can be no
assurance that this will occur. Shareholders eligible for further reduction must
apply individually for such reduction.
SALE OR OTHER DISPOSITION OF ORDINARY SHARES OR ADSs. Capital gains
realized by United States holders upon the sale or other disposition of ordinary
shares or ADSs may be exempt from Danish tax.
DANISH SHARE TRANSFER DUTY.
No Danish share transfer duty is levied on the disposal of ordinary
shares or ADSs.
44
ESTATE AND GIFT TAXES.
Generally, if a United States holder acquires or disposes of ordinary
shares or ADSs by inheritance, legacy or gift, such holder will not be subject
to Danish gift or inheritance taxes. If a United States holder should make a
gift of ordinary shares or ADSs to any person resident in Denmark the gift can
only be subject to Danish gift tax when forming part of the business property of
a permanent establishment in Denmark. Other transfers of shares or ADS's shall
be taxable only in the state in which the transferor was domiciled at the time
of his death or when making the gift according to the United States-Denmark
Double Taxation Convention with respect to taxes on estates, inheritance and
gifts.
F. DIVIDENDS AND PAYING AGENTS
Not required because this Form 20-F is filed as an Annual Report.
G. STATEMENTS BY EXPERTS
Not required because this Form 20-F is filed as an Annual Report.
H. DOCUMENTS ON DISPLAY
We are subject to the information requirements of the Securities
Exchange Act of 1934, as amended and, to the extent required, we file periodic
reports and other information with the Securities and Exchange Commission. These
reports and information are available and may be copied at the public reference
facilities listed below. We intend to give our shareholders annual reports
containing audited financial statements and a report thereon from our
independent auditors and quarterly reports for the first three quarters of each
fiscal year containing unaudited interim financial information,
Statements made in this annual report about the contents of contracts or
other documents are not necessarily complete and we refer you to the copy of
such contracts or other documents filed as exhibits to this annual report.
You can obtain a copy of the exhibits hereto and other information about
us at the public reference facilities of the Securities and Exchange Commission
located at:
Public Reference Room 1024
Judiciary Plaza
450 Fifth Street, N,W,
Washington, D,C, 20549
You may obtain information about the operation of the public reference
facility by calling the Securities and Exchange Commission at (800) 732-0330.
We will also provide our shareholders with proxy statements prepared
according to Danish law, As a Danish company, we are exempt from the Exchange
Act rules about the provision and content of proxy statements and about
short-swing profit reporting and liability.
I. SUBSIDIARY INFORMATION
Not applicable
45
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At June 30, 2006, we did not believe that market risk financial
instruments would have a material affect on future operations or cash flows nor
did we view currency exchange risk or interest rate risk as material.
Operational currency exchange risk would arise if we priced products in one
currency while material costs and expenses were denominated in a different
currency. We do not believe that the operational currency exchange risk is
material. However, from time to time we enter into a contract denominated in a
currency other than the currency of operating expenses and, in such cases, may
enter into currency forward arrangements with respect to and for the period
covering such contract. Throughout the year ended June 30, 2006 and specifically
at June 30, 2006, we had no material foreign exchange contracts outstanding.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not required because this Form 20-F is filed as an Annual Report.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE
OF PROCEEDS
None.
ITEM 15. CONTROLS AND PROCEDURES
a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES, EuroTrust's
management, with the participation of the chief executive officer
and the chief financial officer, carried out an evaluation of the
effectiveness of EuroTrust's "disclosure controls and procedures"
(as defined in the Securities Exchange Act of 1934 (the "Exchange
Act") Rules 13a-15(e) and 15-d-15(e)) as of the end of the fiscal
year covered by this Annual Report (the "Evaluation Date"). Based
upon that evaluation, the chief executive officer and the chief
financial officer concluded that, as of the Evaluation Date,
EuroTrust's disclosure controls and procedures are effective,
providing them with material information relating to EuroTrust as
required to be disclosed in the reports EuroTrust files or submits
under the Exchange Act on a timely basis.
b) MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING, Not applicable for fiscal years ending before July 15,
2006.
c) ATTESTATION REPORT OF THE REGISTERED PUBLIC ACCOUNTING FIRM, Not
applicable for fiscal years ending before July 15, 2006.
d) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING, There were no
changes in EuroTrust's internal controls over financial reporting,
known to the chief executive officer or the chief
46
financial officer, that occurred during the period covered by this
report that has materially affected, or is reasonably likely to
materially affect, EuroTrust's internal control over financial
reporting.
ITEM 16. RESERVED
ITEM 16 A AUDIT COMMITTEE FINANCIAL EXPERT
The Board has determined that, Mr., John Stuart, is an "audit committee
financial expert," as that term is defined in Item 401(h) of Regulation S-K, and
"independent" for purposes of current and recently-adopted Nasdaq listing
standards and Section 10A(m)(3) of the Securities Exchange Act of 1934.
ITEM 16 B CODE OF ETHICS
We have adopted a code of conduct that applies to our principal executive
officer, principal financial officer and other persons performing similar
functions, as well as all of our other employees and directors, This code of
conduct is posted on our website at www.eurotrust.dk and is filed as Exhibit
11.1 to this report.
ITEM 16 C PRINCIPAL ACCOUNTANT FEES AND SERVICES
AUDIT FEES
For the fiscal years ended 2005 and 2006, our principal accounting firm,
Gregory & Associates, LLC, billed aggregate fees of approximately $102,555 and
$239,810 respectively for the audit of our 2005 and 2006 financial statements.
AUDIT-RELATED FEES
None
TAX FEES
None
ALL OTHER FEES
None
AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
The Audit Committee charter provides that the Audit Committee will
pre-approve audit services and non-audit services to be provided by our
independent auditors before the accountant is engaged to render these services
other than the minimums non-audit services for which the pre-approval
requirements are waived in accordance with the rules and regulations of the SEC.
The Audit Committee may consult with management in the decision-making process,
but may not delegate this authority to management. The Audit Committee may
delegate its authority to pre-approve services to one or more committee members,
provided that the designees present the pre-approvals to the full committee at
the next committee meeting.
47
ITEM 16D EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not Applicable
ITEM 16 E PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS NOT APPLICABLE
PART III
ITEM 17. FINANCIAL STATEMENTS
See Item 18, below.
ITEM 18. FINANCIAL STATEMENTS
See the Company's Consolidated Financial Statements, which are
incorporated herein by reference and set forth on pages F-1 through F-43.
48
ITEM 19. EXHIBITS
1.1 Amended Articles of Association of the Registrant, as of December 6,
2001 (1)
1.2 Rules of Procedures of the Registrant, as amended (2)
2.1 Employee and Director Subscription Option Plan (4)
4.5 Form of Employment Agreement between the Registrant and Bo Kristensen
effective as of July 1, 2005 *
4.6 Form of Employment Agreement between the Registrant and Soren Degn,
effective as of January 1, 2005 (4)
4.7 Share Purchase Agreement for the purchase of 100,000 ordinary shares of
AGH Nordan Invest A/S between the Registrant and Kalodde AS dated April
25, 2006*
4.8 Share Purchase Agreement for the purchase of 50,000 ordinary shares of
AGH Nordan Invest A/S between the Registrant and Sorprosjekt Holding AS
dated April 25, 2006*
4.9 Share Purchase Agreement for the purchase of 100,000 ordinary shares of
AGH Nordan Invest A/S between the Registrant and Soren Hager Holding 2
ApS dated April 25, 2006*
4.10 Share Purchase Agreement for the purchase of 2S Ejendomsinvest ApS dated
as of June 2, 2006*
4.11 Share Purchase Agreement for the purchase of a 50.25% interest of
European Wind Energy Farms A/S dated as of May 10, 2006*
8.1 List of the Subsidiaries of the Registrant *
11.1 Code of Ethics (3)
12.1 Chief Executive Officer Certification pursuant to Rule 13a-14(a) or Rule
15d-14(a)*
12.2 Chief Financial Officer Certification pursuant to Rule 13a-14(a) or Rule
15d-14(a)*
13.1 Chief Executive Officer Certification pursuant to Rule 13a-14(b) or Rule
15d-14(b) and 18 U,S,C, Section 1350*
13.2 Chief Financial Officer Certification pursuant to Rule 13a-14(b) or Rule
15d-14(b) and 18 U,S,C, Section 1350*
-----------
* Included herewith.
(1) Filed as an exhibit to the Company's Annual Report on Form 20-F, filed
on June 27, 2002, and incorporated by reference herein.
(2) Filed as an exhibit to the Company's original filing of the Registration
Statement on Form F-1 (File No, 333-7092), filed on June 20, 1997, and
incorporated by reference herein.
(3) Filed as an exhibit to the Company's Annual Report on Form 20-F, filed
on September 23, 2003, and incorporated by reference herein.
(4) Filed as an exhibit to the Company's Annual Report on Form 20-F, filed
on June 3, 2005, and incorporated by reference herein.
49
SIGNATURES
Pursuant to the requirements of Section 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant certifies that it meets all of the
requirements for filing on Form 20-F and has duly caused this annual report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Kolding, Denmark.
EUROTRUST A/S
Dated: December 29, 2006 By: /s/ Bo Kristensen
------------------------------------
Bo Kristensen
Chief Executive Officer
(Principal Executive Officer)
Dated: December 29, 2006 By: /s/ Soren Degn
------------------------------------
Soren Degn
Chief Financial Officer
(Principal Financial and
Accounting Officer)
50
TABLE OF CONTENTS TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm ................... F-2
Consolidated Balance Sheets as of June 30, 2005 and 2006 .................. F-3
Consolidated Statements of Operations for the Years Ended
June 30, 2004, 2005 and 2006 .............................................. F-5
Consolidated Statements of Shareholders' Equity for the Years Ended
June 30, 2004, 2005 and 2006 .............................................. F-6
Consolidated Statements of Comprehensive Income (Loss)
for the Years Ended June 30, 2004, 2005 and 2006 .......................... F-7
Consolidated Statements of Cash Flows for the Years Ended
June 30, 2004, 2005 and 2006 .............................................. F-8
Notes to Consolidated Financial Statements ................................ F-9
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Aktiv Gruppen Holdings A/S and Subsidiaries
We have audited the accompanying consolidated balance sheets of
EuroTrust A/S and Subsidiaries as of June 30, 2005 and 2006 and the related
consolidated statements of operations, comprehensive income, shareholders'
equity and cash flows for the years ended June 30, 2004, 2005 and 2006. The
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with standards of the Public
Company Accounting Oversight Board in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The company was not
required to have, nor were we engaged to perform, an audit of its internal
controls over financial reporting. Our audit included consideration of internal
controls over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company's internal controls over financial
reporting. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
EuroTrust A/S and Subsidiaries at June 30, 2005 and 2006 and the consolidated
results of its operations and its cash flows for the years ended June 30, 2004,
2005 and 2006, in conformity with accounting principles generally accepted in
the United States.
/s/ Gregory & Associates, LLC
Salt Lake City, Utah
December 19, 2006
F-2
EUROTRUST A/S AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA AND WHERE OTHERWISE INDICATED)
JUNE 30,
--------------------------------------------
2005 2006 2006
------------ ------------ ------------
DKK DKK US$
ASSETS
Current assets:
Cash and cash equivalents 1,619 129,118 22,006
Restricted cash 80,998 436,291 74,358
Marketable securities - available for sale 5,003 13,919 2,372
Contracts receivable, net of allowances for doubtful
accounts of DKK 651 in 2005 and DKK 952 in 2006 34,220 48,750 8,309
Notes receivable and accrued interest related party 36,291 0 --
Construction in progress / Cost in excess of billing 233,838 439,145 74,845
Valued added tax receivables 8,310 15,093 2,572
Prepaid expenses and deposits 522 10,362 1,766
Other receivables 10,333 61,563 10,492
------------ ------------ ------------
Total current assets 411,134 1,154,241 196,720
Mortgage deed receivables 8,471 109,857 18,723
Rent and other long term deposits 293 60,812 10,364
Long term investments at cost 0 1,319 225
Equity method investment 5,872 102,767 17,515
Plant and equipment, net 669 10,675 1,819
Wind turbines, net 99,239 281,008 48,135
Wind turbines deposits 9,334 -- --
Property held for resale or future development 68,759 210,935 35,950
Property on operating lease, net 7,867 10,024 1,708
Other intangible assets 0 177,270 30,213
Goodwill 0 169,639 28,912
------------ ------------ ------------
Total assets 611,638 2,288,547 390,043
============ ============ ============
DKK amounts have been converted into US$ at an exchange rate of
US$1=DKK 5.8674. The accompanying notes are an integral part of
these consolidated financial statements.
F-3
EUROTRUST A/S AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA AND WHERE OTHERWISE INDICATED)
JUNE 30,
--------------------------------------------
2005 2006 2006
------------ ------------ ------------
DKK DKK US$
LIABILITIES AND SHAREHOLDERS` EQUITY
Current liabilities:
Notes payable and other current debt obligations 402,758 1,271,794 216,756
Payable for land and subsidiary purchases 0 172,220 29,352
Accounts payable, trade 62,255 81,791 13,940
Accounts payable, related parties 18 6,859 1,169
Accrued expenses 34,866 43,430 7,402
Customer deposits 4,458 59,126 10,077
Income taxes payable 2,223 147 25
Deferred taxes liabilities 15,165 25,222 4,298
------------ ------------ ------------
Total current liabilities 521,743 1,660,589 283,019
Long term liabilities:
Notes payable and other debt, long term 25,366 35,263 6,010
Capital lease obligation 0 1,451 247
Asset retirement obligation 979 1,088 185
------------ ------------ ------------
Total long term liabilities 26,345 37,802 6,442
------------ ------------ ------------
Total Liabilities 548,088 1,698,391 289,461
------------ ------------ ------------
Minority interest in subsidiaries 0 671 114
------------ ------------ ------------
Shareholders' equity:
Common shares, par value 7,50 DKK 22,050,000 and
57,393,926 authorized 22,050,000 and 33,352,759 shares
issued and outstanding at 2005 and 2006 165,375 250,071 42,620
Additional paid-in capital (159,045) 238,315 40,617
Retained earnings 57,259 103,149 17,580
Cumulative other comprehensive income, net of
deferred tax (39) (2,050) (349)
------------ ------------ ------------
Total shareholders' equity 63,550 589,485 100,468
------------ ------------ ------------
Total liabilities and shareholders' equity 611,638 2,288,547 390,043
============ ============ ============
DKK amounts have been converted into US$ at an exchange rate of
US$1=DKK 5.8674. The accompanying notes are an integral part of
these consolidated financial statements.
F-4
EUROTRUST A/S AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA AND WHERE OTHERWISE INDICATED)
YEARS ENDED JUNE 30,
2004 2005 2006 2006
------------ ------------ ------------ ------------
DKK DKK DKK US$
Net sales 295,975 247,333 433,788 73,932
Operating expenses:
Cost of sales (exclusive of depreciation) 259,144 173,637 334,796 57,060
Selling and marketing 1,218 907 1,049 179
General and administrative 5,710 10,352 26,693 4,549
Depreciation 339 520 5,817 991
------------ ------------ ------------ ------------
Total operating expenses 266,411 185,416 368,355 62,779
------------ ------------ ------------ ------------
Operating income 29,564 61,917 65,433 11,153
Other income (expenses)
Interest income 593 1,252 3,955 674
Interest income - related party 175 1,050 348 59
Interest expense (2,251) (9,205) (14,602) (2,489)
Loss on sale of fixed assets -- (384) 6 1
Loss from sales of businesses (355) (37) 590 101
Foreign exchange gain (loss) -- -- (32) --
Write-up (down) of long term investments -- (250) 47 8
Results of equity method investments -- 122 710 121
Other (expenses) income, net 453 (1,423) 2,184 372
------------ ------------ ------------ ------------
Income before income taxes and minority interest 28,179 53,042 58,639 10,000
Income tax expense - current and deferred (7,823) (15,146) (12,117) (2,065)
Minority interest in net income (loss) of subsidiaries (2,816) (797) (632) (108)
------------ ------------ ------------ ------------
NET INCOME 17,540 37,099 45,890 7,827
============ ============ ============ ============
BASIC INCOME PER WEIGHTED AVERAGE COMMON SHARE
Income from continuing operations 0.80 1.68 1.93 0.33
============ ============ ============ ============
Net income 0.80 1.68 1.93 0.33
============ ============ ============ ============
Weighted average common shares outstanding (in thousands) 22,050 22,050 23,760 23,760
============ ============ ============ ============
DILUTED INCOME PER WEIGHTED AVERAGE COMMON SHARES
Income from continuing operations 0.80 1.68 1.93 0.33
============ ============ ============ ============
Net income 0.80 1.68 1.93 0.33
============ ============ ============ ============
Weighted average common shares outstanding, assuming
dilution (in thousands) 22,050 22,050 23,829 23,829
============ ============ ============ ============
DKK amounts have been converted into US$ at an exchange rate of
US$1=DKK 5.8674. The accompanying notes are an integral part of
these consolidated financial statements.
F-5
EUROTRUST A/S AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA AND WHERE OTHERWISE INDICATED)
COMMON COMMON ADDITIONAL OTHER COM-
SHARES SHARES PAID-IN PREHENSIVE RETAINED
OUTSTANDING AMOUNT CAPITAL INCOME EARNINGS TOTAL
(RESTATED) (RESTATED) (RESTATED)
---------- ---------- ---------- ---------- ---------- -----------
DKK DKK DKK DKK DKK DKK
BALANCE AT JUNE 30, 2003 22,050,000 165,375 (159,045) -- 2,620 8,950
Unrealized gain on marketable securities -- -- -- 7 -- 7
Net income -- -- -- -- 17,540 17,540
---------- ---------- ---------- ---------- ---------- -----------
BALANCE AT JUNE 30, 2004 22,050,000 165,375 (159,045) 7 20,159 26,496
Unrealized gain on marketable securities -- -- -- (46) -- (46)
Net income -- -- -- -- 37,099 37,099
---------- ---------- ---------- ---------- ---------- -----------
BALANCE AT JUNE 30, 2005 22,050,000 165,375 (159,045) (39) 57,259 63,550
Adjustment of carrying value of wind
turbine purchased from a related party to
the carryover basis -- -- (1,758) -- -- (1,758)
Effect of recapitalization of subsidiary 6,542,759 49,071 71,093 -- -- 120,168
Issuance of 2,000,000 common shares for cash 2,000,000 15,000 138,022 -- -- 153,022
Issuance of 100,000 common shares upon
the exercise of warrants 100,000 750 2,014 -- -- 2,764
Issuance of 2,650,000 common shares to
acquire the remaining 50% of AGH Norge A/S 2,650,000 19,875 187,989 -- -- 207,864
Currency translation adjustment -- -- -- 16 -- 16
Unrealized loss on marketable securities,
net of deferred taxes -- -- -- (2,027) -- (2,027)
Net income -- -- -- -- 45,890 45,890
---------- ---------- ---------- ---------- ---------- -----------
BALANCE AT JUNE 30, 2006 33,342,759 250,071 238,315 (2,050) 103,149 589,485
---------- ---------- ---------- ---------- ---------- -----------
BALANCE AT JUNE 30, 2006 33,352,759 USD 42,620 USD 40,617 USD (349) USD 17,580 USD 100,468
---------- ---------- ---------- ---------- ---------- -----------
DKK amounts have been converted into US$ at an exchange rate of
$1=DKK 5.8674. The accompanying notes are an integral part of
these consolidated financial statements.
F-6
EUROTRUST A/S AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS, EXCEPT PER SHARE DATA AND WHERE OTHERWISE INDICATED)
YEARS ENDED JUNE 30,
2004 2005 2006 2006
------------ ------------ ------------ ------------
DKK DKK DKK US$
Net income 17,540 37,099 45,890 7,821
Realized gain on investments net of taxes of DKK 0 in 2004,
2005 and 2006 -- -- -- --
Unrealized investment gains (losses) , net of
taxes of DKK 0, 0, and 805 in 2004, 2005 and 2006 7 (46) (2,011) (343)
------------ ------------ ------------ ------------
Comprehensive net income 17,547 37,053 43,879 7,478
============ ============ ============ ============
DKK amounts have been converted into US$ at an exchange rate of
US$1=DKK 5.8674. The accompanying notes are an integral part of
these consolidated financial statements.
F-7
EUROTRUST A/S AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE DATA AND WHERE OTHERWISE INDICATED)
YEARS ENDED JUNE 30
2004 2005 2006 2006
------------ ------------ ------------ ------------
DKK DKK DKK USD
Cash flows from operating activities:
Net income 17,540 37,099 45,890 7,821
Adjustments to reconcile net loss (income) to
cash provided by (used in) operating activities:
Depreciation, amortization and write down 451 765 7,230 1,232
Loss on sale of fixed assets -- 384 387 66
Gain on equity method investments -- -- 959 163
Interest earned on notes receivable - related party (176) (1,050) (348) (59)
Deferred tax 1,230 13,337 12,472 2,126
Minority interest 2,878 (2,878) 671 114
Changes in operating assets and liabilities: --
Accounts receivable (33,833) (5,238) (10,043) (1,712)
Accounts receivable, related parties -- (65) -- --
VAT receivable 1,433 (3,343) 4,068 693
Cost in excess of Billings (204,265) (16,586) (3,277) (559)
Prepaid expenses (889) 347 (9,815) (1,673)
Income tax payable 5,468 166 (11,632) (1,982)
Other receivables (17,259) 7,131 (14,202) (2,420)
Accounts payable 28,165 23,708 (11,782) (2,008)
Accounts payable, related parties 9,725 (9,701) 833 142
Accrued expenses 8,208 (4,800) (3,844) (655)
Customer Deposits 25,848 (21,390) 49,220 8,389
------------ ------------ ------------ ------------
Cash (used in) provided by operating activities (155,476) 17,886 56,787 9,678
============ ============ ============ ============
Cash flows from investing activities:
(Purchase of investments) proceeds from sales of investments (5,880) (2,368) (67,679) (11,535)
(Purchase of property) Proceeds from property held for resale 4,161 10,590 (5,734) (977)
(Payments) Refund of deposits on the purchase of windturbines -- (9,334) 2,924 498
Cash acquired in business acquisitions -- 1,856 71,558 12,196
Mortgage deed receivables, net -- -- (29,370) (5,006)
Notes receivable related party (35,000) -- 36,639 6,245
Purchase of fixed assets (2,086) (240) (2,393) (408)
Proceeds from sales of fixed assets -- 487 350 60
------------ ------------ ------------ ------------
Cash (used in) provided by investing activities: (38,805) 991 6,295 1,073
============ ============ ============ ============
Cash flows from financing activities:
Net change in short- and long-term borrowings 253,015 (12,494) 261,465 44.562
Proceeds for common stock -- -- 155,786 26.551
Payment on notes payable related party (65) (1,435) -- --
Net change in restricted cash (55,637) (6,586) (352,833) (60.134)
------------ ------------ ------------ ------------
Cash provided by (used in) financing activities: 197,313 (20,515) 64,418 10.979
============ ============ ============ ============
Net increase (decrease) in cash and cash equivalents 3,032 (1,638) 127,500 21,730
Cash and cash equivalents, beginning of period 224 3,256 1,618 276
------------ ------------ ------------ ------------
Cash and cash equivalents, end of period 3,256 1,618 129,118 22,006
============ ============ ============ ============
Cash paid for interest 1,098 6,844
============ ============ ============ ============
Capitalized Interest 8,092 6,330
============ ============ ============ ============
Cash paid for taxes 838 1,375
============ ============ ============ ============
DKK amounts have been converted into US$ at an exchange rate of
$1=DKK 5.8674. The accompanying notes are an integral part of
these consolidated financial statements.
F-8
EUROTRUST A/S AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE DATA AND WHERE OTHERWISE INDICATED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVERSE ACQUISITION
On April 17, 2006, EuroTrust A/S completed the reverse acquisition of
Aktiv Gruppen Holdings A/S, "AGH" through the issuance of 22,050,000 shares
(approximately 77% of the issued and outstanding shares after giving effect to
the issuance) of EuroTrust A/S. to acquire all the issued and outstanding shares
of AGH. In accordance with Generally Accepted Accounting Principles in the
United States of America ("US GAAP"), the merger was accounted for as a
recapitalization of AGH, wherein AGH became a 100% owned subsidiary of EuroTrust
A/S. In connection with the merger EuroTrust effectively changed it fiscal year
to June 30, from December 31.
DESCRIPTION OF BUSINESS
The terms "EuroTrust A/S", "Company", "us", "we" and "our" as used in
this report refer to EuroTrust A/S. and its subsidiaries (the "Company").
EuroTrust A/S and its subsidiaries (the "Company") currently operate in two
reportable segments Real Estate Development and Wind Energy.
The Company previously operated two reportable service-based segments:
broadcast media with the Danish cable channel DK4 and provided production and
broadcasting services in Scandinavia and throughout Europe, until these
subsidiaries and assets were sold during April of 2006. The Company also
provided Internet security products and services in Scandinavia; these
operations were sold during 2003 and 2004.
Real Estate Development
-----------------------
Through our ownership interest in Aktiv Gruppen A/S, corporate joint
ventures and other subsidiaries, we own, acquire, and develop real estate on a
nationwide basis in Denmark. Through our ownership interest in Bygg og
Ejendomsutvikling Sor A/S, corporate joint ventures, cost and equity investments
and our other subsidiaries, we own, acquire, and develop real estate in Norway.
Our real estate development segment primarily develops homeowner
condominium complexes, single family homes, recreational homes and multi-family
rental complexes. The development occurs as we: 1) seek out desirable locations
for property development, 2) acquire permission for resale of a finalized
development project, 3) acquire the land or options to purchase the land, 4)
design the project in cooperation with outside architects and engineers, 5)
acquire governmental approval to build the project, 6) pre-sell through local
real estate agents a minimum number of units, requiring purchasers to sign a
binding sales contract and guarantee, 7) construct the properties through
outside construction contractors and 8) sell remaining units if any.
Our real estate segment also leases a 565 square meter office property
in K0ge, Denmark.
Wind Energy
-----------
During June 2005, the company entered its second operating segment
through the acquisition of six operating wind energy turbines located in
windparks in Germany. During 2006, the Company acquired an additional 19
operating wind energy turbines located in Germany. Each respective wind mill or
windpark has entered into agreements with German electric utilities, where
electricity prices are fixed for a 20-year period and manufacturers have agreed
to operate the windparks at a fixed fee. We believe the wind turbines
constructed or acquired in Germany can be financed up to 100%, with a fixed
interest rate for up to 12-14 years. The company generally acquires a lease for
the land for 20 years with two five year extensions, which correlates with the
estimated life of the wind turbine.
F-9
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements are prepared in accordance with
("US GAAP"), and include the accounts of AGH and subsidiaries for the year
ending June 30, 2006 and EuroTrust A/S and its majority-owned subsidiaries for
the period from date of acquisition on April 17, 2006 to June 30, 2006.
The following is a list of our significant operating subsidiaries and
their jurisdiction of incorporation and our ownership interest in those
subsidiaries at June 30, 2006:
COUNTRY OF INTEREST
SUBSIDIARY INCORPORATION OWNERSHIP
---------- ------------- ---------
Aktiv Gruppen Holdings A/S Denmark 100%
AGH Norge A/S Denmark 100% (1)(2)
Euro909.dk A/S Denmark 100%
EuroTrust PKI Services A/S Denmark 100%
Selskabet af 1. Oktober 2004 A/S Denmark 100%
EuroTrust NetVaulting A/S Denmark 100%
(1) Formally known as AGH Nordan Invest A/S
(2) 50% owned directly by EuroTrust A/S and 50% owned by Aktiv Gruppen
Holdings A/S, a wholly owned subsidiary of EuroTrust
Other significant operating subsidiaries consolidated under Aktiv
Gruppen Holdings A/S and its jurisdiction of incorporation and the related
Company ownership interest in those subsidiaries at June 30, 2006 are as
follows:
COUNTRY OF INTEREST
SUBSIDIARY INCORPORATION OWNERSHIP
---------- ------------- ---------
Kronborg Byg ApS Denmark 100%
Ejendomsselskabet Parkhusene ApS Denmark 100%
Ejendomsselskabet Faergegardsvej, Vordingborg ApS Denmark 100%
Ejendomsselskabet Krohaven ApS Denmark 100%
Erritso Bygade 79 ApS Denmark 100%
Vognmandsmarken ApS Denmark 100%
Norrebjerg Boligpark ApS Denmark 100%
Ejendomsselskabet Strandparken, Stege ApS Denmark 100%
Ejendomsselskabet Blavand Byferie ApS Denmark 100%
Ejendomsselskabet Kildevej, Helsinge ApS Denmark 100%
Ejendomsselskabet Kommandorparken, Solr0d ApS Denmark 100%
Ejendomsselskabet Marienlyst Palae ApS Denmark 100%
Ejendomsselskabet Nyrad, Vordingborg ApS Denmark 100%
Ejendomsselskabet Soparken, Fredensborg ApS Denmark 100%
Ejendomsselskabet Olbycentervej 65 ApS Denmark 100%
Kobenhavns Byejendomme A/S Denmark 100%
Ejendomsselskabet Hyltebjerg Alle ApS Denmark 100%
Win:pro Invent GmbH & Co Zehnte Wind KG (3) Germany 100%
Sonderborg Havnefront ApS Denmark 100%
Ejendomsudviklingsselskabet af 2001 A/S Denmark 100%
F-10
COUNTRY OF INTEREST
SUBSIDIARY INCORPORATION OWNERSHIP
---------- ------------- ---------
Aktiv Boligopsparing ApS Denmark 100%
Alpen Holidays Ferienhauser GmbH Austria 100%
Delta Byg ApS Denmark 80%
Delta Houses SIA (1) Latvia 80%
Aktiv Wind ApS Denmark 100%
EWF Drei Funf GmbH & Co. KG (2) Germany 78%
Win:pro Invent Gmbh & Co. Neunte Wind KG (2) Germany 100%
Aktiv Wind GmbH (1) (2) Germany 100%
EWF Eins Zwei GmbH & Co KG (2) Germany 78%
EWF Eins Drei GmbH & Co KG (2) Germany 78%
EWF Eins Vier GmbH & Co KG (2) Germany 78%
UW Thrana GmbH & Co KG (2) Germany 78%
EWF Zwei Eins GmbH & Co KG (2) Germany 78%
UW Nielitz GmbH & Co KG (2) Germany 78%
Komplementarselskabet Difko Buchbrunn I ApS (2) Denmark 100%
K/S Difko Buchbrunn I (2) Germany 100%
AGH Norge A/S (4) Denmark 100%
Nordan Parkhusene ApS (5) Denmark 100%
Den Gamle Skibssmedie ApS (5) Denmark 100%
Hotel Den Gamle Skibssmedie ApS (6) Denmark 100%
Bygg og Ejendomsutvikling Sor A/S (5) Norway 100%
Teamhus A/S (7) Norway 100%
Topdalfjordens Utvikling AS (7) Norway 100%
Romaasen Utvikling AS (7) Norway 100%
Drejens Strandskovpark A/S Denmark 100%
2S Ejendomsinvest ApS Denmark 100%
Silkegade Invest A/S (8) Denmark 100%
RGW A/S (8) Denmark 100%
Romo Golf A/S (8) Denmark 100%
Romo Golf & Wellness A/S (8) Denmark 100%
Romo Ferie ApS (8) Denmark 100%
St. Rorbaek Byudvikling ApS Denmark 100%
St. Rorbaek Byudvikling II ApS Denmark 100%
St. Rorbaek Byudvikling III ApS Denmark 100%
Gribskov Bolig ApS Denmark 100%
(1) Wholly owned subsidiary of Delta Byg ApS
(2) Wholly owned subsidiary of Aktiv Wind GmbH
(3) Wholly owned subsidiary of Hytlebjerg Alle
(4) 50% owned directly by EuroTrust A/S and 50% owned by Aktiv Gruppen
Holdings, A/S
(5) Wholly owned subsidiary of AGH Norge A/S
(6) Wholly owned subsidiary of Den Gamle Skibssmedie ApS
(7) Wholly owned subsidiary of Bygg og Ejendomsutvikling Sor A/S
(8) Wholly owned subsidiary of 2S Ejendomsinvest ApS
On December 12, 2005, AGH Norge A/S purchased a 100% interest in Bygg og
Ejendomsutvikling Sor A/S. On June 1, 2006, the Company purchased the remaining
50% interest of AGH Norge A/S. The Company has consolidated the result of AGH
Norge A/S from date of acquisition.
F-11
The minority interests' proportionate share of income or loss of AGH Norge A/S
is included in the consolidated statement of operations through May 31, 2006.
The results of operations for 2S Ejendomsinvest ApS have been included
in the consolidated statement of operations from the date of acquisition on June
2, 2006 through June 30, 2006.
The results of operations for Gribskov Bolig Aps have been included in
the consolidated statement of operations from the date of acquisition on June
16, 2006 through June 30, 2006.
The Company discontinued its Production and Broadcasting Operations with
the sale of certain production vans during April 2006, and the sale of Europe
Vision A/S and subsidiaries effective April 17, 2006.
At June 30, 2006, the Company held a 25% interest in Mediehuset Danmark
ApS; the investment is accounted for under the equity method of accounting.
During January 2003, the Company purchased 50% of K0benhavns Byejendomme
A/S from an entity controlled by a shareholder of the Company for DKK 1 (not in
thousands) and acquired an option to purchase the remaining 50% plus the
outstanding receivables and payables for DKK 1 (not in thousands), which the
Company exercised January 15, 2005. The shares are acquired in order to utilize
the net operating loss carry forward in K0benhavns Byejendomme A/S. At the time
of acquisition the Company recorded contributed capital of DKK 480 in connection
with the DKK 1.7 million (not in thousands) net operating loss carry forward.
The Company has been consolidated from the date of acquisition as the Company
had an effective 100% controlling interest and right to profit and losses.
During 2003, Aktiv Gruppen Holding organized the subsidiary Aktiv
Boligopsparing ApS and distributed a 20% interest to each of 4 individuals for
DKK 26,000 receivable from each of the individuals; these interests were
reacquired from these individuals during 2004 and 2005 in connection with
collection of the receivables. The Company consolidated 100% of the DKK 161
losses as required by Financial Accounting Standards Board (FASB) Interpretation
No. 46R.
INFORMATION EXPRESSED IN US DOLLARS
Translation of DKK amounts into US Dollar amounts is included solely for
the convenience of the reader and has been made at the rate of 5.8674 DKK to one
US Dollar, the approximate exchange rate at June 30, 2006. Such translation
should not be construed as a representation that the DKK amounts could be
converted into US Dollars at that or any other rate.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
US GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures at the date of the
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Estimates are used when accounting for items and matters such as the
timing of the recognition of revenues and estimated costs based upon the
percentage of completion, allowance for uncollectible accounts, amortization,
asset valuations, impairment assessments, taxes, guarantees and contingencies.
Management bases its estimates on historical experience and on other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities. Actual results may differ from these estimates under different
assumptions or conditions.
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CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and short-term deposits with
maturities of less than three months at the time of purchase.
RESTRICTED CASH
Restricted cash as of June 30, 2006 and 2005 includes customer deposit
construction credits and bank deposits which are held as collateral for the
underlying mortgage and construction loans.
MARKETABLE SECURITIES - AVAILABLE FOR SALE
The Company accounts for debt and equity investments in Marketable
securities in accordance with Statement of Financial Accounting Standard. (SFAS)
No. 115, "Accounting for Certain Investments in Debt and Equity Securities".
Under SFAS 115 the Company's investments in public companies or securities are
classified as "available-for-sale". These investments are carried at fair value
based on quoted market prices. We review the marketable equity holdings in
publicly traded companies on a regular basis to determine if any of the
marketable securities have experienced an other-than-temporary decline in its
fair value. We consider the investee company's cash position, earnings and
revenue outlook, stock price performance over the past six months, liquidity and
management, among other factors, when reviewing the marketable equity
securities. If it is determined that an other-than-temporary decline in fair
value exists in a marketable equity security, we record an investment loss in
the consolidated statement of operations. Marketable securities are classified
as current if the Company has the ability or intention of selling the security
within 12 months.
EQUITY METHOD INVESTMENTS
Investments in corporate joint ventures, non-public companies or public
companies in which we are significant shareholder but less than majority are
included in long-term investments in the consolidated balance sheet and are
accounted for under the cost method if our percentage ownership is 20% or less
or the equity method if our ownership is in excess of 20 but less than 50% and
in which we do not have significant ability to influence management. For
non-quoted investments, we regularly review the assumptions underlying the
operating performance and cash flow forecasts based on information requested
from these privately held companies. Generally, this information may be more
limited, may not be as timely as and may be less accurate than information
available from publicly traded companies. Assessing each investment's carrying
value requires significant judgment by management. If it is determined that
there is an other-than-temporary decline in the fair value of a non-public
equity security, we write-down the investment to its fair value and record the
related write-down as an investment loss in the consolidated statement of
operations.
As of June 30, 2006 investments in non consolidated entities included:
ENTITY NATION % OWNERSHIP
Europe Vision PLC (Formerly Tritel Investments, Inc.) Sweden 22.95%
Windpark Wriezener Hohe GmbH & Co KG Denmark 50.00%
Mediehuset Danmark ApS Denmark 25.00%
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CONTRACT & OTHER ACCOUNTS RECEIVABLE
Trade accounts receivable are recorded at the amount invoiced to
customers and they do not bear interest. The allowance for doubtful accounts is
the Company's best estimate of amount of probable losses resulting from the
inability of our customers to make required payments. We regularly review the
adequacy of our accounts receivable allowance after considering the size of the
accounts receivable balance, each customer's expected ability to pay and our
collection history with each customer. We review significant invoices that are
past due to determine if an allowance is appropriate based on the risk category
using the factors described above. The Company's policy for putting the loan on
non-accrual status and to record an allowance for doubtful accounts is based
upon management's best estimate of the amount of probable losses resulting from
the purchaser's inability to make required payments.
The following includes the changes in the allowance for doubtful
accounts for the years ended June 30, 2004 to June 30, 2006:
Allowance for doubtful accounts: Amounts
charged
(credited) to
Balance at Operating Balance at
July 1 Expenses Write-offs June 30
---------- ----------
Year ended June 30, 2004 595 208 -- 803
Year ended June 30, 2005 803 200 (352) 651
Year ended June 30, 2006 651 887 (586) 952
NOTES RECEIVABLE AND NOTES RECEIVABLE RELATED PARTY
During 2004, the Company loaned to companies controlled by each of the
five 20% shareholders of Aktiv Gruppen DKK 7,000 each for a total of DKK 36,291
with the related accrued interest at June 30, 2005. The notes accrue interest a
rate of 3% per annum, payable on demand and are secured by marketable securities
held by the controlled companies. During December 2005, the balance of the
receivables was collected.
Notes receivable were recorded as a result of the sale of Virus 112 and
totaled DKK 10,450 and 5,750 at June 30, 2005 and 2006, respectively. Interest
of 6% per annum is recorded and receivable on a quarterly basis. Principal
payments of DKK 550 are payable quarterly beginning March 31, 2005 through
December 31, 2009. During 2006, a payment of DKK 2,500 was credited against the
balance for brokerage commissions toward the purchase of property, the Company
also recorded a discount of DKK 250 to reflect a discount given on the full
payment of the note during August 2006.
MORTGAGE LOANS RECEIVABLE
Mortgage loans receivable represent a note received from the sale of
real estate owned by the Company. All of the loans are secured by First Deeds of
Trust in real property and are carried at unpaid principal. The Company monitors
the recoverability of its loans and notes receivable. Interest on mortgage loans
is recognized as revenue as it accrues during the period the loan is
outstanding. Mortgage loans receivable are evaluated periodically for
impairment. If it becomes evident that the borrower is unable to meet its debt
service obligations and cannot satisfy its payments using sources other than
sales or operations of the property securing the loan, such loan will be
considered impaired. In that event, interest income on impaired loans will cease
to accrue and the recorded amount will be reduced to the fair value of the
collateral securing it.
F-14
PROPERTIES HELD FOR SALE OR FUTURE DEVELOPMENT
Real estate inventory held for current sale or future development
includes land, land development and carrying costs, including real estate taxes
and assessments, management fees and other directly related costs incurred. It
also includes the non-refundable deposits on land for future development. Costs
are allocated to individual units based on the specific identification or
relative sales value method. Real estate inventory held for current sale and
land held for future development is carried at the lower of cost or fair market
value. Impairment is recognized when estimated expected future cash flows
(undiscounted and without interest charges) are less than the carrying amount of
the project. Due to uncertainties inherent in the valuation process and in the
economy, it is reasonably possible that the actual sales values and profits of
the Company's inventory of land held for current sale and future development
could be materially different than current expectations. To the extent that
impairment has occurred, the excess of the carrying amount of such property over
its estimated fair value, less estimated selling costs, will be charged to
operations. As of June 30, 2006 and 2005, the Company's management believed that
there was no impairment on the carrying value of real estate.
PROPERTY ON OPERATING LEASE
Property on operating lease is stated at cost, net of accumulated
depreciation, unless circumstances indicate that cost, net of accumulated
depreciation, cannot be recovered from estimated future undiscounted cash flows,
in which case, the carrying value of the property is reduced to its estimated
fair value. Due to uncertainties inherent in the valuation process and in the
economy, it is reasonably possible that the actual results of operating and
disposing of the Company's property could be materially different than current
expectations. At June 30, 2006 and 2005, the Company's management believed that
there was no impairment on the carrying value of the property. Depreciation of
the building and improvements is provided using the straight line method over 30
years - the estimated useful lives of the respective assets.
PLANT AND EQUIPMENT
Plant, equipment, furniture and fixtures, automobiles and leasehold
improvements are carried at cost less accumulated depreciation.
Equipment, furniture and fixtures and automobiles are depreciated on a
straight-line basis over the expected useful lives of between three and ten
years. Leasehold improvements are amortized over the shorter of their expected
lives, which is ten years or the non-cancelable term of the leases.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS No. 144, long-lived assets, such as property,
plant, and equipment, and purchased intangibles subject to amortization, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Circumstances which
could trigger a review include, but are not limited to: significant decreases in
the market price of the asset; significant adverse changes in the business
climate or legal factors; current period cash flow or operating losses combined
with a history of losses or a forecast of continuing losses associated with the
use of the asset; and current expectation that the asset will more likely than
not be sold or disposed of significantly before the end of its estimated useful
life.
Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of an asset
exceeds its estimated undiscounted future cash flows, an impairment charge
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is recognized by the amount by which the carrying amount of the asset exceeds
the fair value of the asset. Assets to be disposed of would be separately
presented in the balance sheet and reported at the lower of the carrying amount
or fair value less costs to sell, and would no longer be depreciated. The
depreciable basis of assets that are impaired and continue in use is their
respective fair values
GOODWILL AND OTHER DEFINITE LIFE INTANGIBLE ASSETS
Goodwill represents the excess of costs over the fair value of the
identifiable net assets of businesses or remaining interest of businesses
acquired. Other definite life intangibles assets consisted in 2006 of amounts
paid for the rights to acquire land and the allocation of purchase price in
asset and subsidiary acquisition to development rights in specific real estate
development projects. The Company accounts for Goodwill and Other Intangible
Assets in accordance with SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS,
and accordingly Goodwill and indefinite intangible assets are tested for
impairment at least annually or when circumstances change that could result in
impairment; definite-life intangible assets with estimable useful lives are
amortized over their respective estimated useful lives, and reviewed for
impairment in accordance with SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets.
REVENUE RECOGNITION LONG TERM CONTRACT
Real Estate development
Revenues from real estate development contracts are recognized on the
percentage-of-completion method, measured by the percentage of project /
construction costs incurred to date to estimated total project / construction
costs for each contract multiplied by the ratio of the number of units sold over
the total number of units on a project by project basis. This method is used
because management considers costs incurred to be the best available measure of
progress on contracts in process.
Construction costs of projects under contract include all direct
material and labor costs and those indirect costs related to contract
performance. Directly related selling, general, and administrative costs are
capitalized and accreted included in cost of sales charged to expense as
incurred. Provisions for estimated losses on the incomplete contracts are made
in the period in which such losses are determined. Changes in estimated
profitability are recognized in the period in which the revisions are
determined. The aggregate of costs incurred and income recognized on incomplete
contracts in excess of billings on uncompleted contracts is shown as a current
asset. The aggregate of billings in excess of related costs incurred and income
recognized would be shown as a current liability.
All leases are classified as operating leases and minimum rents are
recognized on a straight-line basis over the lease terms, commencing on the date
that possession is taken by the tenant.
Tenant reimbursements for real estate taxes, common area maintenance and
other recoverable costs are recognized in the period that the expenses are
incurred. Lease termination fees, which are included in other income in the
accompanying consolidated and combined statements of operations, are recognized
when the related leases are cancelled and we have no continuing obligation to
provide services to such former tenants.
Wind Energy
The Company recognizes revenue from the generation of wind energy in
accordance with the terms of the individual wind turbines or windpark contracts
with the German Electric Utility Companies. These
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contracts contain a 20 year fixed floor price to be paid per kilowatt hour
delivered. Revenue is recognized upon delivery of the electricity to the
electric utility substation and collection is probable.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expenses
totaled, DKK 7.8 million (not in thousands) and DKK 10.8 million (not in
thousands) at June 30, 2005 and 2006, respectively. In the consolidated
statements of operation advertising costs directly related to specific real
estate projects are included under cost of sales.
INCOME TAXES
The Company utilizes the asset and liability method to account for
income taxes. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and to operating loss carry forwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
The Company records a valuation allowance to reduce deferred tax assets to an
amount in which realization is more likely than not.
CONCENTRATION OF CREDIT RISK
Cash and cash equivalents are, for the most part, maintained with
several major financial institutions in Scandinavia. These balances are insured
up to DKK 300 per account.
A majority of the Company's current real estate development is located within
Denmark.
All of the Company's wind turbines are located in Germany.
ASSET RETIREMENT OBLIGATIONS
The Company's wind turbines are located on property leased from third
parties. We are obligated to remove the wind turbine upon expiration. We account
for these estimated obligations in accordance with Statement of Financial
Accounting Standards No. 143, "Accounting for Asset Retirement Obligations"
(SFAS No. 143) and Financial Accounting Standards Board (FASB) Interpretation
No. 47, "Accounting for Conditional Asset Retirement Obligations". SFAS No. 143
requires the accrual of the present value of the future estimated asset
retirement obligations at installation, with an offsetting amount booked as
additions to property & equipment. The estimated obligation is accreted to
expense over the estimated life of the assets for the increase in the present
value of the obligation.
STOCK OPTIONS
The Company has stock option plans that provide for stock-based employee
compensation, including the granting of stock options, to certain key employees
[See Note 17]. Prior to January 1, 2006, the Company applied APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and related Interpretations in
accounting for awards made under the Company's stock-based compensation plans.
F-17
Under this method, compensation expense was recorded on the date of grant only
if the current market price of the underlying stock exceeded the exercise price.
During the periods presented in the accompanying financial statements,
the Company has granted options in connection with the reverse acquisition of
EuroTrust A/S. The Company has adopted the provisions of SFAS No. 123R using
the modified-prospective transition method and the disclosures that follow are
based on applying SFAS No. 123R. Under this transition method, compensation
expense recognized during the year ended June 30, 2006 included: (a)
compensation expense for all share-based awards granted prior to, but not yet
vested as of January 1, 2006, and (b) compensation expense for all share-based
awards granted on or after July 1, 2005. Accordingly, no compensation cost has
been recognized for grants of options to employees and directors in the
accompanying statements of operations with an associated recognized tax benefit
of DKK 0 of which DKK 0 was capitalized as an asset for the period ended June
30, 2006. In accordance with the modified-prospective transition method, the
Company's financial statements for the prior year have not been restated to
reflect, and do not include, the impact of SFAS 123R. Aktiv Gruppen Holdings A/S
prior to the reverse acquisition, had not issued any options and thus had not
recorded any compensation cost for the stock option.
RESTATEMENT
The common shares outstanding, common stock and additional paid in
capital have been restated in the June 30, 2005 and 2004 financial statements to
reflect the 22, 050,000 shares par value of DKK7.50 per share issued for the
10,000 shares par value of DKK 100 per share of Aktiv Gruppen Holding A/S in
connection with the reverse acquisition.
PENSIONS AND OTHER POST-RETIREMENT AND POST-EMPLOYMENT BENEFITS
The Company contributes to insurance companies for defined contribution
pension benefits agreements between employees and insurance companies. The
Company's contributions are expensed as incurred. The Company has no future
liabilities related to pensions beyond the contribution.
Other than the pension benefits described above, the Company does not
provide its employees with post-retirement and post-employment benefits.
RECLASSIFICATIONS
Certain balances in the financial statements for June 30, 2004 and 2005
have been reclassified to conform to the headings and classifications used in
the June 30, 2006 financial statements.
RECENTLY ISSUED ACCOUNTING STANDARDS
In September 2006, the Chief Accountant of the SEC issued a letter
regarding the accounting implications of certain option granting practices of
which the SEC staff has become aware, many of which affect the determination of
an option's measurement date. Although not yet embodied in a separate accounting
pronouncement, the Chief Accountant's letter elaborates on the staff's view as
to accounting issues related to APB Opinion 25, "Accounting for Stock Issued to
Employees", should a registrant's practices related to such matters be reviewed.
The Company is evaluating the impact of the Chief Accountant's letter, but does
not presently believe that its consolidated financial statements will be
effected thereby.
In September 2006, the SEC staff issued Staff Accounting Bulletin No.
108, "Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements." SAB 108 was issued to
provide consistency between how registrants quantify financial statement
misstatements. SAB 108 established an approach that requires quantification of
financial
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statement misstatements based on the effects of the misstatement on each of the
Company's financial statements and the related financial statement disclosures.
This approach is commonly referred to as the "dual approach" because it requires
quantification of errors under two widely-used methods for quantifying the
effects of financial statement misstatements, generally referred to as the
"roll-over" and "iron curtain" methods. SAB 108 allows registrants to initially
apply the dual approach either by (1) retroactively adjusting prior financial
statements as if the dual approach had always been used or by (2) recording the
cumulative effect of initially applying the dual approach as adjustments to the
carrying values of assets and liabilities as of January 1, 2006 with an
offsetting adjustment recorded to the opening balance of retained earnings. Use
of this "cumulative effect" transition method requires detailed disclosure of
the nature and amount of each individual error being corrected through the
cumulative adjustment and how and when it arose. The Company expects to apply
SAB 108 using the cumulative effect transition method in connection with the
preparation of its annual financial statements for the year ending June 30,
2007. When the Company initially applies the provisions of SAB 108, it does not
presently expect to record any effects of financial statement misstatements.
In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109"
(FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes by
prescribing a two-step method of first, evaluating whether a tax position has
met a more-likely-than-not recognition threshold, and second, measuring that tax
position to determine the amount of benefit to be recognized in the financial
statements. FIN 48 provides guidance on the presentation of such positions
within a classified statement of financial position as well as on
de-recognition, interest and penalties, accounting in interim periods,
disclosure and transition. FIN 48 is effective for the Company beginning July 1,
2007. Management is currently reviewing FIN 48 to determine the impact of
adopting it and its materiality to the Company.
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain
Hybrid Financial Instruments, an amendment of FASB statements No. 133 and 140"
(SFAS 155). SFAS No. 155 allows financial instruments that have embedded
derivatives to be accounted for as a whole (eliminating the need to bifurcate
the derivative from its host) as long as the entire instrument is valued on a
fair value basis. The statement also resolves and clarifies other specific SFAS
No. 133 and SFAS No. 140 related issues. SFAS No. 155 is effective for all
financial instruments acquired or issued after the beginning of an entity's
first fiscal year that begins after September 15, 2006. We will be required to
adopt SFAS No. 155 on July 1, 2007 and do not expect that it will have a
material effect on our Consolidated Financial Statements.
On September 28, 2005, the FASB ratified the following consensus reached
in EITF Issue 05-8 ("Income Tax Consequences of Issuing Convertible Debt with a
Beneficial Conversion Feature"): a) The issuance of convertible debt with a
beneficial conversion feature results in a basis difference in applying FASB
Statement of Financial Accounting Standards SFAS No. 109, Accounting for Income
Taxes. Recognition of such a feature effectively creates a debt instrument and a
separate equity instrument for book purposes, whereas the convertible debt is
treated entirely as a debt instrument for income tax purposes. b) The resulting
basis difference should be deemed a temporary difference because it will result
in a taxable amount when the recorded amount of the liability is recovered or
settled. c) Recognition of deferred taxes for the temporary difference should be
reported as an adjustment to additional paid-in capital. This consensus is
effective in the first interim or annual reporting period commencing after
December 15, 2005, with early application permitted. The effect of applying the
consensus should be accounted for retroactively to all debt instruments
containing a beneficial conversion feature that are subject to EITF Issue 00-27,
"Application of Issue No. 98-5 to Certain Convertible Debt Instruments" (and
thus is applicable to debt instruments converted or extinguished in prior
periods but which are still presented in the financial statements). The adoption
of this pronouncement is not expected to have a material impact on the Company's
financial statements.
F-19
The Emerging Issues Task Force ("EITF") reached a tentative conclusion
on EITF Issue No. 05-1, "Accounting for the Conversion of an Instrument That
Becomes Convertible upon the Issuer's Exercise of a Call Option" that no gain or
loss should be recognized upon the conversion of an instrument that becomes
convertible as a result of an issuer's exercise of a call option pursuant to the
original terms of the instrument. The application of this pronouncement is not
expected to have an impact on the Company's consolidated financial statements.
In November 2005, the Financial Accounting Standards Board ("FASB")
issued FSP FAS 115-1 and FAS 124-1, "The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments" ("FSP 115-1 and 124-1"),
which clarifies when an investment is considered impaired, whether the
impairment is other than temporary, and the measurement of an impairment loss.
It also includes accounting considerations subsequent to the recognition of an
other-than-temporary impairment and requires certain disclosures about
unrealized losses that have not been recognized as other-than-temporary
impairments. FSP 115-1 and 124-1 are effective for all reporting periods
beginning after December 15, 2005. Management does not currently expect that
implementation of these statements will have a significant impact on the
Company's consolidated financial position or results of operations.
In June 2005, the FASB ratified EITF Issue No. 05-2, "The Meaning of
'Conventional Convertible Debt Instrument' in EITF Issue No. 00-19, 'Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock'" ("EITF No. 05-2"), which addresses when a convertible debt
instrument should be considered 'conventional' for the purpose of applying the
guidance in EITF No. 00-19. EITF No. 05-2 also retained the exemption under EITF
No. 00-19. EITF No. 05-2 is effective for new instruments entered into and
instruments modified in periods beginning after June 29, 2005. The Company has
applied the requirements of EITF No. 05-2 since the required implementation
date. The adoption of this pronouncement did not have an impact on the Company's
consolidated financial statements.
In May 2005, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 154, "Accounting Changes and Error Corrections" ("SFAS No. 154"), which
replaces APB Opinion No. 20, "Accounting Changes", and SFAS No. 3, "Reporting
Accounting Changes in Interim Financial Statements-An Amendment of APB Opinion
No. 28". SFAS No. 154 provides guidance on the accounting for and reporting of
accounting changes and error corrections. It establishes retrospective
application, or the latest practicable date, as the required method for
reporting a change in accounting principle and the reporting of a correction of
an error. SFAS No. 154 is effective for accounting changes and corrections of
errors made in fiscal years beginning after December 15, 2005 and was adopted by
the Company on July 1, 2006. Management is currently reviewing SFAS No. 154 to
determine the effect of adopting it, but does not currently expect that it will
have a material impact on the Company's consolidated results of operations and
financial condition.
EITF Issue No. 05-4 "The Effect of a Liquidated Damages Clause on a
Freestanding Financial Instrument Subject to EITF Issue No. 00-19, 'Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock'" ("EITF No. 05-4") addresses financial instruments, such as
stock purchase warrants, which are accounted for under EITF 00-19 that may be
issued at the same time and in contemplation of a registration rights agreement
that includes a liquidated damages clause. The consensus of EITF No. 05-4 has
not been finalized. The Company does not believe the adoption of this
pronouncement will have an impact on the Company's consolidated financial
statements.
In September 2005, the FASB ratified EITF Issue No. 05-7, "Accounting
for Modifications to Conversion Options Embedded in Debt Instruments and Related
Issues" ("EITF No. 05-7"), which addresses whether a modification to a
conversion option that changes its fair value affects the recognition of
interest expense for the associated debt instrument after the modification and
whether a borrower
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should recognize a beneficial conversion feature, not a debt extinguishment, if
a debt modification increases the intrinsic value of the debt. EITF No. 05-7 is
effective for the first interim or annual reporting period beginning after
December 15, 2005. The Company is currently in the process of evaluating the
effect that the adoption of this pronouncement will have on its financial
statements.
2. MARKETABLE SECURITIES
The following is a summary of available-for-sale investments held as
long-term assets (in DKK):
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
June 30, 2005:
Shares in Forstaedernes Bank 50 49 0 99
Bonds in Dexia Dannevirke 3,000 0 (88) 2,912
Bonds in Nordnet-Euro 1,318 0 0 1,318
Bonds in Nordnet-Medium 674 0 0 674
--------- ---------- ---------- ---------
Total short-term investments 5,042 49 (88) 5,003
--------- ---------- ---------- ---------
June 30, 2006:
Shares in Forstaedernes Bank 50 73 0 123
Bonds in Dexia Dannevirke 16,000 0 (3,020) 12,980
Notabene.net A/S 740 76 0 816
--------- ---------- ---------- ---------
Total short-term investments 16,790 149 (3,020) 13,919
--------- ---------- ---------- ---------
The unrealized loss on the available-for-sale investment securities is
included in other cumulative comprehensive income during 2005 and 2006. Bonds
held in Dexia Dannevirke with a total cost price of DKK 3,000 are held as
collateral for notes payable.
3. EQUITY METHOD INVESTMENTS IN UNCONSOLIDATED COMPANIES
The following is a summary of equity method investments (in DKK)
JUNE 30,
2005 2006
------- -------
Mediehuset Danmark ApS -- 2,099
Windpark Timpberg GmbH & Co Zehnte Wind KG 1,276 --
Ejendomsselskabet Toftevej A/S 4,336 --
AGH Norge A/S 260 --
Europe Vision Plc -- 78,555
Windpark Wriezener Hohe GmbH -- 21,277
Kirkeveien 18 AS -- 632
Romasen Utvikling AS -- 192
Rosfjord Ferieeiendom -- 12
------- -------
5,872 102,767
------- -------
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MEDIEHUSET DANMARK ApS
During 2003 EuroTrust A/S invested 1.5 million DKK for a 25% ownership
of Mediehuset Danmark ApS. At the date of purchase the purchase price exceeded
25% of the net equity of Mediehuset Danmark ApS by DKK 998. The Company's Equity
in earnings of Mediehuset Danmark ApS for the year ended September 30, 2005 and
2004 was DKK 461 and DKK 138, respectively.
WINDPARK TIMPBERG GMBH & CO ZEHNTE WIND KG
During 2006, the Company purchased the remaining 75% ownership interest
in the Timpberg #10 windmill for DKK 5,382 to become the 100% owner. At June 30,
2005 the Company had a 25% ownership interest in the wind turbine.
EJENDOMSSELSKABET TOFTEVEJ A/S
During the year ended June 30, 2006, the company sold their ownership
interest in Ejendomsselskabet Toftevej A/S and recognized a loss of DKK 146 on
the sale.
AGH NORGE A/S
The Company acquired the remaining 50% ownership interest through our
subsidiary Aktiv Gruppen Holding during the year ended June 30, 2006. The
purchase price was 2,650,000 shares in EuroTrust. AGH Norge A/S is now owned 50%
by EuroTrust and 50% by Aktiv Gruppen Holding.
EUROPE VISION PLC
At June 30, 2006, the Company holds 31,250,000 shares of Europe Vision
Plc (Formerly Tritel Media AB, approximately 23% of the shares outstanding of
Europe Vision Plc). The Company received the shares upon the sale of all the
issued and outstanding shares of its former subsidiary Euro-Vision A/S. The
valuation of the shares is treated as a cost investment until the shares are
sold.
WINDPARK WRIEZENER HOHE GMBH
Through our 100% owned subsidiary Aktiv Wind ApS we own 50.00% of
Windpark Wriezener Hohe GmbH & Co KG, which owns 13 wind turbines with a total
capacity of 26MW.
KIRKEVEIEN 18 AS
Through our 100% owned subsidiary AGH Norge A/S, we own 50% of
Kirkeveien 18 AS, which is building 12 apartments in Baerum,
Norway.
ROMASEN UTVIKLING AS
Through our 100% owned subsidiary AGH Norge A/S, we own 33.33% of
Romasen Utvikling AS, which is building 70 houses in Lyngdal, Norway.
ROSFJORD FERIEEIENDOM
Through our 100% owned subsidiary AGH Norge A/S, we own 11.7% of
Rosfjord Ferieeiendom, which is building 12 cottages in Lyngdal, Norway.
F-22
4. CONTRACT RECEIVABLES
Contract receivables consist of the following at June 30, 2005 and 2006:
2005 2006
------------ ------------
Completed contracts 34,871 49,702
------------ ------------
34,871 49,702
Less allowance for doubtful accounts (651) (952)
------------ ------------
34,220 48,750
============ ============
5. PLANT AND EQUIPMENT
Property, plant and equipment include the following (in DKK):
JUNE 30,
Estimated -----------------------------
Life 2005 2006
------------ ------------
Furniture and fixtures 3 to 5 years 525 5,508
Automobiles 5 years 627 5,455
Property 30 years -- 1,862
------------ ------------
1,152 12,825
Less accumulated depreciation
and amortization (483) (2,150)
------------ ------------
Net plant and equipment 669 10,675
============ ============
Depreciation expense 520 681
============ ============
6. WIND TURBINES
Wind turbines include the following (in DKK):
JUNE 30,
Estimated -----------------------------
Life 2005 2006
------------ ------------
Wind turbines 25 years 99,239 285,337
------------ ------------
99,239 285,337
Less accumulated depreciation
and amortization -- (4,329)
------------ ------------
Net property, plant and equipment 99,239 281,008
============ ============
Depreciation expense -- 5,136
============ ============
F-23
The wind turbines are held as collateral on notes payable (See Note 12).
During 2006, The Company sold three wind turbines with a net book value of
DKK 55.1 million and recorded a loss on sale of DKK 200. No depreciation was
recorded during 2005 as the wind turbines were purchased at the end of June.
7. GOODWILL / DEFINITE - LIFE INTANGIBLE ASSETS
Goodwill relating to the purchase of the Company's Norwegian activity
consisted of the following (in DKK):
JUNE 30,
2005 2006
------------ ------------
BALANCE AT THE BEGINNING OF THE YEAR -- --
CHANGES:
Additions -- 169,639
Disposals -- --
Impairment -- --
------------ ------------
BALANCE AT THE END OF THE YEAR -- 169,639
------------ ------------
During the fourth quarter of 2006, the Company performed the annual
impairment test and recorded an impairment charge of DKK 0 and DKK 0,
respectively.
Fair value was estimated for each reporting unit, within EuroTrust,
using the expected present value of discounted future cash flows the unit is
expected to generate over its remaining life. When making these estimates, we
were required to make estimates of future operating trends and judgments on
discount rates and other variables. Actual future results and other assumed
variables could differ from these estimates. The assumptions supporting the
estimated future cash flows, including the discount rate and estimated terminal
values, reflect management's best estimates.
DEFINITE - LIFE INTANGIBLE ASSETS
The Company has classified its intangible assets as a definite-life
intangible asset and is amortizing them based upon the revenues realized per
year over the estimated total revenues to be realized from the underlying real
estate projects. These projects are estimated to be sold over the next fifteen
years. During the fourth quarter of 2006 the Company completed its initial test
of intangible assets for impairment in accordance with SFAS No. 142. The Company
used the estimated future cash flows to test the remaining intangible assets for
impairment and determined that the Company's intangible assets were not
impaired. Amortization expense of DKK 960 was recorded for the year ended June
30, 2006 and 2005 and has been included in cost of goods sold. The following is
a summary of intangibles at June 30,:
JUNE 30,
2005 2006
------------ ------------
Allocation of purchase price for rights
to complete projects
Projects:
Norway projects -- 54,750
2S Wellness Center , 200 Holiday condos
and other projects under development -- 102,488
Gribskov Bolig development -- 20,992
------------ ------------
-- 178,230
Less Accumulated amortization (960)
------------ ------------
BALANCE , NET -- 177,270
------------ ------------
F-24
The remaining estimated aggregate amortization expense for next five
years and thereafter is as follows at June 30, 2006:
2007 85,213
2008 44,346
2009 14,015
2010 2,808
2011 2,808
Thereafter 28,080
------------
177,270
------------
8 - PROPERTY ON OPERATING LEASE
The Company is a lessor of a 565 square meter office building in K0ge,
Denmark and two 99 square meter hotel/holiday apartments in Faborg, Denmark. The
leases call for monthly rentals to be received of approximately DKK 52 and
expire January 15, 2009 for the office building and total monthly rentals of
approximately DKK 15 for the two hotel/holiday apartments.
Minimum future rentals to be received on the non-cancelable lease of the
office building as of June 30, 2006 for each of the next five years and in the
aggregate are as follows, whereas the hotel/holiday apartments are considered on
a short term (1 year) lease:
DKK
------------
June 30, 2007 813
June 30, 2008 639
June 30, 2009 335
June 30, 2010 --
Thereafter --
------------
Total Minimum Lease Payments 1,787
------------
F-25
Property underlying an operating lease consists of the following:
JUNE 30,
-----------------------------
2005 2006
------------ ------------
Land 870 1,007
Building 7,354 9,687
------------ ------------
8,224 10,694
Less accumulated depreciation (357) (670)
------------ ------------
Net property on operating lease 7,867 10,024
============ ============
Depreciation (included in cost of sales) 245 313
============ ============
The land and building are held as collateral on a note payable for
Ejendomsselskabet Olbycentervej 65 ApS and Kronborg Byg ApS (See Note
12).
9. PROPERTY HELD FOR RESALE AND FUTURE DEVELOPMENT
Real estate held for current sale consisted of the following:
JUNE 30,
-----------------------------
2005 2006
------------ ------------
Recreational condominiums 64,673 --
Land 4,086 151,346
Golf course -- 59,589
------------ ------------
68,759 210,935
============ ============
The land and buildings are held as collateral on a note payable for
Sonderborg Havnefront ApS , Aktiv Boligopsparing ApS, Store Rorbaek Byudvikling
I ApS, Store Rorbaek Byudvikling II ApS, 2S Ejendomsinvest ApS and Alpen
Holidays Ferienhauser GmbH (See Note 12).
10. BUSINESS ACQUISITIONS AND DIVESTITURES
ACQUISITIONS DURING 2005/06
---------------------------
On May 29, 2006, EuroTrust A/S purchased the remaining 50% of AGH Norge
A/S from Soren Hager Holding 2 ApS, Kalodde AS and Sorprosjekt Holding AS and
thereby became the 100% owner through our subsidiary Aktiv Gruppen Holding A/S.
The purchase price was 2,650,000 shares in EuroTrust. An amount of DKK 155,528
was recorded as goodwill and an amount of DKK 55,000 was allocated to projects
in connection with the purchase. The shares were acquired to gain an entrance
with established operations into the Norwegian real estate market.
On June 2, 2006, Aktiv Gruppen Holding A/S purchased 100% of the shares in 2S
Ejendomsinvest ApS from Hans Schmidt Holding A/S and VIDA Holding ApS. The
purchase price was DKK 134,160. An amount of DKK 132,488 was allocated to
projects in connection with the purchase. The shares were acquired to ensure a
further development of our Real Estate business in Denmark.
On June 11, 2006, Aktiv Gruppen Holding A/S purchased 100% of the shares
in Gribskov Bolig ApS Toki Pant A/S and VIDA Milkap ApS. The purchase price was
DKK 21,256. An amount of DKK 20,992, was allocated to projects in connection
with the purchase. The shares were acquired to ensure a further development of
our Real Estate business in Denmark.
F-26
ST. ST. DER
2S WINDPARK ST. R0RBAEK R0RBAEK JENS
AGH EJENDOMS K/S DIFKO TIMPBERG R0RBAEK BYUDVIK BYUDVIK GRIB STRAND
NORDAN INVEST BUCH GMBH & CO BYUDVIK LING II LING III SKOV SKOVPARK
INVEST APS BRUNN I ZEHNTE KG LING APS APS APS BOLIG APS APS
--------- --------- --------- --------- --------- --------- --------- --------- ---------
ENTITY ACQUIRED
Percentage Ownership
Acquired 100% 100% 100% 75% 100% 100% 100% 100% 100%
Purchase Price Paid in DKK 208,000 134,16 0 5,382 125 125 125 21,256 500
Date of Acquisition May 29, June 2, Jan. 24, Jan. 2, May 1, May 1, June 11, June 11, June 2,
2006 2006 2006 2006 2006 2006 2006 2006 2006
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Cash & restricted cash 121,420 56,275 1,012 748 -- -- 125 38 704
Other current assets -- 11,896 2,012 62 20 8 4 -- 10
Receivables 5,775 421 -- 230 -- -- -- 262 --
Construction in progress 97,185 307,403 -- -- -- -- -- -- --
Property & equipment 71 64,151 -- -- 5,807 2,527 8,076 42,180 50,783
Wind Turbines -- -- 30,109 15,148 -- -- -- -- --
Goodwill 172,312 -- -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total assets acquired 396,763 440,146 33,133 16,188 5,827 2,535 8,205 42,480 51,497
========= ========= ========= ========= ========= ========= ========= ========= =========
Current Liabilities 188,763 76,476 33,133 151 5,702 2,410 8,080 21,224 210
Long-term debt 229,510 -- 10,651 -- -- -- -- 50,787
Asset Retirement Obligation -- -- -- 5 -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total liabilities assumed 188,763 305,986 33,133 10,807 5,702 2,410 8,080 21,224 50,997
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net assets acquired 208,000 134,160 -- 5,381 125 125 125 21,256 500
========= ========= ========= ========= ========= ========= ========= ========= =========
The following proforma combined condensed results of Aktiv Gruppen
Holding A/S, AGH Norge A/S, 2S Ejendomsinvest A/S and Windpark Timpberg GmbH &
Co Zehnte KG as if the Company had purchased these entities at the beginning of
the repective periods:
YEARS ENDED JUNE 30,
2005 2006 2006
------------ ------------ ------------
. DKK DKK USD
Net sales 304,698 505,461 86,147
Operating expenses (235,782) (438,587) (74,750)
------------ ------------ ------------
Net income 68,916 66,874 11,397
============ ============ ============
F-27
ACQUISITIONS DURING 2004/05
On February 14, 2005, Aktiv Gruppen purchased the remaining 50% of
Ejendomsselskabet Hyltebjerg Alle ApS, from JNP Holding ApS and thereby became
the 100% of Ejendomsselskabet Hyltebjerg Alle ApS. The purchase price was DKK
100. No goodwill was recorded in connection with the purchase. The shares were
acquired in order to ensure that the project was properly finalized.
On December 21, 2004, the Company purchased 100% of Aktiv Wind GmbH,
from European Wind Farms A/S. The purchase price was DKK 1,212. No goodwill was
recorded in connection with the purchase. Aktiv Wind GmbH serves as the general
(unlimited) partner in the German KG's (partnerships). On May 4, 2005, the
Company acquired a 100% interest in EWF Drei Funf GmbH & Co. KG for Euro 2 or
DKK 14 through which the Company has constructed two wind turbines.
During 2005, the company purchased four wind turbines through the
purchase of four German partnerships. The following table summarizes the terms
of the acquisition and the estimated fair values of the assets acquired and the
liabilities assumed at the date of acquisition (in DKK):
WIN:PRO
EWF INVENT UPEG 8 BIRGTER
DREI FUNF GMBH & CO. WIND-PARK WINDENERGIE PADER-WIND
GMBH & CO. NEUNTE WIND GMBH & CO. GMBH & CO. GMBH & CO. AKTIV WIND
KG KG KG KG KG APS
------------ ------------ ------------ ------------ ------------ ------------
ENTITY ACQUIRED
Percentage Ownership Acquired 100% 100% 100% 100% 100% 100%
Purchase Price Paid in DKK 14 3,552 21,832 16,893 16,893 1,212
Date of Acquisition May 04, June 29, June 29, June 29, June 29, December 21,
2005 2005 2005 2005 2005 2004
------------ ------------ ------------ ------------ ------------ ------------
Current assets -- 1,090 1,301 2,710 1,246 215
Windmills -- 17,448 22,051 17,062 17,062 1,002
Goodwill -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Total assets acquired -- 18,538 23,352 19,772 18,308 1,217
============ ============ ============ ============ ============ ============
Current Liabilities -- 125 1,301 2,710 1,246 --
Long-term debt -- 14,688 -- -- -- --
Asset Retirement Obligation -- 173 219 169 169 5
------------ ------------ ------------ ------------ ------------ ------------
Total liabilities assumed -- 14,986 1,520 2,879 1,415 5
------------ ------------ ------------ ------------ ------------ ------------
Net assets acquired -- 3,552 21,832 16,893 16,893 1,212
============ ============ ============ ============ ============ ============
F-28
The following proforma combined condensed results of Aktiv Gruppen
Holdings A/S, win:pro Invent Gmbh & Co. Neunte Wind, UPEG 8 Windpark GmbH & Co.
KG, Birgter Windenergie GmbH & Co. KG, and Paderwind GmbH & Co. KG as if the
Company had purchased these entities at the beginning of the repective periods:
YEARS ENDED JUNE 30,
2004 2005 2005
------------ ------------ ------------
DKK DKK USD
Net sales 297,596 395,294 64,147
Operating expenses (279,120) (356,437) (57,841)
------------ ------------ ------------
Net income 18,476 38,857 6,306
============ ============ ============
ACQUISITIONS DURING 2003/2004
On October 09, 2003, Aktiv Gruppen purchased the remaining 50% of
Norrebjerg Boligpark ApS, from Proconex ApS and thereby became the 100% owner of
Norrebjerg Boligpark ApS. The purchase price was DKK 357. No goodwill was
recorded in connection with the purchase. The shares were acquired in order to
develop a new project within the company and use tax net operating loss carry
forwards.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's cash equivalents and restricted cash,
receivables, marketable securities, long-term investments, line of credit and
long-term debt, payables and lease obligations approximates the carrying amount,
which is the amount for which the instrument could be exchanged in a current
transaction between willing parties. Information about each instrument follows:
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
The carrying amount of cash, cash equivalents and restricted cash
approximates their fair value as of June 30, 2005 and 2006, because of the short
term maturities of those instruments.
ACCOUNTS RECEIVABLE, RECEIVABLES FROM RELATED PARTIES, VAT RECEIVABLE AND OTHER
RECEIVABLES
The carrying amounts of accounts receivable, receivables from related
parties, VAT receivable and other receivables approximate their fair value as of
June 30, 2005 and 2006 because of the expected short term collection of those
instruments.
MORTGAGE DEED AND NOTES RECEIVABLE
The carrying amount of notes receivable approximates their fair value as
of June 30, 2005 and 2006 because the interest rates approximate the rate of
similar instruments as of June 30, 2005 and 2006.
MARKETABLE SECURITIES
The fair values of investment securities are estimated based on quoted
market prices as of June 30, 2005 and 2006 and are stated at fair value.
F-29
LINE OF CREDIT AND LONG-TERM DEBT
The fair values of the Company's line of credit and long-term debt as of
June 30, 2005 and 2006 approximate recorded values as of June 30, 2005 and 2006,
based on similar current rates offered to the Company for debt of the same
remaining maturities.
ACCOUNTS PAYABLE, ACCOUNTS PAYABLE - RELATED PARTIES AND ACCRUED LIABILITIES
The carrying amount of accounts payable and accounts payable - related
party approximates fair value as of June 30, 2005 and 2006, because of the short
term maturity of those instruments.
12. NOTES PAYABLE, LINES OF CREDIT AND OTHER DEBT OBLIGATIONS
Notes payable, lines of credit and other debt obligations relate
primarily to the funding of development projects and wind turbine acquisitions.
These notes payable are collateralized by underlying development project or wind
turbines. Interest rates vary from 4.10 percent, to 7.5 percent and are
generally tied to the DKK or EUR LIBOR plus a specified percentage. One loan of
DKK 45 accrues interest at a rate of 17.10 percent as of June 30, 2006.
Construction loans are payable upon delivery of the project. Wind turbine and
mortgage loans payment terms are generally bi-annual and monthly, respectively,
over ten to twenty years. The remaining loans vary from on demand, to balloon
payment to monthly instalments.
The construction loans are all classified as current because the
contractual due date is the sooner of the date the underlying project is sold or
the original payment date as stipulated in the note payable. In addition, the
related construction in progress / cost in excess of billings is also classified
as current.
The balances of notes payable at June 30, 2006 consisted of the
following:
INTEREST RATE JUNE 30,
AT JUNE 30, ----------------------------
2006 2005 2006
--------------------------------------------------------------------------------------------------------------
Kronborg Byg ApS
Construction loan 5.15-6.35% 10,638 4,022
Aktiv Gruppen Holding A/S --
Vehicle Loans 4.5% 1,213 3,176
Other Loans 4.93-6.25% 5,199 39,752
Ejendomsselskabet Parkhusene ApS
Construction loan 7.50% 131,409 211,565
Ejendomsselskabet Faergegardsvej, Vordingborg ApS
Construction loan 5.45% 4,000 9,416
Ejendomsselskabet Krohaven ApS
Construction loan 6.50% -- 24,952
Errits0 Bygade 79 ApS
Construction loan 17.10% 5 45
Ejendomsselskabet Guvernorparken
Construction loan 6.10% 12,000 0
Ejendomsselskabet Kildevej, Helsinge ApS
Construction loan 6.10% 13,930 67,874
Ejendomsselskabet Kommandorparken, Solrod ApS
Construction loan 6.10% 17,305 54,203
Drejens Strandskovpark A/S
Construction loan 6.08% -- 50,787
(Continued)
F-30
12. NOTES PAYABLE, LINES OF CREDIT AND OTHER DEBT OBLIGATIONS - CONTINUED
INTEREST RATE JUNE 30,
AT JUNE 30, ----------------------------
(Continued) 2006 2005 2006
--------------------------------------------------------------------------------------------------------------
Euro Trust PKI Services ApS
Other loan -- -- 80,000
Ejendomsselskabet Marienlyst Palae ApS
Line of Credit(1) 6.5% 103,000 95,131
Other loans 6.5% 256 876
Ejendomsselskabet Soparken, Fredensborg ApS
Construction loan 6.50% -- 113
Ejendomsselskabet Nyrad, Vordingborg ApS
Construction loan 6.00% 8,546 26,996
Ejendomsselskabet Olbycentervej 65 ApS
Mortgage loan 5.50% 7,055 6,784
Ejendomsselskabet Hyltebjerg Alle ApS
Construction loans 6.5% 17,305 1,671
Ejendomsudviklingsselskabet af 2001 A/S
Construction loan 6.08% 17,268 340
Alpen Holidays Ferienhauser GmbH
Mortgage loan 5.50% 943 987
Delta Byg ApS
Line of Credit 5.75% 523 --
Sonderborg Havnefront ApS
Line of Credit 6.00% -- 1,700
Blavand Byferie ApS
Line of Credit -- 5,221
St. Rorbaek Byudvikling I ApS
Vehicle Loans 6.23% -- 776
Line of Credit 6.23% -- 2,464
St. Rorbaek Byudvikling II ApS
Line of Credit 6.23% -- 1,166
Gribskov Bolig ApS -- 22
AGH Norge A/S
Line of Credit 7.00% -- 38
Den gamle skibssmedie ApS
Construction loans 6.00% -- 39,233
Bygg & Eiendomsutviklin Sor AS
Construction loans 6.20% -- 925
(Continued)
F-31
12. NOTES PAYABLE, LINES OF CREDIT AND OTHER DEBT OBLIGATIONS - CONTINUED
INTEREST RATE JUNE 30,
AT JUNE 30, ----------------------------
(Continued) 2006 2005 2006
--------------------------------------------------------------------------------------------------------------
2S Ejendomsinvest ApS
Line of Credit 6.25-7.02% -- 3,457
Silkegade Invest ApS
Line of Credit 6.25% -- 2,000
R0m0 Golf A/S
Line of Credit 6.25% -- 24,865
Other Loans -- -- 650
RGW A/S
Line of Credit 6.25-7.02% -- 227,409
Aktiv Wind ApS
Equipment loan (Windturbine) 5,15% 21,138 87,294
win:pro Invent Gmbh & Co. Neunte Wind KG
Equipment loan (Windturbine) 4.75-5.27% 14,688 13,655
EWF Eins Zwei GmbH & Co. KG
Equipment loan (Windturbine) 4.35% -- 20,004
EWF Eins Drei GmbH & Co. KG
Equipment loan (Windturbine) 4.35% -- 20,026
EWF Eins Vier GmbH & Co. KG
Equipment loan (Windturbine) 4.35% -- 19,903
EWF Zwei Eins GmbH & Co. KG
Equipment loan (Windturbine) 4.35% -- 15,887
UW Nielitz GmbH & Co. KG 4.10% -- 95,005
K/S Difko Bucfhbrunn I
Revolving credit 6.08% -- 33,012
win:pro Invent Gmbh & Co. Zehnte Wind KG
Line of credit 4.35% -- 13,655
UPEG 8 Windpark GmbH & Co. KG
Equipment loan (Windturbine) 4.00-4.25% 12,851 --
Birgter Windenergie GmbH & Co. KG
Equipment loan (Windturbine) -- 14,469
Paderwind GmbH & Co. KG
Equipment loan (Windturbine) -- 14,383
------------ ------------
428,124 1,307,057
Less long term (25,366) (35,263)
------------ ------------
Short term 402,758 1,271,794
------------ ------------
(1) The Company maintains revolving credit agreements in the aggregate
amount of DKK 103,000 and DKK 95,131 at June 30, 2005 and 2006,
respectively with all amounts used. The agreements expire June 30, 2007.
F-32
Maturities of debt obligations payable at June 30, 2006 are as follows:
Year Ending June 30,
--------------------
2007 $ 1,271,794
2008 3,166
2009 2,888
2010 2,915
2011 2,926
Thereafter 23,368
------------
$ 1,307,057
============
13. OPERATING LEASES
The Company also has non-cancelable operating leases, primarily for
office space, that expire over the next four years. These leases generally
contain renewal options for one year and require the Company to pay all
executory costs such as maintenance and insurance. Expenses under operating
leases amounted to DKK 444 and DKK 1,141 in the years ended June 30, 2005 and
2006, respectively.
The Company also leases the underlying land upon which the wind turbines
are constructed, expiring beginning in the year 2023 through 2031, the leases
further allow for option to extend the lease for one or two, five year periods.
Lease expense under land operating leases amounted to DKK 0 and DKK 631 for the
years ended June 30, 2005 and 2006 as the wind turbines were purchased at the
end of June, 2005.
Future minimum lease payments under non-cancelable operating leases with
initial or remaining lease terms in excess of one year, as of June 30, 2006 are:
F-33
OPERATING LEASES
----------------
Year ending June 30:
2007 3,442
2008 2,954
2009 2,271
2010 1,342
2011 1,335
Thereafter 28,789
----------------
Total minimum lease payments 40,133
================
14. RELATED PARTY TRANSACTIONS
NOTES AND ACCRUED INTEREST RECEIVABLES
During the year ended June 30, 2006 there have been no significant
transactions with the supervisory and executive boards, executive officers,
important shareholders or other related parties have been carried out, besides
intra-group transactions which have been eliminated in the consolidated
financial statement as well as ordinary management remuneration.
During 2004, the Company loaned to companies controlled by each of the
five 20% shareholders of the Aktiv Gruppen DKK 7,000 each. The notes accrue
interest a rate of 3% per annum, payable on demand and are secured by marketable
securities held by the controlled companies. At June 30, 2005 notes and accrued
interest receivable related parties consisted of the following:
JUNE 30,
--------------------------
2005 2006
------------ ------------
Dansk Anlaegsinvest ApS 7,245 --
JL Forsikringsformidling ApS 7,245 --
AO Holding ApS 7,245 --
Synerco ApS 7,245 --
Salt-Con ApS 7,245 --
Other employee receivables 66 --
------------ ------------
36,291 --
============ ============
Subsequent to the year ended June 30, 2005, all of the amounts
receivable have been collected.
F-34
During 2006, the Company sold 55 holiday condominiums for DKK 103,131 to
Marienlyst Hotel Invest A/S (MHI). MHI is partially owned by two shareholders
who own approximately 5% of the outstanding shares of EuroTrust A/S at June 30,
2006, one of which is the president of the EuroTrust A/S' Norwegian operations.
At June 30, 2006 the company had received DKK 4,000 of the purchase price and
recorded a DKK 99,131 6% mortgage deed receivable for the balance During
September 2006, the Company collected an additional DKK 11,000 against the note
receivable.
During January 2006, the Company purchased the remaining 75% interest of
Windpark Timpberg GmbH & Co Zehnte Wind KG from an Officer/Shareholder of the
Company for DKK 5,382. The Wind Turbine was recorded at the carryover basis of
the officer/shareholder.
NOTES PAYABLE
During 2003, companies controlled by each of the five 20% shareholders
of the Aktiv Gruppen loaned DKK 300 each to the Company. The note accrued
interest at a rate of 3% per annum. The notes were repaid with related accrued
interest of DKK 66 (payments of DKK 65 during October 2003 and DKK 1,501 during
July 2004).
During 2004, the company purchased four automobiles from shareholders
and officers of the Company or entities controlled by shareholders and officers.
Also during 2004, the company sold five recreational homes to companies
controlled by shareholders and officers of the Company.
The Chairman of the board of directors of Aktiv Gruppen was also a
partner of Interlex Lawyers until December 31, 2005. The Company paid DKK 754
and DKK 1,976 to Interlex Lawyers for legal services during June 30, 2004 and
2005, respectively. The total outstanding payables due to Interlex Lawyers as at
June 30, 2004 and June 30, 2005 were DKK 28 and DKK 587, respectively.
15. INCOME TAXES
The Company and each of its wholly owned Danish subsidiaries file a
consolidated tax return. The Company's foreign or non-wholly owned subsidiaries
file separate tax returns in each of the countries of incorporation. Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities as of June 30, 2005 and 2006 are
as follows (in DKK):
JUNE 30,
-----------------------------
2005 2006
------------ ------------
DEFERRED TAX ASSETS
Net operating loss carry forwards 1,980 6,302
Provisions 180 2,082
------------ ------------
Total deferred tax assets 2,160 8,384
------------ ------------
Less: Valuation allowance -- --
------------ ------------
DEFERRED TAX ASSETS 2,160 8,384
------------ ------------
DEFERRED TAX LIABILITIES
Tax value of fixed assets in excess
of book value of fixed assets (6,925) (19,388)
Construction in Progress (10,371) (14,218)
Other (29) --
------------ ------------
DEFERRED TAX LIABILITY (17,325) (33,606)
============ ============
============ ============
NET DEFERRED TAX LIABILITY (15,165) (25,222)
============ ============
F-35
The recognized net tax liabilities as of June 30, 2005 and 2006 are
related to temporary timing differences between the book and fiscal values of
assets.
The Company assessed the realization of the deferred tax assets based on
available evidence, both positive and negative, to determine whether it is more
likely than not that all or a portion of the deferred tax assets will be
realized. The conclusion as to whether it is more likely than not that some
portion of these assets will not be realized takes into consideration the future
earnings potential determined through the use of internal forecasts, the carry
forward period associated with the deferred tax assets and the nature of the
income that can be used to realize the deferred tax assets. To the extent that
the Company determines it is more than likely not that all or a portion of the
deferred tax assets will not be realized, a valuation allowance is recorded.
At June 30, 2005, the company had tax loss carry-forwards of DKK 22,505
available in Denmark, which according to current Danish law has no expiration.
The accumulated tax loss carry forwards cannot be used by all group companies as
not all of companies are jointly taxed.
For financial reporting purposes, income before income taxes is as
follows (in DKK):
2004 2005 2006
---------- ---------- ----------
Pretax income :
Denmark 25,103 54,720 55,641
Austria 259 (1,254) (501)
Norway -- -- 2,276
Germany -- -- 1,037
Latvia -- (1,220) (446)
---------- ---------- ----------
25,362 52,246 58,007
========== ========== ==========
Significant components of the
provision for income taxes are:
Current: Denmark 2,433 3,657 147
Others -- -- --
---------- ---------- ----------
2,433 3,657 147
---------- ---------- ----------
Deferred: Denmark 5,390 8,847 11,970
Others -- 2,642 --
---------- ---------- ----------
5,390 11,489 11,970
---------- ---------- ----------
Total: 7,823 15,146 12,117
========== ========== ==========
F-36
The reconciliation of income tax computed at the Danish
statutory tax rate to income tax expense is:
2004 2005 2006
---- ----
Danish income tax rate .............................. 30% 28% 28%
Effect of change in tax rate on
net deferred tax liabilities ...................... 0% (1)% 0%
Non - deductible permanent differences .............. 0% 2% 1%
Change in valuation allowance ....................... 0% 0% (8)%
Other ............................................... (2)% 0% 0%
Reported income tax expense ......................... 28% 29% 21%
16. COMMITMENTS
LETTERS OF CREDIT
The Company has unused letters of credit / bank guarantees totaling DKK
124,525 and DKK 160,358 at June 30, 2005 and 2006, respectively. The letters of
credit / guarantees are required in connection with warranties the Company offer
on certain aspects of the construction and materials in developed projects in
accordance with Danish law. The letters of credit/ guarantees normally cover a
period of approximately five years. The estimated future warranty liability at
June 30, 2005 and 2006 was DKK 0 and DKK 0, as the Company acquires letters of
credit / guarantees from the underlying contractors and suppliers which offset
the letters of credit issued by the Company.
ASSET RETIREMENT OBLIGATIONS
Asset retirement obligations for wind turbines held, and changes to the
obligation for the years ended June 30, 2005 and 2006 consist of the following:
JUNE 30,
-------------------------
2004 2005 2006
---- --- ------
Balance at the beginning of the year: -- -- 979
Obligation on acquired assets -- 979 858
Obligations paid or sale of the asset (556)
Accretion expense:
Current year accretion expense -- -- 31
Revisions to estimate -- -- (224)
Balance at the end of the year: -- 979 1,088
---- --- ------
17. STOCK OPTIONS
A summary of the status of options granted at June 30, 2006, and changes
during the period then ended are as follows:
F-37
For the Year Ended
June 30, 2006
---------------------------------------------------------------------------------
Weighted Weighted Average Aggregate
Average Remaining Intrinsic
Shares Exercise Price Contractual Term Value
-----------------------------------------
Outstanding at beginning of period 1,151 $ 4.19 7.02 years $ 2,098
Granted 1 6.00 4.42 years -
Exercised 1,055 3.94 - -
Forfeited - - - -
Expired 1 6.78 - -
--------- ----------
Outstanding at end of period 96 $ 4.11 5.72 years $ 997
Vested and expected to vest in the future 96 $ 4.11 5.72 years $ 997
Exercisable at end of period 96 $ 4.11 5.72 years $ 997
Weighted average fair value of options granted 1 $ 5.29
The Company had no non vested options at the beginning of the period. At
June 30, 2006 the Company had no non vested options resulting in no unrecognized
compensation expense.
The total intrinsic value of options exercised during the year ended
June 30, 2006 and 2005 was DKK 997 and DKK 2,097, respectively. Intrinsic value
is measured using the fair market value at the date of exercise (for shares
exercised) or at June 30, 2006 and 2005 (for outstanding options), less the
applicable exercise price.
During the years ended June 30, 2006 and 2005, the Company received cash
of DKK 24,408 and DKK 0 upon the exercise of awards. The Company realized a tax
benefit due to the exercise of options of DKK 0 and DKK 0 for the years ended
June 30, 2006 and 2005.
Common shares issued upon exercise of options are issued from available
authorized but un-issued common shares. As of June 30, 2006, the Company has no
plans to repurchase common shares issued upon exercise of options.
The following table summarizes information about stock options
outstanding as of June 30, 2006:
WEIGHTED AVERAGE WEIGHTED-
REMAINING AVERAGE
RANGE OF SHARES CONTRACTUAL EXERCISE SHARES WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE EXERCISE PRICE
-------------------------- ----------------- ------------------ --------------- -------------- ------------------------
$2.85 - $2.85 20 1.7 years $2.85 20 $2.85
$3.76 - $3.76 25 2.8 years $3.76 25 $3.76
$4.75 - $4.75 50 8.8 years $4.75 50 $4.75
$6.00 - $6.00 1 6.8 years $6.00 1 $6.00
----------------- ------------------ --------------- -------------- ------------------------
Total 96 5.7 years $4.11 96 $4.11
----------------- ------------------ --------------- -------------- ------------------------
F-38
No compensation cost is recognized in income for any of the years
presented above as the options can be exercised at a price equal to or greater
than the price on the date of grant.
18. PENSIONS
During the year ending June 30, 2004, 2005 and 2006, the company has
recognized expenses for defined contribution pension agreements paid to pension
and insurance companies on behalf of employees totaling DKK 0 million, DKK 0
million and DKK 0.2 million, respectively
19. LITIGATION
During 2005, the Company recorded a provision of DKK 1,500 for claims
arising from the cancellation of the contract with the constructor of Rodvig
Hytte og Feriecenter. The Company cancelled the contract due to considerable
delays and defects with the construction of the project. At October 31, 2005 the
High Court ordered the company to pay approx. DKK 1,500, but the Company
appealed immediately to the Supreme Court. The final settlement has to wait the
judgment of the Supreme Court.
The Company is from time to time involved in routine legal and
administrative proceedings and claims of various types. While any proceedings or
claim contains an element of uncertainty, Management does not expect them to
have a material affect on our results of operations or financial position.
20. SEGMENT REPORTING
The Company's Chief Operating Decision-maker, as defined in SFAS No.
131, is considered to be EuroTrust's CEO. The Chief Operating Decision-maker
reviews separate consolidated financial information for the Real Estate
Development Segment and the Wind Energy Segment. Each of the Company's business
segments are managed separately because they offer and distribute distinct
services to different customer segments. The Company therefore considers that it
has two reportable segments under SFAS 131. Revenues are generated in the
country in which the property is located. During the periods presented all sales
were derived from real estate development in Denmark.
The Chief Operating Decision-maker evaluates performance and allocates
resources based on profit or loss from operations before interest, gains and
losses on the Company's investment portfolio, and income taxes. The accounting
policies of the reportable segments are the same as those described in the
summary of significant accounting policies. There were no inter - segment
transactions during the periods presented.
The segmented data are as follows:
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
F-39
20. SEGMENT REPORTING - CONTINUED
YEARS ENDED JUNE 30,
2004 2005 2006 2006
-------------- -------------- ----------------- --------------
DKK DKK USD
REAL ESTATE DEVELOPMENT:
Net sales 295,975 247,333 414,588 70,660
Operating expenses:
Cost of sales (exclusive of depreciation) 259,144 173,637 333,594 56,855
Selling and marketing 1,218 907 1,049 179
General and administrative 5,710 9,442 19,632 3,346
Depreciation (excluding DKK112, DKK245 and 245
included in cost of sales) 339 520 681 116
-------------- -------------- ----------------- --------------
Total operating expenses 266,411 184,506 354,956 60,496
-------------- -------------- ----------------- --------------
Operating income (loss) 29,564 62,827 59,632 10,164
-------------- -------------- ----------------- --------------
Capital expenditure 2,086 240 2,393 408
-------------- -------------- ----------------- --------------
Total assets 482,180 503,065 1,926,539 328,346
-------------- -------------- ----------------- --------------
WIND ENERGY
Net sales 0 0 19,200 3,272
Operating expenses:
Cost of sales (exclusive of depreciation) 0 0 1,202 205
Selling and marketing 0 0 0 0
General and administrative 0 910 7,061 1,203
Depreciation 0 0 5,136 875
-------------- -------------- ----------------- --------------
Total operating expenses 0 910 13,399 2,283
-------------- -------------- ----------------- --------------
Operating income (loss) 0 (910) 5,801 989
-------------- -------------- ----------------- --------------
Capital expenditure including deposits 0 0 0 0
-------------- -------------- ----------------- --------------
Total assets 0 108,573 362,008 61,698
-------------- -------------- ----------------- --------------
CONSOLIDATED
Net sales 295,975 247,333 433,788 73,932
Operating expenses:
Cost of sales (exclusive of depreciation) 259,144 173,637 334,796 57,060
Selling and marketing 1,218 907 1,049 179
General and administrative 5,710 10,352 26,693 4,549
Depreciation 339 520 5,817 991
-------------- -------------- ----------------- --------------
Total operating expenses 266,411 185,416 368,355 62,779
-------------- -------------- ----------------- --------------
Operating income (loss) 29,564 61,917 65,433 11,153
-------------- -------------- ----------------- --------------
Capital expenditure including deposits 2,086 240 2,393 408
-------------- -------------- ----------------- --------------
Total assets 482,180 611,638 2,288,547 390,044
-------------- -------------- ----------------- --------------
DKK amounts have been converted into US$ at an exchange rate of $1=DKK
5.8674.
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Real Estate Development:
During April 2006, the Company issued 22,050,000 common shares to
acquire all of the issued and outstanding shares of Aktiv Gruppen holding
1,000,000 in an acquisition accounted for as a recapitalization of EuroTrust
A/S.
During June 2006, the Company issued 2,650,000 common shares to acquire
the remaining 50% interest in AGH Norge A/S.
F-40
During 2006, the Company sold DKK 103 million in property held for
resale and recorded a mortgage deed receivable in the amount of DKK 99 million.
During June 2006, the Company acquired the consolidated entity of 2S
Ejendomsinvest ApS for DKK 134 million and recorded a payable for land and
subsidiaries.
The Company borrowed DKK 2,400 to purchase automobiles.
During June 2006, the Company acquired DKK 143,636 in land for resale
and future development and DKK 39,434 in construction projects through the
acquisition of St. Rorbaek I Byudvikling ApS, St. Rorbaek II Byudvikling ApS,
St. Rorbaek III Byudvikling ApS, Gribskov Bolig ApS, Den Gamle Skibssmedie ApS
and projects through the issuance of notes payable.
During 2005, the Company sold DKK 8,471 in property held for resale on
mortgage deed receivables.
During 2004, the Company purchased DKK 91,981 of property held for
resale through short and long term borrowing. The Company sold DKK 8,224 of the
property on mortgage receivables.
Wind Energy:
During 2006, the Company acquired a 50% interest in Windpark Wriezener
Hohe GmbH & Co KG, which owns 13 wind turbines for DKK 22,091.
During 2006, the Company acquired DKK 220,157 in wind turbines by
purchasing the following German parnerships: EWF Eins Vier GmbH & Co KG, UW
Thrana GmbH & Co KG, EWF, Zwei Eins GmbH & Co KG, UW Nielitz GmbH & Co KG,
Komplementarselskabet Difko Buchbrunn I ApS, K/S Difko Buchbrunn I.
During 2006, the Company purchased the remaining 75% interest in
Windpark Timpberg GmbH & Co Zehnte Wind KG for DKK 5,382 and recorded a capital
distribution of DKK 1,758 to adjust the carrying value of the wind turbine
purchased from the related party to the related party's carryover basis.
During 2006, the Company sold DKK 55 million in wind turbines through
the sale of Windpark GmbH & Co., KG Birgter Windenergie GmbH & Co and KG
Paderwind GmbH & Co. KG and recorded a loss of DKK 200.
During 2005, the Company acquired DKK 99,239 in wind turbines by
purchasing the following German partnerships: EWF Drei Funf GmbH & Co. KG,
Win:pro Invent Gmbh & Co. Neunte Wind KG, Aktiv Wind GmbH, UPEG 8 Windpark GmbH
& Co., KG Birgter Windenergie GmbH & Co and KG Paderwind GmbH & Co. KG.
21. SUBSEQUENT EVENTS
As of July 4, 2006 the company acquired a controlling interest in
European Wind Farms A/S, for a purchase price of DKK 120 million (approximately
$20.5 million) and 915,500 ordinary shares of EuroTrust. The cash purchase price
will be paid to European Wind Farms in exchange for newly issued shares and the
915,500 shares of EuroTrust will be issued to the existing shareholders of
European Wind
F-41
Farms in exchange for certain of the shares owned by them. Upon completion of
the transactions EuroTrust will own 50.25% of the outstanding shares of European
Wind Farms.
As of October 11, 2006 the company acquired a controlling interest in
Enerteq ApS, Enerteq Vitalba ApS, and agreements to purchase 100% of JBH Gruppen
A/S and Real Ejendomme A/S, for an aggregate purchase price of up to DKK 21
million (approximately $3.6 million) and 1,070,000 ordinary shares of EuroTrust.
The cash purchase price to be paid to the shareholders of JBH Gruppen and Real
Ejendomme will be payable DKK 4 million at closing and up to an additional DKK
17 million based upon the gross margin earned by Euro Trust of two large scale
real estate development projects expected to be completed by the end of 2007 and
2008 respectively. The 1,070,000 shares of EuroTrust will be issued to the
respective shareholders of Enerteq ApS, Enerteq Vitalba ApS, JBH Gruppen A/S and
Real Ejendomme A/S. The shareholders of the Enerteq companies have agreed that
they may not dispose of the shares for at least 3 years and the shareholders of
JBH Gruppen and Real Ejendomme have agreed that they may not dispose of the
shares for at least 1 year up to 5 years.
Upon completion of the transactions EuroTrust will own 50.5% of the
outstanding shares of Enerteq ApS and Enerteq Vitalba ApS and 100% of the
outstanding shares of JBH Gruppen A/S and Real Ejendomme A/S.
The acquisition of Real Ejendomme A/S will close on January 1, 2007, and
the deadline for the completion of the due diligence in regard to the proposed
acquisition of JBH Gruppen A/S, is extended to January 15, 2007.
As of December 18, 2006 the company announced that Aktiv Gruppen Holding
A/S (a wholly owned subsidiary of EuroTrust) has entered into an agreement with
Folkeferie.dk (Dansk FolkeFerie) wherein Aktiv Gruppen will be responsible for
the development of between 6 and 8 of Folkeferie.dk's holiday centers in Denmark
over the next 2-3 years. Aktiv Gruppen will be responsible for the preparation
of plans for the centers' renovation, developing a plan for optimization of
future operations and for expansion and sale of additional units at the centers.
Folkeferie.dk will retain its role as owner and operator of the centers. As
compensation for its role in the development of the centers, Aktiv Gruppen will
receive a commission on the future sale of the centers as well as a portion of
the profits from the development of the centers.
As of December 20, 2006 the company announced that it has entered into
agreements to purchase the rights to four wind farm development projects in
Spain, Poland and Italy with an accumulated capacity of 216 MW, capable of
supplying the renewable electricity requirements of some 170,000 homes.
Two of the projects, a 41 MW wind farm project in Spain and a 51 MW wind
farm project in Poland, will begin construction in the 1st quarter of 2007 and
are expected to begin commercial operation before the end of 2007. The Spanish
project is located northeast of Cadiz in the Andalusia Region in an agricultural
area. The Polish project is situated in Eastern Pomerania, some 5km south of the
Baltic Sea and 13km west of Kolobrzeg, and is located in flat coastal terrain.
The two projects in Sicily, Italy are in the final stages of development and are
expected to begin commercial operation in 2008 or early 2009. Both projects are
on agricultural land in Southern Sicily.
The developer of all four projects is a leading German project
developer, WKN Windkraft Nord AG. Firm orders have already been placed for wind
turbines for the Polish site. When the four wind farm projects are all in
commercial operation they are expected to represent a total investment value of
approximately 280 Million Euro (approximately 370 Million USD at the present
currency exchange rate
F-42
EUR/USD 1,32) and generate estimated average annual revenues of 44 Million Euros
(approximately 58 Million USD).
As of December 20, 2006 the company announced that it has privately
placed 3,600,000 newly issued ordinary shares for (U.S.) $52.2 million ($14.50
per share), with two UK institutional investors, Invesco Perpetual and BlueCrest
Capital Management. As a result of the placement, Invesco Perpetual and Blue
Crest hold a 15.2% and 1.6% shareholder stake in EuroTrust respectively.
F-43
INDEX TO EXHIBITS
EXHIBITS
1.1 Amended Articles of Association of the Registrant, as of December 6,
2001 (1)
1.2 Rules of Procedures of the Registrant, as amended (2)
2.1 Employee and Director Subscription Option Plan (4)
4.5 Form of Employment Agreement between the Registrant and Bo Kristensen,
effective as of January 1, 2005 *
4.6 Form of Employment Agreement between the Registrant and Soren Degn,
effective as of January 1, 2005 (4)
4.7 Share Purchase Agreement for the purchase of 100,000 ordinary shares of
AGH Nordan Invest A/S between the Registrant and Kalodde AS dated April
25, 2006*
4.8 Share Purchase Agreement for the purchase of 50,000 ordinary shares of
AGH Nordan Invest A/S between the Registrant and Sorprosjekt Holding AS
dated April 25, 2006*
4.9 Share Purchase Agreement for the purchase of 100,000 ordinary shares of
AGH Nordan Invest A/S between the Registrant and Soren Hager Holding 2
ApS dated April 25, 2006*
4.10 Share Purchase Agreement for the purchase of 2S Ejendomsinvest ApS dated
as of June 2, 2006*
4.11 Share Purchase Agreement for the purchase of a 50.25% interest of
European Wind Energy Farms A/S dated as of May 10, 2006*
8.1 List of the Subsidiaries of the Registrant *
11.1 Code of Ethics (3)
12.1 Chief Executive Officer Certification pursuant to Rule 13a-14(a) or Rule
15d-14(a)*
12.2 Chief Financial Officer Certification pursuant to Rule 13a-14(a) or Rule
15d-14(a)*
13.1 Chief Executive Officer Certification pursuant to Rule 13a-14(b) or Rule
15d-14(b) and 18 U,S,C, Section 1350*
13.2 Chief Financial Officer Certification pursuant to Rule 13a-14(b) or Rule
15d-14(b) and 18 U,S,C, Section 1350*
-----------
* Included herewith.
(1) Filed as an exhibit to the Company's Annual Report on Form 20-F, filed
on June 27, 2002, and incorporated by reference herein,.
(2) Filed as an exhibit to the Company's original filing of the Registration
Statement on Form F-1 (File No, 333-7092), filed on June 20, 1997, and
incorporated by reference herein.
(3) Filed as an exhibit to the Company's Annual Report on Form 20-F, filed
on September 23, 2003, and incorporated by reference herein.
(4) Filed as an exhibit to the Company's Annual Report on Form 20-F, filed
on June 3, 2005, and incorporated by reference herein.